The First Forum is an initiative that focuses on covering the latest happenings going around in the world in a brief format. This is in lieu with the importance of catching up with these events in this fast-changing world.
In this Fifty-First Edition of The First Forum we would be covering the following:
1. Business
2. Economics
3. Finance

(By Mehak Gupta, Nikunj Gulati, and Kanika Meena)

Business

Reliance Industries looks to storm entry-level 4G, 5G smartphone market
On 14th July, during the company’s first pandemic-forced virtual annual general meeting, Ambani outlined another vision to disrupt the mobile device market again. The company, with its new partner Google, will build entry-level 4G and 5G smartphones at the fraction of the existing cost based on optimizations to the Android operating system and the Playstore.Read More If successful, the move could pose serious challenges to competing for mobile companies, especially Vodafone-Idea. A large chunk of its customers is still on 2G and 3G. Bharti too will be affected, not to mention BSNL, which does even have a 4G service live, leave alone a phone. “Google and Jio are partnering to build an Android-based smartphone operating system,” said Ambani explaining that the target was to make India ‘2G mukt’.

Rossari Biotech IPO subscribed 79.4 times, generates bids worth Rs 27K cr
Rossari Biotech has received 79.4 times the demand of shares on offer in its initial public offering (IPO), on Wednesday, which is the last day of the issue. The institutional investor portion of the IPO was subscribed more than 85 times, the wealthy investor portion subscribed 240 times, and the retail investor portion garnered a 7.2 times subscription. Read MoreThe IPO saw over 600,000 applications and generated bids worth over Rs 27,000 crore. Given the high demand, the IPO is likely to be priced at the top-end of the price band of Rs 423-425 per share. At the top end, the company commands a market capitalization of Rs 2,207 crore on a post-IPO basis.

China to delist a record number of firms to ensure ‘survival of the fittest’
Having begun delisting 26 companies so far this year, China’s securities regulator is set to remove a record number of firms from the stock exchange, heeding a message from Vice Premier Liu He to ensure the “survival of the fittest”. Liu reinforced the urgency to weed out bad companies from the stock market at a meeting of the State Council on 11th July, heralding a change in approach for the regulator, which had only delisted 110 companies between 2001 and 2018. Read MoreChina has introduced a US-style system to make listing easier for Shenzhen’s start-up board ChiNext. The system was first adopted by Shanghai’s tech-focused STAR Market. Among the 26 companies that Refinitiv data shows are in the process of being delisted are former high performers like Leshi, an Internet information service business, as well as some fraudulent ones.

Mindspace REIT plans to raise $599 million through IPO to pay the debt
Mindspace Business Parks REIT, an Indian operator of office complexes backed by Blackstone Group, plans to raise as much as Rs 4,500 crore ($599 million) in an initial public offering(IPO) and use the proceeds to pay the debt. The real estate investment trust, which also counts K Raheja Corp, a Mumbai-based real estate developer, as a sponsor, will offer about Rs 1,000 crore of new shares while the founders will offer the remaining, according to a draft prospectus filed with India’s securities regulator. Read MoreIndia’s S&P BSE Sensex index has jumped about 40% since Prime Minister Narendra Modi first ordered people to shelter at home in March. That is attracting companies to tap the market to raise funds. Mindspace will be the second REIT to sell shares. Mindspace Business Park’s portfolio comprises 23 million square feet of completed area and 2.8 million square feet of under-construction, across Mumbai, Hyderabad, Pune, and Chennai.

The second tranche of Bharat Bond ETF receives bids worth Rs 10,000 cr
The second tranche of Bharat Bond Exchange Traded Fund (ETF) received bids estimated at Rs 10,000 crore, against base issue size of Rs 3,000 crore. The issue was open for subscription between July 14 and July 17. The second series of ETFs were launched with a green-shoe option of an additional Rs 11,000 crore over and above the base issue size. Read MoreA greens-shoe option allows the sale of more units if the demand is higher than the base size. In December last year, the 2023 and 2030 ETF series was launched. Given the lockdown conditions in various parts of the country, the NFO was largely digital-driven with roadshows conducted through virtual webinars. The collections were also largely driven through digital platforms, sources suggest. The ETF invests in constituents of Nifty Bharat Bond Indices, consisting of AAA-rated public sector units. Bharat Bond Fund-of-Funds with similar maturities is also launched for investors without Demat accounts.

