Tag: BofAML

Coronavirus impact: BofAML expects March shutdown to cost 50 bps of annual GDP

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

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Bank of America Merrill Lynch (BofAML) has cut its India growth forecast by 90 basis points to 3.1 percent from 4 percent in the March quarter, due to shutdowns in various districts to contains COVID-19 outbreak. It has also reduced its GDP estimates by 40 bps to 4.7 percent for FY21.

It also said that it estimates that a month’s shutdown will cost about 50 bps of annual GDP.

“We have now factored in the extension of shutdowns to contain the COVID 19 virus outbreak into April-end from mid-April. We will review the situation in end-March. We estimate that a month’s shutdown will cost about 50 bps of annual GDP,” the BofAML report stated.

The Centre and state governments have decided to completely shut down 75 districts across the country where coronavirus (covid-19) cases have been reported. The number of positive cases reached 415 with three more deaths taking the toll to seven.

The brokerage also expects this pandemic to lead to a global recession and has cut the 2020 global growth rate forecast by 180 bps to 0.4 percent on rising cases of coronavirus.

Back home, it also noted that it expects the Reserve Bank of India to cut its benchmark repo rate by 100bp in FY21 with inflation set to drop to 2.5 percent in the second half of FY21. It sees 25 bps cut each on/before April 3, June, October and December.

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

3 Mins Read

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

AGR dues: Bharti Airtel to continue at accelerated pace, Vodafone Idea may file for bankruptcy, say brokerages

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

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Brokerages are of the view that telecom operator Bharti Airtel is in a better position to pay the AGR (adjusted gross revenue) dues as it has recently raised cash while Vodafone Idea would continue to struggle and could even file for bankruptcy.

The Supreme Court on Friday slammed the telecom companies, as well as the Department of Telecom (DoT) for the telcos failing to submit the AGR dues and also directed for contempt proceedings to be launched against the network operators.

Post the SC order, which gives clear directions for strict actions against the telecom companies, Bharti Airtel paid Rs 10,000 crore on Monday to DoT as part of the AGR dues. The telecom company also said that it will make the remaining payment once self-assessment exercise completes before the next date of Supreme Court hearing on March 17.

Vodafone Idea has also said that it is planning to make the payment in the next few days.

Duopoly market?

Bank of America Merill Lynch (BofAML), in a report, said that while Bharti Airtel looks set to clear the dues, questions remained on if Vodafone could pay.

“As Vodafone Idea has $1.7 billion cash, it remains unclear how it could pay the entire amount. To date, the Vodafone Group and Birla group had maintained the view that they won’t inject more cash. We await clarity on if Vodafone pays partly or sees potential injection from parent-companies or gets government relief,” noted BofAML.

BofAML also explored the option that Vodafone may file for bankruptcy if it doesn’t get government relief or there is no cash injection.

“In that scenario: 1) Under the IBC, a company continues to operate its services even after it is admitted by the NCLT as a stressed asset. Committee of creditors (COC), appoints a resolution professional (RP), who ensures the day-to-day functioning and starts looking for a buyer; 2) Telcos have to give at least 30 days advance notice to users before shutting down & the regulatory should be notified 60 calendar days in advance. Also, if NCLT resolution takes more time, users may leave VIL, impacting asset value,” the BofAML report explained.

Axis Capital also maintained that Vodafone Idea’s debt burden is high, while Bharti Airtel is better placed to make payments. The brokerage added that Bharti may continue to gain market share at an accelerated pace.

Motilal Oswal also added that a duopoly market will likely benefit Bharti Airtel and hence raised the target price for the company to Rs 650 per share.

“The Supreme Court order leaves telcos with limited options to get relief from legal or government sources. It also sees far-reaching serious ramifications on the telecom and banking sectors,” Motilal Oswal stated.

CLSA, on the other hand, maintained a ‘sell’ call on the stock and cut its target to Rs 3.5 per share from Rs 5.5 earlier.

As per the DoT calculation, Airtel has to pay Rs 35,500 crore, Vodafone Idea Rs 53,000 crore and Tata Teleservices a little over Rs 12,500 crore as AGR dues.

