Month: May 2018

NSE co-location case: Sebi, NSE officials under CBI lens

KV Prasad Jun 13, 2022, 06:35 AM IST (Published)

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Onto the latest in NSE co-location case. Yesterday the Central Bureau of Investigation filed an FIR in the matter. The CBI has booked unknown officials of the Securities and Exchange Board of India (Sebi) and the National Stock Exchange for taking bribes and manipulating the NSE trade systems to give unfair trading access to OPG Securities.

As per the FIR in the NSE co-location case, there are three important elements in the FIR. First is the alleged role of Sebi officials. The FIR alleges that Sanjay Gupta influenced the official of Sebi for which bribe money was given to some unknown officials, to get a favorable report in ongoing probe. Sanjay Gupta also directed his employees delete important mails, text messages’ logs, etc., related to co-location controversy.

One more name in the FIR is Ajay Shah. The FIR alleges that Ajay Shah had been instrumental in exploitation of NSE TBT architecture. He collected NSE trade data in the name of research and passed it to develop an algo software named ‘chanakya”. Through which the brokers were benefitted by exploiting the TBT architecture of NSE.

Lastly unknown officials of NSE gave OPG Securities private limited access to servers which were technologically latest and least crowded at that particular period. He also managed the data centre staff of NSE to allow OPG to use the backup servers. Backup servers were with zero load and therefore had provided far better and fast access to the market feed.

NSE till this point of time has nor denied or accepted any role of wrongdoing by the employees in this case, but the CBI FIR claiming a clear connivance of NSE does put the company in a dock.

More importantly, with Sebi’s probe still ongoing in the co-location matter and the FIR now raising questions on officials of Sebi with charges of taking bribe. This will question the authenticity of the report, until Sebi either explains its stand or makes some changes in the investigation committee.

Elon Musk forms several ‘X Holdings’ companies to fund potential Twitter buyout

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Thursday’s filing dispelled some doubts, though Musk still has work to do. He and his advisers will spend the coming days vetting potential investors for the equity portion of his offer, according to people familiar with the matter

KV Prasad Journo follow politics, process in Parliament and US Congress. Former Congressional APSA-Fulbright Fellow

Outlook for Indian market remains positive, says Fiera Capital

KV Prasad Jun 13, 2022, 06:35 AM IST (Published)

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Julian Mayo of Fiera Capital said the overall outlook for the Indian economy remains relatively positive. Speaking about emerging markets he said, “There is a bit of uncertainty going on at the moment as you said surrounding the dollar and some of the external imbalances of some other emerging markets but overall the outlook is still relatively positive because you have got positive earnings growth momentum in emerging markets.”

“You had a growth recession between 2011 and 2015 in the assets class, you have two years of a recovery of that but the trend is still positive there. Corporate profit outlook is still good at moment. You had a big spike in profits last year after profits recession over the previous 4-5 years. Our outlook continues to be good double digit growth across the asset class for this year and probably into next year as well,” he added.

Watch here: Outlook on Indian economy still positive, says Julian Mayo

Edited Excerpt:

Q: You have been an emerging market (EM) specialist for a long time. As an EM specialist how do you see things right now given that there has been a little bit of consternation off late with the dollar regaining some strength? Do you see the second half of 2018 being strong for EMs?

A: There is a bit of uncertainty going on at the moment as you said surrounding the dollar and some of the external imbalances of some other emerging markets but overall the outlook is still relatively positive because you have got positive earnings growth momentum in emerging markets.

You had a growth recession between 2011 and 2015 in the assets class, you have two years of a recovery of that but the trend is still positively there.

Corporate profit outlook is still good at moment. You had a big spike in profits last year after profits recession over the previous 4-5 years.

Our outlook continues to be good double digit growth across the asset class for this year and probably into next year as well.

Secondly, you have pockets of instability within emerging market currencies but for the bigger emerging market currencies and I am talking here about China, Korea, Taiwan and India which are the four countries that make up two thirds or so of emerging markets benchmark, I think the currencies are in reasonably good shape.

So, overall emerging market currencies are undervalued. At the moment the dollar is strong but it is not as if you have got dollar strength versus emerging-market weakness in a polarised basis, that you sometimes have across emerging markets.

What you have at the moment is, you have dollar strength against all currencies, against the euro as well and almost the main driver of this is the relative performance of the US economy against the euro zone economy – one of which seems to be accelerating and the other seems to be slowing down a bit and therefore possibility of rates increases in the US and that is pulling the dollar up against the euro.

So, as an asset class emerging market currencies are falling because of more of a collateral damage reasons than for emerging market specific reasons with one or two exceptions.

Q: Do you see this current bout of strength in the dollar as a durable trend?

