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Players meet FM, say Centre may take steps to revive overseas investor interest in capital markets

Growth drivers: Between February and June, FPIs bought shares worth nearly ₹83,000 crore. Gettyimages/istock

The government could risk missing its record ₹1.05 lakh crore divestment target that has been set for the current financial year as foreign portfolio investors (FPIs) could stay away from such share sales if the ongoing tax concerns are not resolved soon, according to capital market participants.

The participants, who met Finance Minister Nirmala Sitharaman on Friday, also urged her to address the liquidity concerns of non-banking finance companies (NBFCs) — especially those focussed on consumer spending — before the festive season begins, to spur overall consumption growth in the country.

According to persons familiar with the deliberations, the government has taken the suggestions ‘positively’ and has hinted that it would take all possible steps to revive overseas investor interest in the Indian capital markets.

“The Finance Minister was quite receptive and said that the government would take all necessary steps to allay the concerns of foreign investors,” said a person, who was part of the meeting.

“Even the PMO [Prime Minister’s Office] is involved and is keen to address the tax concerns, which are impacting the capital markets. There was unanimity that the tax surcharge could discourage FPIs from participating in the divestment offerings in the coming months and hence need to be urgently reviewed,” he added on condition of anonymity.

In the Union Budget 2019-20, the Finance Minister introduced a surcharge for individuals earning more than ₹2 crore. However, FPIs became the collateral damage of the proposal as bulk of such investors structure themselves as trusts or a Limited Liability Partnership (LLP) that are not recognised as a corporate entity by the Income Tax Act and hence are taxed as per the individual tax slabs based on their earnings.

Selling spree

FPIs, often looked upon as prime drivers of any bull run in the Indian stock market, ended July as net sellers at ₹12,419 crore. This was the first time since January 2019 when foreign investors ended a month as net sellers.

Between February and June, FPIs bought shares worth nearly ₹83,000 crore. In the current month till date, FPIs have net sold shares worth ₹11,135 crore.

Bid to aid faster monetary transmission

The RBI had reduced the repo rate by 35 bps on Wednesday. Reuters

In a move that could led to faster transmission of monetary policy rates, public sector banks have stared linking their retail loan rates with Reserve Bank of India’s repo rate.

This means if the Reserve Bank of India changes the repo rate, the retail loan rates will change automatically.

Four lenders — Bank of India, Syndicate Bank, Allahabad Bank and Union Bank — have said they have either linked the lending rate to repo rate or are in the process of doing so.

Bank of India (BoI), which reduced its lending rate with effect from Saturday, said it had decided to offer repo rate-linked lending rate to select customer segments, including personal loans.

“We are working out the necessary modalities in this regard so as to launch such products during the current month,” BoI said.

Syndicate Bank has also decided to link both deposit and lending rates. Home loans by the bank will hence start from 8.3%, which is repo rate plus 2.9 percentage points. “The bank will be exploring development of products of both assets and liabilities linked with external benchmark to transmit the benefits of rate cut to our customers shortly,” Allahabad Bank’s MD and CEO S.S.Mallikarjuna Rao said.

Union Bank of India said it was planning to link its housing and vehicle loan portfolio to the repo rate.

MCLR cut

These lenders have also reduced their benchmark loan pricing rate — the marginal cost of fund based lending rate — days after the Reserve Bank of India reduced the repo rate by 35 basis points (bps) on Wednesday.

Bank of India reduced its one-year MCLR — to which 80% loans are linked — by 25 bps, to 8.35% effective Saturday.

“We have similar guidance for the coming months as well, when we will endeavour to pass on the benefits of rate cuts,” the lender said in a statement.

Bengaluru-based Syndicate Bank also reduced the one-year MCLR by 25 bps to 8.35%. Allahabad Bank’s one year MCLR was reduced by 15 bps to 8.4% effective August 14. The Kolkata-based lender also reduced deposits rates on various tenures by 10 bps. The new rate for deposits of 1 year to less than 2 years will be 6.6%.