Economics

Govt should focus on spending on profitable firms to boost economy: Raghuram Rajan
Former RBI Governor Raghuram Rajan said the government should focus on spending on profitable firms, which have been incurring costs but have not earned revenues in the last four months. Speaking at NCAER’s India Policy Forum 2020, Rajan said in the pandemic, unlike normal recession, there is an enormous amount of destruction, which has happened to households and also to firms, and that’s where relief and repair have to come in along with stimulus. Read MoreHe said it is necessary to spend money on profitable firms to boost the economy in the long run. The reality right now is not to say open the flood gates and spend on anything. The reality is we need to spend on those firms which will benefit the economy going forward. So, we need to spend on profitable firms which are now in danger because they have not produced revenues for 4 months but have been incurring costs along the way. Stating that repair is important to recover from the impact of a pandemic, Rajan said if a firm is unable to function, that’s a loss to GDP going forward. “If it can benefit from additional funding, writing down of debt it may contribute significantly more than the normal Keynesian stimulus,” he added.

Finance Ministry defends 18% GST on disinfectants
The Goa bench of Authority for Advance Ruling (AAR) had recently ruled that alcohol-based hand sanitizers will attract 18% duty under GST while maintaining that classification as an essential commodity cannot be criteria for exemption from GST. Following the AAR ruling, the Ministry of Finance clarified that reducing the GST rate on hand sanitizers will create inconvenience for manufacturers with respect to importers. Read MoreThe ministry stated that inputs in manufacturing hand sanitizers are also taxed at 18%, and reducing the tax rate on the final product will create an inverted duty structure. The government further said that consumers would also eventually not benefit from the lower GST rate if domestic manufacturing suffers. The GST rates on various items are decided by the GST Council where the central government and all the state governments together deliberate and take decisions, it added. Lower GST rates help imports by making them cheaper. This is against the nation’s policy on Atmanirbhar Bharat. Consumers will also eventually not benefit from the lower GST rate if domestic manufacturing suffers on account of an inverted duty structure.

U.S. economy faces significant risks, long road to recovery – IMF
The U.S. economy is forecast to shrink by 6.6% in 2020 due to the shock of the coronavirus pandemic, but a resurgence in coronavirus infections and a systemic increase in poverty could worsen that outlook, the staff of the International Monetary Fund warned. The IMF staff said cited urgent warning signs that the crisis was hitting poor Americans and racial minorities the hardest and would lead to a systemic increase in poverty. Read MoreThis would increase risks to the overall economy and could contribute to social unrest, they said. And further said U.S. policymakers had acted quickly and assertively to protect U.S. lives and businesses, but further policy steps would be needed to boost demand and support the most vulnerable. There are tremendous uncertainties surrounding the economic propagation of the COVID-19 shock, they said in a note. It also added that it will likely take a prolonged period to repair the economy and to return activity to pre-pandemic levels.

Govt needs to put more money in hands of poor, says Abhijit Banerjee
Nobel prize winner Abhijit Banerjee said that in the short run, the government should loosen its purse string to provide bigger funds to the poor as the recovery from the impact of the COVID-19 pandemic is going to be longer and more painful. Banerjee’s comments came during an online panel discussion hosted by the National Council of Applied Economic Research (NCAER). He said that the government’s solution to give money in the hands of the poor is a beneficial one, but the amount needs to be bigger.Read More In the short run, I think the government’s basic general thinking is using whatever instruments you must to give people some money. That is probably a good instinct. I think the amounts are wrong, it should be bigger, it’s going to be a longer and more painful recovery, he said. He added that schemes such as Mahatma Gandhi National Rural Employment Guarantee Act (MGNREGA) are not short-term emergency response tools and that the government needs to rethink the entire welfare system and only way to reduce economic distress in the short run is by giving more money to poorer sections of society.

Global debt surged to a record $258 trillion in the first quarter of 2020
The Institute for International Finance, which represents global banks and financial institutions said the first-quarter debt-to-GDP ratio jumped by over 10 percentage points, the largest quarterly surge on record, to reach a record 331%. And global debt surged to a record $258 trillion in the first quarter of 2020 as economies around the world shut down to contain the coronavirus pandemic, and debt levels are continuing to rise. Read MoreThe report said that while increasing debt levels raise concerns about debt sustainability, over 92% of government debt is investment-grade. It said some $3.7 trillion of emerging market debt would come due through the end of 2020 and was set to rise to $4 trillion in 2021. Debt in mature markets topped 392% of GDP, up from 380% in 2019, with the rise in debt ratios outside the financial sector most pronounced in Canada, France, Norway, and the United States. US debt made up half of the total $185 trillion of debt in mature markets. 