A: We are not dollar specialists but the one observation I would make is that if you look at emerging markets over a 30 year period or so, when you have periods of dollar strength or rather of US monetary tightening, the dollar often rises in advance of a spell of monetary tightening in the US and this is very much what happened in the 2013-2016 period.

Then the dollar either treads water or even sells off after the rate hike increases. So, I think it is really more a question of how much rates are going to go up in the US?

The downside risk for emerging market and the upside risk for the dollar is that the rates go up by more than the market thinks they are going to. However I don’t see any evidence of that happening.

So, as a non-dollar specialist, I would say the dollar doesn’t necessarily look as if it is going to rise a lot further certainly against emerging market currencies because emerging market currencies are supported by strong real interest rates and relatively strong fundamentals.

Q: How difficult or easy do you find raising money for emerging market equities now because the flip side is that the US is doing very well as well and that is always the big competing asset class? In the face of such strong performance in the US is it easy to tell people that you can make a little bit more in emerging markets, give us some more money?

A: The short answer to that is no, it is not easy. We have had 5 years up until 2016 of very strong outperformance of the US against emerging markets. I think the US market was up close to 50% over the 5 years, before that the EM was down by 25% or so – you had massive bifurcation of performance mainly justified by fundamentals because your currencies were overvalued before and because earnings growth has been much better in the US than in emerging markets. However that has changed a little bit and so what has happened is that you have got some investors who are in the short term they don’t want to be out of the dollar because it is going up at the moment but in the long term they recognise that we have had this extended 5 year cycle, we are probably only 2 years into the reverse of that. If you look over a 30 year or so period you have these extended cycles of emerging markets outperforming and underperforming the US and other developed markets.

So, as emerging markets prove themselves to be more stable, then that will encourage investors to put money into emerging markets at this stage.

Q: Are you convinced that this is a five-six year kind of a sweet spot for emerging markets, a cycle in that sense?

A: Yes, I do. I mean we are probably into it but nonetheless. I think we are in a correction in that overall five year cycle because I do think you have got improving fundamental and valuation differential between emerging and developed markets. Emerging markets and US in particular is still close to an all-time high. Yes, of course you have got one time earning boost in the US from the tax cuts and you have got fiscal stimulation. There is a short-term boost to the US economy which encourages people into dollar and into the asset class there but overall you have got a better structural and long-term outlook for emerging markets.

Q: What about liquidity though because as central banks begin to draw down. The process has started. How do you think emerging markets will cope with far reduced or far lower liquidity in the world?

A: I think in terms of international flows there is definitely an impact. So the reduction of the rate of increase, if you like, of liquidity into capital markets as a whole is clearly going to affect the prices of all assets whether its US fixed income or global equities or emerging market equities or emerging market fixed income. So you have to paraphrase in the economic expression if you are looking between income effect and substitution effect. And the income effect is definitely a pool of global liquidity not growing at the same rate as it has been over the last seven-eight years in the quantitative easing (QE) era.

On the other hand there are two things to bear in mind. First, the liquidity from the domestic perspective isn’t changed very much because these economies didn’t have QE in the first place. There isn’t the need to withdraw stimulation from these economies because they weren’t being stimulated in the first place. Second, if you move on to substitution effect, what I think is happening is there is substitution argument globally away from fixed income into equity because growth is accelerating and if growth accelerates you want to be where the growth is rather than in the fixed income component and for the fundamental reasons that I said otherwise beforehand, the move from developed into emerging markets. I think these two things are slightly playing against each other and in the short-term the overall reduction of liquidity or perceived reduction of liquidity is what is winning but over the medium-term that just started to reassess itself in terms of flows into emerging markets but within emerging markets it augurs from for taking money out of EM debt and into EM equity.

Q: The other thing which has happened this year is that crude has surprised people. It’s gone to USD 75/bbl. People are talking about USD 80-90/USD once again. Has that changed your view of your preferred destinations in emerging markets? Have you had to reallocate your portfolio in a sense?

A: At the margin yes, we have. It had a bit of an impact in terms of winners and losers. In my view one of the biggest myth about emerging markets is the relationship with commodities in general and oil in particular because people think if oil price goes up it must hit emerging markets but we think very simplistically. As I said earlier the four countries I referred to earlier – Korea, China, Taiwan and India – the four biggest market. Three course of the benchmark; all of them are of course oil importers and commodity importers and there is no way on earth they can benefit from what affects your tax on manufacturing cost or consumption directly and if you look at the number of emerging markets that are benefiting from higher oil prices its only really Russia, Columbia, UAE and Qatar, four countries but these four countries account for 5-6 percent of a benchmark. So the other 94 percent is obviously more important.