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

3 Mins Read

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

Bullish on dollar; expect all-time high for gold in 2 years, says Paul Ciana of BofAML

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

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It is almost the end of 2019 and various reports of where the currencies and commodities are likely to trend in 2020 are out.  Paul Ciana, Dir-Research, BofAML is bullish on the dollar. He of the belief that  dollar is still in an uptrend and is likely to remain so.

“We expect something like Euro dollar to suffer with a potential fall to about 1.08, even to 1.06. Now 1.08 is big level in the euro-dollar chart because that is the gap that was formed in April 2017 when the French election occurred and Emmanuel Macron won. The rule of thumb is that eventually gaps are filled in technical charts and that is one that we are certainly targeting. We enter the New Year actually short euro dollar to reflect the long dollar view in G10,” said Ciana in an interview with CNBC-TV18.

With regards to dollar-INR, he said, “Dollar-INR over the course of the medium term, it has actually formed two bullish patterns. So there was the declining wage pattern that formed in the middle of last year when spot rate came down to about 69-70, based out and rallied and then just more recently it formed a double bottom of the 50 week moving average with two bullish reversal weeks inside that pattern.” “So, looking back at the effectiveness of these bullish reversal patterns and the overall context of the two larger bullish patterns, I am biased to think that dollar-INR moves upwards of 75-76 per dollar in 2020 year.

Talking about metals, he said there is long term opportunity for the metals, especially on the precious side. “During 2019, we called for the start of the secular bull market in gold prices and the prices surged. “If this is in fact a secular bull uptrend in gold prices, they should make new all-time high in the next two years. This year in 2020, we are forecasting a gold target of USD 1,690 per ounce and maybe USD 1,750 per ounce and over the course of next few years it can get up north of USD 2000 per ounce.”

With regards to crude prices he said, “Our tag line was, ‘Buy gold on the dip and sell oil on the rip’. The reason for that being the long-term charts for gold was securely bullish, while the oil charts were the exact opposite. So, there is lot of bearish indications that suggest rally should be sold into.”

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

3 Mins Read

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

RBI Monetary Policy: BofAML believes more rate cuts coming. Here’s why

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

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The October Consumer Price Index (CPI) inflation moved past the Reserve Bank of India’s (RBI) comfort level of 4 percent, to a 16-month high of 4.6 percent, led by a spike in food prices. Analysts expect that food inflation, as well as a low base, is likely to keep the inflation elevated in the coming months.

Does this mean no more rate cuts by the Monetary Policy Committee (MPC)? Rise in inflation above RBI’s target level may lead to central bank pausing the rate cuts in the upcoming policy meet and holding on the current rate till inflation softens.

However, Bank of America Merill Lynch (BofAML) is of the view that the MPC will still cut 40 basis points (bps) more in FY20. RBI MPC should still cut 25 bps on Dec 5 and 15 bps in February to support growth, said the investment bank in a report.

ALSO READ: Retail inflation crosses RBI’s target but rate cut still on the cards amid economic slowdown

As expected, inflation climbed to 4.6 percent in October from 4 percent last month. BofAML expects November CPI at 5 percent and inflation between November 2019-February 2020 at 4.7 percent, up from 3.3 percent in April-September.

It advised investors to look through the increase in end-2019 inflation as it is driven by a temporary onion price spike and base effects. CPI dipped to 2.2 percent between November 2018-February 2019.

“Averaging across the two years, to iron out base effects, we arrive 3.5 percent, well within the RBI’s 2-6 percent inflation mandate. It is for this reason we expect the RBI to continue to cut policy rates to support recovery. We also do not expect the RBI MPC to respond to a temporary onion price hike,” it said in a report.

The report noted that Governor Bimal Jalan had ignored agflation from drought to cut CRR/rates to support growth during the downturn of 1998-2004, which put India at the head of global recovery. However, the RBI’s decision to hike rates in 2010 against an onion price spike hit growth, stated the report.