Indian Overseas Bank also lowered its interest rate on loans by 15 bps in one-year-and-above tenors and 10 bps in the below-one-year tenors effective Saturday. Union Bank said, in the current scenario, it expected MCLR to further soften by up to 15 bps.

Lower commodity prices also prove a drag on the company’s profit

Hindalco Industries Ltd. has reported a 27.9% fall in its first quarter consolidated net profit to ₹1,063 crore due to the global downturn and lower commodity prices.

The fall in profits were reported on a 3.6% dip in revenue to ₹29,972 crore and a 13% fall in (earnings before interest, tax, depreciation and amortisation (EBITDA) to ₹3,769 crore.

About 79% of Hindalco’s consolidated EBITDA is non-LME linked.

The metals flagship firm of the Aditya Birla Group reported a consolidated profit before tax (and before exceptional items) of ₹1,578 crore during the quarter, compared to ₹2,275 crore in the year earlier period.

“The diversified business model that Hindalco has with upstream and downstream business allows the company, in times of a downward commodity cycle, to outperform competitors... The Indian aluminium business was down as the prices of aluminium were down during the quarter,” Satish Pai, managing director, Hindalco Industries, told The Hindu.

“The organic expansion projects for Novelis in U.S., China and Brazil are progressing on time and on budget. Digital transformation at Novelis is underway to further drive world-class manufacturing operations across regions,” the company said in a statement, adding that all regulatory approvals for the Aleris acquisition were expected to close in Q3 FY20.

On the delay in getting approval for the $2.1 billion Aleris acquisition, Mr. Pai said, “They are regulatory, dealing with various countries. It’s taking a bit more time. EU has taken a bit longer than anticipated.”

Funding capex

The company has a total outstanding debt of ₹39,800 crore, with ₹15,545 crore on the books of Hindalco Industries and $3.5 billion on the books of Novelis, with consolidated net debt to EBITDA at 2.69x as on June 30, 2019.

On deleveraging debts, Mr. Pai said, “Long-term loans remained unchanged from end-FY19. Most of Novelis debt is in the form of bonds. With lower LME prices, we expect to use cash from Hindalco to fund our capex of ₹2,200 crore this fiscal. We are going [into the] downturn with a very strong balance sheet.”

With village-level entrepreneurs’ participation, we will be larger than IOC, says CEO

Dual power: Initially, there will be facility to charge both lead acid batteries as well as lithium-ion ones. Emmanual Yogini

Common Service Centres (CSCs) , which come under the Ministry of Electronics and IT, plan to open one lakh charging stations for electric vehicles across the country in the next few years, as the country plans to transition to such vehicles from the current combustion engine-powered automobiles.

“The entire country is talking about electric vehicles. We want to open one lakh charging stations in the country by the time at least 30% of vehicles in the country are electric... Our VLEs (village level entrepreneurs) are very excited about the idea... With one lakh outlets we will be even bigger than IOC,” CSC e-Governance Chief Executive Officer Dinesh Tyagi told The Hindu.

CSC has already started a pilot project in Delhi [near Delhi Hatt]. Mr. Tyagi said in about a month, a couple of charging stations should be up and running. “To start with, these would have facility to charge both lead acid battery as well as lithium-ion ones... as transition will take time.”

Tie-up with Siemens

For the charging infrastructure, CSC has tied up with technology giant Siemens as “we don’t want to compromise on quality,” Mr. Tyagi said, adding that the price of each charging station would be in the range of ₹70,000-₹3 lakh.

“Depending on the demand and consumer behaviour, we will build business models. We can also provide a battery swapping model,” he said, adding that the CSCs could also help people switch from lead acid to lithium-ion batteries. CSC e-Governance Services India is a Special Purpose Vehicle set up by MeitY to oversee implementation of the CSC scheme to enable access to information technology in rural areas.

The CSCs, run by these entrepreneurs, offer e-governance services, such as bill payments, filling up and submission of forms.

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