In the middle you have got countries which have previously been regarded as benefiting from higher oil prices but someone like Mexico for example, it used to be a net oil exporter. Now it’s an oil importer. Malaysia, Indonesia, Brazil, they are in the middle, they are somewhere, but if we take those four medium size emerging markets out of the equation you still got 18 percent plus of asset class losing.

So definitely the rise in the oil price is a headwind. I think the causality in the sense of the relationship is actually the reverse. So in the sense what is happening is that one of the reasons the oil prices rising is precisely because demand is increasing and of course there is politics on the supply side and most commodity analysts will spend 90 percent of discussion talking about the supply side and geopolitics and other, but I think the demand side, it may not be 50 percent but it is certainly more in 10 percent which people talk about. So in a sense the rise in the oil price is a good thing because it reflects improved global demand but of course to extent there is a supply issue at the moment and there clearly is then the margin that is negative for the asset class.

Q: In that light we worry a lot about oil prices in India. Does India become underweight in your book in emerging market universe?

A: No I would say still it becomes a margin possibly lesser than overweight. I think the India market struggled recently relative to some of the other markets. Valuation still look reasonable but it is definitely a headwind facing India at the moment but again that is partly reflection and the fact that you will see the rupee being relatively weak and I think that is partly reflection of the rise in the oil price.

Q: You are not just an emerging market specialist, I believe you are also a smallcap specialist, you do own a lot of smallcap stocks, in a stock picking sense how do you look at markets like India?

A: We do invest in smallish companies. I wouldn’t say – we are certainly not smallcap specialist so our capitalisation cut off is around billion dollars. So we look at companies in trading USD 2-3 million a day at least in terms of average daily trading volumes but nonetheless it doesn’t mean that we are investing below the bigcap spectrum and say that kind of USD 1-10 billion area is often where we find some of our best ideas.

But these are bottom-up stock picks where you have to do that extra little bit more work in terms of research but often these companies will be stock specific companies. So they are tied in a sense to the long-term direction of growth in the economies, which we are investing but they are not macro plays per se, it is not like buying a large bank or a big commodity company or someone like Samsung in Korea, so you are looking at something which was somewhat more idiosyncratic if you like.

Q: What worries you about your hypothesis that we are in a five-six year cycle, two years into such a cycle in emerging markets, what would make you change that hypothesis?

A: The main thing is the dollar and I think it is a dollar which has strengthened against everything. If we see the dollar gain up strongly against the Korean won or the renminbi or something like that then that would be a concern for us because that would tell us that – why would that happen? If you desegregate what in theory should matter for currencies, which are basically the real interest rate differential, so you get effectively four variables, US rates in normal terms, US inflation, emerging market in normal rates and emerging market inflation. So how could that be derailed? One of them of course is emerging market inflation rising rapidly and so therefore, rates either have to go up which is going to slow growth down or if they don’t, it means your interest rate differential is reduced or even turns negative. So that would certainly be worrying for us if that would happen.

But we don’t see any strong evidence of a big increase in inflation across the emerging world partly because monetary policy has been relatively orthodox as I said earlier within most emerging markets. The other point, the flip side of that of course is – just as an observation – obviously rates are going up in normal terms in the US but inflationary pressure at the margin is greater in the US. So therefore, real rates in the US are not rising significantly. So therefore, I would argue that – why would that necessarily be dollar supportive in the longer run? So I would say certainly, relative inflation would be a problem from a hypothesis perspective.

Q: What is a greater threat because people are freighting, investors do freight about inflation in a bigger way, the US interest rate is already at 3 percent but there are some people, a minority who believe that maybe it will end differently with the growth rolling over because we are already maybe 8-9 years into a growth cycle in the US, do you think it is likely that it is not inflation but growth which becomes a scare, maybe 6-9 months down the line?

A: I think there is. I think at the moment, it seems the evidence is from both the capital goods markets but also from the labour market that the risk is – the growth if you like surprises on the upside and therefore that would be more inflationary. That I think it is the greater risk and the risk that rates hiked by more than the market thinks that they are going to hike them, I will say that is probably the main risk. The risk of a rollover in growth sooner rather than later seems to me to be relatively remote.

Q: What about trade wars? I know the market is breathing a little easier right now than it was three-four months back but do you think that could become an issue or is it mostly in your eyes a China specific one now?

A: I think to the extent it is an issue that is China specific. This is definitely a risk kind of globally because you got these two largest economies in the world at loggerheads but they are talking to each other and I think they recognize that – I don’t think anybody seriously believes in Donald Trump’s take that trade wars are good and they are easy to win whatever his expression was then I don’t think anyone is going to win if there is a significant trade war.