 

Finance

Bounce rates on auto-debit rise to 45%, lenders worried
In June, the bounce rate on auto-debit transactions shot up by 45% on the National Automated clearing House(NACH), a centralised clearing service that aims at providing interbank high volume, low value transactions that are repetitive and periodic in nature introduced by National Payment Corporation of India. The six-month range was 31-38%. Read MoreThe value of bounced transactions was Rs 26,850 crore which was 26% of total mandates. Most of these transactions are EMI payments, insurance premium debits and SIP mandates. Several banks and non-bank lenders have said that they have seen a decline in the share of customers availing of the moratorium in its second leg, starting June. Since the beginning of 2020, they have come in higher than 31% every month. The current collection infrastructure that most lenders have is geared for an around 18% bounce rate. If over 40% of a lending institution’s loan book continue seeing delays in payments, it would dent the efficiency of recovery agents and the collection infrastructure. 

RBI asks ARCs to adopt fair practices code to prohibit illicit debt recovery methods
The Reserve Bank of India (RBI) has asked asset reconstruction companies (ARCs) to follow a board approved ‘Fair Practices Code’ which should prohibit the use unlawful, uncivilised, and questionable behaviour for recovering loans. ARC buy bad loans from bank and turn them into good. There should be transparency and fairness in operation, the central bank said about the functioning of ACR. Read MoreAs per the guidelines, ARCs should release all securities on repayment of dues or on realisation of the outstanding amount of loan, subject to any legitimate right or lien for any other claim they may have against the borrower. ARC should also put in place a board approved policy on management fee, expenses, and incentives. Recovery agents should also be trained properly and should not resort to harassment of debtor and deals with customers in an appropriate manner.

Share of industrial credit in total bank credit dips to 31.5% in March: RBI
The share of industrial credit in total bank credit declined to 31.5% in March 2020 as against 33.1% a year ago, Reserve Bank data showed. Bank credit growth, year-on-year continued to decelerate across all population groups and stood at 6.3% in March 2020. However, bank branches in rural areas maintained a double-digit growth. Read MoreThe data captures various characteristics of bank credit such as population group, occupation and organisational sector of the borrower; type of account; and interest rates. It showed overall credit expansion has been supported by a robust growth in personal loans. The share of individuals in total bank credit has increased to 40.1% in March 2020 which was 37.4% a year ago and 30.8% five years ago, whereas that of the private corporate sector has declined. Data also showed, the overall weighted average lending rate (WALR) on outstanding credit declined by 17 basis points during the quarter ended March 2020.

NBFI recovery in near future unlikely: Fitch
Recovery of non-banking financial institutions (NBFIs) in near-term is not probable as the sector continues to wrestle with the fallout from the COVID-19 pandemic, Finch rating said. It said uncertainty would stem from depressed consumer demand and a sustained high level of coronavirus infections, notwithstanding a gradual economic reopening that has improved collections and funding availability since June 2020.Read More An investor poll, revealed that more than 75% participants believed Indian NBFIs would take more than one year to show a convincing recovery in light of the effects of the pandemic. The poll results are in line with Fitch’s expectations. Fitch, however, said that NBFIs in India are highly differentiated, and some lending segments will benefit from a quicker recovery. Those in gold-backed loan sector could see an earlier revival due to lower ticket sizes, greater market confidence in the loan collateral and a more robust outlook for the rural sector, where many larger gold lenders are focused.

States’ market borrowing rise by whopping 76%
The states, reeling from huge income losses due to coronavirus lockdowns, have front-loaded their borrowings by a whopping 76% to this point this fiscal to Rs 1.93 lakh crore between April 1 and July 14, says a report. The Centre has additionally relaxed the fiscal deficit goal from 3% to 5%. Read MoreThe aggressive borrowings will additionally shoot up the excellent debt of all the states which has greater than doubled to Rs 52.6 lakh crore in FY20, rising at an annual price of 14% between FY15 and FY20, notes the report. The outstanding debt has almost doubled in the last five years to Rs 52.6 lakh crore and the annual spike rate is much faster than the Centre’s outstanding internal debt which clipped at 10% during the same period.

 

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