The report also highlighted that weak growth is constraining corporate pricing power. BofAML India Activity Indicator signaled that the slowdown will last another quarter and channel checks also suggested that Diwali festive demand in October was muted. Against this backdrop, BofAML forecasts September quarter GVA growth at 4.7 percent, bringing their FY20 growth forecast further down to 5.5 percent.

It also noted that fiscal deficit, if it comes even at 3.8 percent of GDP, assuming 50 bps slippage, is well below the medium-term 4.5 percent average.

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

3 Mins Read

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

Is income tax cut around the corner? BofAML lists 3 pre-conditions for that to happen

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

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After slashing corporate tax to revive the economy, the government may be considering making amendments to income tax slabs as well. Bank of America-Merill Lynch (BofAML) believes it is a high possibility.

The panel tasked with drafting new legislation on direct taxation has recommended a radical cut in current income tax slabs to spur demand by putting more money in the hands of consumers, people familiar with the matter told CNBC-TV18.

The panel, which submitted a report with these recommendations on August 19, 2019, proposed a 10 percent income tax rate for individuals earning between Rs 5 and 10 lakh per year against the current rate of 20 percent. Individuals earning over Rs 20 lakh per year should be taxed at 30 percent and those earning over Rs 2 crore a year must pay 35 percent as income tax, according to the panel’s recommendations.

Currently, individuals earning between Rs 2.5 lakh and Rs 5 lakh are taxed at 5 percent. Income between Rs 5 lakh and Rs 10 lakh is taxed at 20 percent and more than Rs 10 lakh a year is subjected to the income tax slab of 30 percent.

Read More: Here’s what your new income tax slabs will look like if government accepts task force’s proposal

According to a report by BofAML, new tax slabs would likely cost Rs 1.75 lakh crore or 0.8 percent of India’s GDP, atop 0.7 percent of GDP released by September’s corporate tax rate cut. Of which, Rs 1 lakh crore will be borne by the Centre and Rs 75,000 crore by states in line with the 58:42 devolution ratio, it added.

“There is no doubt that a demand-side measure, like the income tax cut, has a more immediate impact on growth than a supply-side measure like the corporate tax rate cut that would take 2-3 years to take effect, in our view. Along with the RBI easing, this would help defuse the 2018 liquidity crunch that has pushed up lending rates and hurt demand. While the corporate tax rate cut should theoretically spur investment, businesses will expand capacity only if they see demand picking up,” the global investment firm noted.

It sees 3 pre-conditions for the government to cut income tax rates now:

1. Muted Diwali festival demand: Investors should track retail sales into the October 27 Diwali festival. BofAML expects multiple discount schemes to sell passenger vehicles and two-wheelers in the festive season as well as consumer companies to offer promotion schemes.

2. Weak transmission even after external benchmarks: BofAML feels the government will look to cut income tax rates now if banks do not pass on the 25 bps October 4 RBI rate cut even after linking retail/SME loans (around 40 percent of bank book) to external benchmarks like the RBI repo rate.

3. Funding corporate tax rate cut: The investment firm believes a quick income tax rate cut would likely be feasible only if the government gets comfort about financing the corporate tax rate cut that should lead to fiscal slippage of 50 bps of GDP. This could come from the ability to step up RBI OMO if FPI flows do not revive or quicken privatisation. The Ministry of Finance can also meet the fiscal gap utilising the RBI’s surplus capital identified by the Jalan committee and interim dividend.

They also expect the Reserve Bank of India to further cut 25 bps on December 5, pause as growth/inflation goes up on base effects, and cut another 40 bps to 4.5 percent by September if global growth slows.

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

3 Mins Read

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

Q2 Earnings Preview: Weak numbers likely despite tax cut. Here are sector-wise expectations from last quarter

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

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A lot has changed from the last quarter to this quarter — the government has made some major announcements with the recent corporate tax cut being one of the crucial ones. All these steps were taken by the government keeping one thing in mind — a revival of economic growth. But looks like the impact of all these steps will take a few more months to be felt.