So I see calmer heads prevailing in this particular debate and you end up with some sort of a resolution – the last time there is a significant global trade war between the two leading economies of the time was Japan in the late 1980s. At that time I was actually living in Japan and these things – I don’t think it is going to end quite as badly as some people think.

Q: Is that hope or conviction?

A: It is a combination of both. It is conviction based on calmer heads and common sense prevailing but with this administration you cannot really tell.

Q: India off late people are started talking about micro versus macro, would you say that it is true of the emerging market spectrum as well?

A: I think there are two signs that the macro determines your cost of equity, how expensive should a stock be, where it should trade, what are the risks to the valuation and so, I think in the case of India, there has been this feeling that it is a good long-term story, you have got a good long-term growth story in India to invest.

The disappointment in for example in India has been at the micro level. The performance of stock and ultimately the stock market is a market of stocks and the performance of the individual companies aggregate is what makes the market where it is and so when you have a market where – someone like India, you have got potential growth of 7-8 percent, so whatever the actual number is, plus 3 percent inflation, you should be getting companies growing at a multiple of nominal in terms of bottomline at least higher than nominal GDP in the short-term, you should have the better companies to be growing their profits by 15 percent.

The actual behaviour – the corporate profit behaviour even in the last couple of years when profits would be recovering generally across emerging markets has not been good enough. So we look at India – as we like the businesses, we like the macro but we are frustrated in many cases by what is happening at the micro level. So I think the point you mentioned earlier about a recovery in improving micro is good thing. What you want to see is costs are under control, in a topline growth you want to see companies taking market share and so on.

Elon Musk forms several ‘X Holdings’ companies to fund potential Twitter buyout

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Thursday’s filing dispelled some doubts, though Musk still has work to do. He and his advisers will spend the coming days vetting potential investors for the equity portion of his offer, according to people familiar with the matter

KV Prasad Journo follow politics, process in Parliament and US Congress. Former Congressional APSA-Fulbright Fellow

US hits allies with tariffs as trade war fears rise

KV Prasad Jun 13, 2022, 06:35 AM IST (Published)

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The United States on Thursday said it will impose tariffs on aluminum and steel imports from Canada, Mexico and the European Union, ending months of uncertainty about potential exemptions and reigniting fears of a global trade war.

The move, announced by US Commerce Secretary Wilbur Ross in a telephone briefing on Thursday, angered top US allies and suggested a hardening of the Trump administration’s approach to trade negotiations.

It also sent a chill through financial markets, with the Dow Jones Industrial Average .DJI down around 0.5 percent. Shares of industrial heavyweights Boeing (BA.N) and Caterpillar (CAT.N) were each down about 1 percent, while shares of U.S. steel and aluminum companies rallied.

A 25 percent tariff on steel imports and 10 percent tariff on aluminum will be imposed on imports from the EU, Canada and Mexico starting at midnight (0400 GMT on Friday), Ross told reporters.

“We look forward to continued negotiations, both with Canada and Mexico on the one hand, and with the European Commission on the other hand, because there are other issues that we also need to get resolved,” he said.

U.S. President Donald Trump announced the tariffs in March as part of an effort to protect U.S. industry and workers from what he described as unfair international competition. Temporary exemptions were granted to a number of nations and permanent ones to several countries including Australia, Argentina and South Korea.

US trading partners had demanded that the exemptions be extended or made permanent.

“Today, France and the EU disapproves, of course, these measures,” France’s junior trade minister Jean-Baptiste Lemoyne told reporters in Paris. “We are getting ready to put in place safeguards, rebalancing measures because we won’t let unjustifiable and unjustified measures go unanswered.”

Germany’s foreign minister Heiko Mass called the tariff decision unlawful.

The Trump administration also has threatened to impose tariffs on car imports, is engaged in negotiations with China to reduce America’s yawning trade deficit and has said it will punish Beijing for stealing its technology by imposing tariffs on $50 billion of imports from China.

And it is engaged in talks with Canada and Mexico to update the North American Free Trade Agreement (NAFTA).

The Mexican peso weakened by more than 1 percent against the dollar, briefly crossing the 20-to-the-dollar threshold to the weakest versus the greenback in 14 months.

The tariffs, which have prompted several challenges at the WTO, are aimed at allowing the US steel and aluminum industries to increase their capacity utilization rates above 80 percent for the first time in years.

They could also deal a heavy blow to non-US producers.

“The decision announced today is a significant threat to the 22,000 Canadian households whose livelihoods are directly supported by employment in Canadian steel,” said Joseph Galimberti, president of the Canadian Steel Producers Association.

“We would like Canada’s response to this tariff to be immediate and significant,” Galimberti said, adding that the response should “certainly include steel being imported from the United States.”

Ross himself heads to Beijing on Friday where he will attempt to get firm deals to export more US goods in a bid to cut America’s $375 billion trade deficit with China.

