Weekly Round Up – Week 19

  • For second consecutive week, economy witnesses more activity on policy, regulations and macro economic front rather than corporate action. Inflation and IIP (Index of Industrial Production) data is released showing their continued roller-coaster ride. After falling for three months, retail inflation again rises in April.

  • On the other hand, IIP growth rate comes down to barely 0.1% in March after a reasonable growth of 2% in Feb. However, the three-month moving average, a gauge used to iron out monthly fluctuations, shows a slightly improvement over Feb.
  • Indirect tax collection data for April’16 shows an impressive increase of more than 40% over last year. Ever after removing the increase due to additional measures, the growth is significant. Indirect taxes are taxes paid by the companies primarily on their production, imports etc and higher collection is rough indicator of increased industrial activity. It may be noted that IIP recorded growth of 3% in April’15 on the back of nearly same increase in tax collection last year, same period.
  • With continued ramp up of domestic coal production, imports of coal has come down substantially. For 2015-16, average saving was Rs 2,000 crore of foreign exchange per month due to reduction in coal imports which has further improved to almost Rs 3,000 crore in April’16. Coal shortage is a relatively recent phenomenon of last 8-10 years and reversing it is certainly an important development. It must be noted that despite this reduction in imports, electricity generation has actually improved due to higher domestic production.
  • Directorate General of Hydrocarbon (DGH) has started the process for auction of oil & gas blocks for exploration and production after a gap of four years. The auction this time is unique in many ways. First, the fields on offer are only marginal fields, which means the total recoverable oil or gas is limited, hence the risks are somewhat higher. Further, this is also the first auction after modification of policy, moving from profit sharing to revenue sharing contract. As per the earlier terms, the contractor had to share part of the profit, after deducting the expenses, leading to charges of inflating costs, called gold plating. However, considering the current oil price scenario, the auction may not exactly be a good decision and it wont be surprising, if the government fails to get sufficient bids.
  • On the results front, Hindustan Unilever Ltd (HUL) records marginal growth in profits and sales. Sales growth in lowest in last six quarters , partly due to slowdown in rural demand.
  • International – It is a season of write-downs/ impairments for global as well as Indian companies. After booking of write-down by Telenor and Vedanta in last two weeks, Toshiba took a write down of $ 2.3 bn on account of its nuclear power plant business. Write-downs are usually made in cases of acquisition where the acquired asset doesn’t yield the kind of profits as was projected.


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