After months in which it appeared the Trump administration had been backing away from tariffs amid infighting between the president’s top economic advisers, Washington has over the past week ramped up its threats on trade.

German magazine Wirtschaftswoche reported on Thursday that Trump had told French President Emmanuel Macron he wanted to stick to his trade policy long enough that Mercedes-Benz cars were no longer cruising through New York. Shares of BMW (BMWG.DE), Daimler (DAIGn.DE) and Volkswagen (VOWG_p.DE) fell.

The U.S. administration launched a national security investigation last week into car and truck imports, using the same 1962 law that he has applied to curb incoming steel and aluminum.

France’s Finance Minister Bruno Le Maire had met with Ross on Thursday in a bid to end the stand-off over steel and aluminum.

“It’s entirely up to US authorities whether they want to enter into a trade conflict with their biggest partner, Europe,” Le Maire told reporters after the meeting.

Europe did not want a trade war, he said, but Washington had to back down from “unjustified, unjustifiable and dangerous tariffs”. The EU would respond with “all necessary measures” if the United States imposed them.

The European Commission, which coordinates trade policy for the 28 EU members, has said the bloc should be permanently exempted from the tariffs since it is an ally and not the cause of steel and aluminum overcapacity.

The EU has threatened to retaliate with tariffs on Harley Davidson motorcycles and bourbon, measures aimed at the political bases of Republican legislators who they wanted to stand up to Trump.

German Chancellor Angela Merkel said the EU would give a “smart, determined and jointly agreed” response to the new tariffs that she said would break WTO rules.

EU countries have given broad support to the Commission’s plan to set duties on 2.8 billion euros ($3.4 billion) of US exports, including whiskey and motorbikes, if Washington ends the EU tariff exemption. EU exports potentially subject to US duties are worth 6.4 billion euros ($7.5 billion).

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KV Prasad Journo follow politics, process in Parliament and US Congress. Former Congressional APSA-Fulbright Fellow

No takers for Air India, run up to bids closes without a single offer

KV Prasad Jun 13, 2022, 06:35 AM IST (Published)

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In a major setback for the Narendra Modi government, there are no takers for its prized Maharajah. The government’s high profile asset sale has not been able to take off during its first attempt to sell the national carrier.

This is a rerun of a 17-year old story when the Vajpayee led government tried to sell Air India and Indian Airlines through a strategic sale but failed to attract investors in 2000.

The present government’s first attempt has also been a no show despite experts suggesting that some serious bidders approached the government.

“I am surprised there has been no response. We were expecting a last minute rush but this is surprising to me,” said Kapil Kaul of CAPA.

Aviation Secretary RN Choubey held a media briefing after a tweet from the aviation ministry’s official handle that the future course of action will be decided soon.

“We were looking forward to better participation going by the buzz from investors..current bid process cannot proceed further as there is no interest. This process has been a great learning experience. We are now in a better position to judge what the market wants,” said Choubey.

When questioned about what went wrong, Choubey said he would not like to jump the gun, but agreed that divestment norms need to be tweaked.

“We were under the impression that government has not left anything ambiguous. Government has no intention of controlling the airline’s operations after its handed over to the buyer…but yes employees need to be protected.. and the government is taking over a substantial portion of debt through the SPV (special purpose vehicle),” he added.

No Indian and foreign Airlines have shown interest since the process began. Debt of Rs 33,300 crore, labour concerns and government retaining 24% stake in the new entity have been major concerns.

Back to Square One:

According to the secretary a new timeline will be set for the Maharajah’s divestment. The process now involves gathering information from the transaction advisor about shortcomings in the present divestment terms.

These concerns will then be taken up by the evaluation committee and core group on divestment headed by Cabinet secretary. However, the final decision regarding changing the contours will lie with the Finance Minister led alternate mechanism or group of ministers that will decide the next course of action.

Government will be rethinking its existing divestment architecture, strategy and terms for Air India stake sale and whether retaining 24% stake should be considered once a new timeline is decided.

On asked whether the transaction advisor Ernst & Young will continue to guide the government regarding this big ticket divestment, the aviation secretary said, “for now they will continue but final decision will be taken in due course.”

Choubey added that the government does not want Air India to lose its market share and it will be a priority to take a call on airline’s current expansion plans.

However, Choubey refused to comment on whether the government will be able to meet its target of divesting Air India by 2018 or will it get pushed to post 2019 general elections.

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KV Prasad Journo follow politics, process in Parliament and US Congress. Former Congressional APSA-Fulbright Fellow

Government crestfallen as Air India sale bombs, but market had given enough hints all along

KV Prasad Jun 13, 2022, 06:35 AM IST (Published)

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The flop show on the proposed disinvestment of the government’s majority stake in Air India should not have come as a surprise; it was actually a foregone conclusion.

Not a single bidder showed up for the Maharaja this evening, when the deadline to place preliminary bids expired.

The government had offered to sell a 76% stake in AI and AI Express besides 50% in AISATS, as a package deal.

There had been enough indications all along that most prospective bidders – Indian airlines or airline consortia – were unhappy with virtually most of the terms of the sale defined in the Preliminary Information Memorandum (PIM).

So did political compulsions force the government to go through the motions while ignoring what was staring it in the face? Or was real intent to disinvest the airline lacking, right from the start?

The government’s high-profile privatisation of Air India was in jeopardy right after the PIM was released, after domestic airlines IndiGo, Jet Airways and SpiceJet declared that they would not bid for the airline.

Gulf carrier Emirates Airlines cried off the sale, while the other big Gulf carriers — Qatar Airways and Etihad Airways — remained mum about their interest.

It was the same for European airlines. At that time, the government’s only hope seemed to be Singapore International Airlines (SIA), which runs Indian airline Vistara partnering the Tatas and had said it was keeping options open on AI sale.

The Tata-SIA combine was one of the shortlisted bidders for Air India when the government launched disinvestment of the airline for the first time in the late 1990s. It later scrapped the process altogether.

Sources tell us there was considerable “arm twisting” by senior government functionaries to get the Tata-SIA combine to participate in the bidding process.

They say the combine was evaluating the option but decided to not participate quite close to the bid deadline. Reason? Unfriendly terms of sale and the asking price.

‘Unfriendly’ Bid Conditions

Aviation analysts have blamed the “unfriendly” bid conditions for the lack of interest. The huge Rs 33,000 crore debt which the airline entity being sold would retain, government’s insistence on continuing to hold 24% stake, conditions about AI’s employees and their future liabilities, operating Air India at an arm’s length from current businesses of a prospective bidder and a mandatory IPO .

These were seen as key challenges in the proposed deal structure. There were enough hints for the government to tweak sale conditions.

The Air India sale has fizzled out as of now, but it is not without precedent.

After witnessing a similar disinterest during the proposed disinvestment of helicopter company Pawan Hans last October, the government was forced to withdraw the PIM for the sale of this company too. Then, only one bid came. As it is happening with Air India, the employee unions of Pawan Hans also opposed the sale.

Here are some of the vital conditions set out in the Air India PIM:

Net Worth: A minimum net worth of Rs 5000 crore is mandatory for a bidder. Besides, the bidder must also have reported positive profit after tax in at least three of the immediately preceding five financial years from the Expression of Interest deadline.

Three-year Lock-in: The bidder will have to commit to a lock-in of its entire shareholding in Air India and in the special purpose vehicle (in case the investment is made through a special purpose vehicle by a consortium or otherwise) for three years from acquisition.

The bidder cannot cede management control of the airline and of the special purpose vehicle for these three years.

Retain the Air India Brand: The bidder will have to continue using the ‘Air India’ brand for a minimum number of years, which will be explained at the RFP stage.

Government Exit: The EOI states that the government intends to divest its residual 24% shareholding through the “process of dispersed disinvestment (i.e. would not be sold as a block) on such terms as may be prescribed in the RFP. But the important point to note is that the bidder may be required to list Air India.

Debt: The government proposes to leave Rs 33,392 crore of liabilities with Air India and AI Express. These include current liabilities and more than half of the remaining debt backed by aircraft assets.

One prospective bidder for Air India that CNBC-TV 18 spoke to said almost all of these conditions were deterrents. This bidder emphasized the part that insists on the government retaining 24% stake and the three-year lock-in clause as serious constraints on buyers.

With Indian airlines cold to the Air India sale, the government will have no option now but to go back to the drawing board and start over.

The big question is: With less than a year left for the present government’s term and a long revaluation process ahead, will the AI sale even happen? 

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KV Prasad Journo follow politics, process in Parliament and US Congress. Former Congressional APSA-Fulbright Fellow

Assured of meeting coal requirements, says power minister RK Singh

KV Prasad Jun 13, 2022, 06:35 AM IST (Published)

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Power Minister RK Singh said the ministry was assured if adequate coal supplies by Coal India and that the power ministry’s coal demands would be met.

He added that he was in regular touch with the ministry of coal and ministry of railways regarding the shortage of coal.

“In May, the average number of rakes which have been coming, have been 274, which is up from what it was earlier,” he said.

Demand has increased exponentially, Singh said, and added that the peak demand went up to 171 gigawatts and this was at a time when wind energy production was low.

He further added that the entire load was on coal fired power plants as the productions from hydro power generators was also low.

Watch Here: Coal India has assured power ministry of meeting demands, says RK Singh

Edited Excerpt:

Q: The burning question right now is the coal shortage. Thermal based power plants are at 196 gigawatt and if I understand correctly from sources that ministry of power has raised the issue of coal shortage and plant load factor is low at 65% overall for PSU, state and independent power producers, 50000 megawatt capacity is hit, what is happening, what have you heard from coal ministry?

A: We are in regular touch with the Ministry of Coal and the Ministry of Railways. In fact every day this planning happens, my officers and officers from the ministry of coal and railways, they talk every day.

In May the average number of rakes which have been coming have been 274 which is up from what it was earlier.

Right now our stocks are about 14.7 million tonnes. It is touch and go but even the demand has increased exponentially. The peak demand went up to 171 gigawatts and this was at a time when wind was low but now wind is becoming up.

This was at a time when hydro was also low. So, the entire load came on coal. However my officers and the officers of the coal ministry and ministry of railways, they are trying to make sure that coal reaches all those plants where the coal is required.

However as I said the demand has increased. Today our demand I think is about 7000-8000 megawatt more than the corresponding period last year. The growth has been about 6.1-6.2% which is a fairly good growth.

Q: Is there any assurance given by the rail minister or the coal ministry to increase production or increase rakes?

A: Yes. I in fact spoke to the CMDs of the different coal companies and by and large all of them have assured me that they will try and dispatch the rakes as per the target. So, we are in touch, this is an ongoing thing.

Q: You have been very vocal on the RBI circular which came in February this year. You said that it was impractical and not workable. You also hinted that one day delay in payment will lead to large number of assets to become non-performing assets. You pitched a year’s time for resolution for such NPA assets in the power sector. Where does it stand right now, how much is the capacity in the power sector under NPA right now?

A: In so far as the capacity which is stressed is concerned, and how to deal with it, we have had certain rounds of discussion. State Bank of India (SBI) has come out with a scheme called Samadhaan for taking care of these assets.

REC has come out with a scheme, so, we have had discussions on that. After those discussions, REC have refined that scheme and they have sent it to us. So we will have a look at it and then we will send it across to the ministry of finance. I have mentioned it to the finance minister.

Now what this will do is that this will ensure that the stressed assets are turned around in a more benign way and stressed assets will not be sold at value which is much less than what they should be getting. So let us see, we are working on it.

Q: Are you talking about the joint venture that you had spoken about in the past?

A: No, it is not really a joint venture. It is a scheme whereby assets which are functioning, which can be made functional, they are made to function, and once they start operating and selling power, etc. and the debt servicing starts, then after that we are certain that they can be brought on scheme. We are watching on it, once it is finalized, we will let you know.

Q: How much is the capacity that is being considered and what is the timeline you are working on?

A: As I said, we already have the detailed proposal before us after two rounds of discussion with the concerned people and that final proposal is now with us. We will send it to the ministry of finance and once they are okay with it, then again we will put it into operation and you will see something happening I think in about a months’ time.

Q: Both of these proposals will be taken up for consideration or one of the two will be taken up?

A: As far as the Samadhaan is concerned, we have had a look at it. That is the SBIs proposal we had a look at. We believe that is a good proposal. We have some suggestions on it which also we will be mentioning to ministry of finance and of course there is our proposal.

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With Walmart aid, PhonePe wants to grow offline business, says CEO Sameer Nigam

KV Prasad Jun 13, 2022, 06:35 AM IST (Published)

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Flipkart-owned digital payments company, PhonePe, crossed $20 billion TVP (Total Payments value) and 100 million users in May.

With Walmart announcing the acquisition of Flipkart earlier this month, the company now looks to leverage the experience of the global retail giant to make significant inroads into offline business in FY19.

CNBC-TV18’s Rukmini Rao caught up with Sameer Nigam, co-founder and Chief Executive Officer of the company and here is the excepts from that interview.

Edited Excepts:

Sameer, now being a Walmart company, what has changed for you in the last few days?  

Nothing at all. It’s great to have them as a strategic investor, but besides sort of grandparent level company, nothing has changed for us operationally.

Walmart’s management has been pretty bullish on all the Flipkart companies after the acquisition. What are the synergies that you are expecting for PhonePe from this acquisition?

I think there are synergies at multiple levels. Walmart is obviously a  global retail juggernaut. They also have a lot of understanding of the merchant needs and consumer needs offline. So, we are hoping to get a lot of learnings from them on how the offline ecosystem needs to be opened up in India as well. I think there will be information sharing that will happen there. I think the stability that Walmart would bring in as a long term strategic investor in PhonePe, also gives us the ability to sort of take our time and plan out our product road map. And that like, I mentioned the prospect of going international at some point of time also opens up.

Now that you have spoken of international markets, are you looking at any timeline for this. I’m sure you would be eager to take this to the us market ?

Realistically, the Indian market is so exciting and so nascent right now. If you ask me realistically, I can’t even think of going abroad for the next three-five years at least. This market is very very young. Until demonetisation, digital payments was not even on the minds of the most Indian consumers. Having said that, Unified Payments Interface (UPI) has only 50 million users right now, wallets is about 150–200 million people, whereas, internet penetration has already reached half a billion people, which means that digital payments is at a lag, which means that either there is a product – market mismatch, which us as an industry collectively need to solve for or there is some other sort of Phillip that the industry needs. Right now, squarely focus is on making payments in India very very easy, and adding tons and tons of used case in the app itself for Indian consumer now.

Walmart has said it’s looking at a fresh equity infusion of about $2 billion into Flipkart , how much is PhonePe expecting ?

I think as with life, we will get out fair share for sure . So PhonePe will be getting a lot more infusion that has been discussed. To be fair, that was also in play with our existing board as well.

Talk to us about the phenomenal growth that you have seen in the last 2 months, in  March you had a total TVP of $13 billion and now you stand at $20 billion

It has been staggering and some of it, I cannot even explain. The amount that people spend on a platform is an outcome metric. You can’t really ask someone to spend a lot of money, but it reflects the sort of trust that has been put in early in PhonePe. The network has also matured over time, so the success rate of UPI, the card networks, are consistently improving quarter after quarter. We also launched our first national brand campaign, so the numbers have exploded. We were doing about 12.5–13 billion dollars of TPV process annualised in the month of March and in May. We crossed the $20 billion mark in TVP run rate, which I believe puts us in the leadership position in the market.

By the end of this financial year, how many of your point of sale (POS) machines do you see hitting the market?

Our target is by March 2019, we will have 1 million devices out in the market.

Your transaction value still remains high as compared to some of your peers. So in terms of the payments market size and you’re your transaction size , where do you put yourself and will smaller transactions be something that will be out of the window going forward ?

No. Interesting for us the smaller transactions will be at a bit of a lag, so unlike wallet players, where transaction goes up the value chain, we started with UPI, where there was unmet need of large transactions from bank to bank. So, transaction size or ticket size is little more than Rs 2,000. We did about 60 million transactions last month, about 2 million a day, which is what adds up basically for us. As we expand on the offline side, we expect the average ticket size to be going down. I think there are certain acceptance gaps there and UPI acceptance in the offline is very very low right now.

What is FY19 looking like for PhonePe, especially with you being a Walmart company and what are plans as far as dealing with completion goes this year  ?

I will answer the second one first. We are still a pretty small team and we remain focused on solving for the consumers, merchants, payments partners, the banking industry and the financial services industry. We don’t really look at competition, since this industry will attract the biggest and best competitors world wide. We have seen last year as well and I think it will only get fierce. And, in terms of what we expect in FY19, it’s going to be about mass scale increase in our merchant penetration, it will be about introduction of some financial services categories, it’s going to be about spending a lot of time, maniacal effort, in fact, improving customer experience, especially when the payment doesn’t go through well. I think, just that focus on making payment experience in India as seamless as cash. I think, there is a big gap to be solved in the markets and I think as an industry, we need to sort of focus on making digital payments as seamless and easy as cash, that is the opportunity.

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Five takeaways from the India’s economic growth data

KV Prasad Jun 13, 2022, 06:35 AM IST (Published)

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India’s growth numbers are out. Its gross domestic product in the fourth quarter of FY18 is showing of a sharp ‘V’ shape recovery. Below are the five takeaways from the GDP data released by CSO.

7.7% is India’s GDP growth rate for the fourth quarter of FY18. This is the highest quarterly GDP growth rate in last seven quarters.

6.7% is the growth rate of GDP at constant (2011-12) prices for the financial year 2017-18, India’s national income. The slowest rate of growth in last four years. On Wednesday, Moody’s Investors Service cut India’s 2018 GDP growth outlook to 7.3% from 7.5%, citing higher oil prices and tighter financial conditions.

Rs, 86,668 is India’s per capital income at (2011-12) prices according to CSO’s provisional estimates. The per capital income witnessed a growth of 5.4% from last fiscal. The growth rate slowed down marginally from 5.7% in the last fiscal.

32.2% is India’s rate of investment i.e. the gross fixed capital formation at (2011-12) prices as % of GDP for the fourth quarter is up from 31.6% in the previous quarter and 30.3% in same quarter last fiscal.

Industry Analysis

Rapid growth in agriculture (4.5%), manufacturing (9.1%) and construction sectors (11.5%) contributed to the overall growth.

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