Brokerage houses are expecting yet another weak quarter of corporate earnings in Q2. Weakness in economic data — GDP growth at 5 percent in quarter 1 — and the RBI’s latest revision of GDP forecast to 6.1 percent from 6.9 percent earlier would keep the downgrading going for corporate India, the brokerages believe. However, they say that the corporate tax cuts will result in several adjustments in quarterly numbers.

Nifty50 earnings growth is expected to decline by 2 percent in Q2FY20. While auto, metal, oil & gas will remain laggards, financials, cement and industrials are expected to remain as leaders.

“Earnings downgrade will continue due to weak consumer demand and lower realisations for commodities. A pick-up in consumption is expected in H2 of FY21,” said Motilal Oswal.

Sector-wise expectations for Q2 of FY20:

• Automobiles: Revenues are expected to decline in double-digit. Profits are expected to decline for auto companies — the sixth consecutive quarter of such decline. Margins will take a hit due to higher discounts and lower volumes. Tata Motors is expected to post sharp losses.
• Banks and financials: Private banks are expected to report healthy growth driven by ICICI Bank, Axis Bank, Kotak Mahindra Bank. Overall slippages are expected to be contained due to reasonable treasury contribution and servicing or restructuring of some large exposures. PSU Banks will continue to post losses while NBFCs are likely to drive the sector with healthy growth primarily led by HDFC, Bajaj Finance.
• Technology & Telecom: Revenues of IT companies are likely to grow in single-digit but rupee depreciation will help expand margins on QoQ basis. Telecom is expected to report a loss for the ninth straight quarter.
• Pharmaceutical: Domestic pharma companies will continue to do well due to price hikes and single high-digit growth is expected. The regulatory overhang will continue for pharma companies.
• Consumption: Volume growth will continue to remain under pressure due to muted rural demand and weak sentiment. Delayed monsoon and flooding could have an impact on the distribution channel. Pidilite, Marico are likely to take a back seat while Dabur, Britannia, Page will report flattish growth. The front seat will be taken by HUL and ITC, which are likely to grow anywhere between 8 and 9 percent. Election overhang on liquor companies is now behind, so USL and UBL are expected to report high single to low double-digit growth but margins will remain under pressure due to higher raw material prices.
• Cement: Growth will come on low base but channel checks suggest cement volumes have weakened further across India and will likely decline by 5-6 percent YoY in Q2FY20. While companies will enjoy the partial benefit of a 25-30 percent decline in coal/pet-coke prices. Therefore, EBITDA/Ton is expected to increase by 20-35 percent YoY.
• Metals and Mining: Weakness will continue for Indian steel companies on QoQ basis due to weak prices, muted volumes. NMDC, Tata steel will see sharp declines in their earnings.
• Media: Ad revenues will continue to see the lagged impact of the new TRAI order. Broadcasters are expected to report subdued ad revenue growth in the September quarter. Multiplexes are expected to grow healthy revenues while print industry’s growth will remain elusive.
• Oil & Gas: Profits will improve due to sequentially lower crude prices. Also, refining margins will improve materially for domestic refiners, especially RIL. OMCs are also likely to gain from the trend, but the impact could be reduced by inventory losses.
• Capital Goods: Sales growth is expected anywhere between 9 and 10 percent primarily driven by L&T, Crompton Consumer, Blue star while BHEL, Voltas could drag the overall sector performance.

Top picks of brokerages

• Motilal Oswal

Largecaps: ICICI Bank, SBI, HDFC, Bharti Airtel, L&T, Infosys, Maruti, HUL, Titan, NTPC.

Midcaps: Indian Hotels, Federal Bank, MMFS, Ashok Leyland, ABFRL, JK Cement, Oberoi Realty, Colgate, Alkem Labs.

• Antique

Largecaps: HDFC Bank, ITC, ICICI Bank, L&T, Ultratech Cement, Hindustan Zinc, Bajaj Auto, Adani Ports, GAIL India, Siemens, Eicher Motors, Marico, UPL, Dr Reddy’s, Muthoot Finance and Bharat Electronics.

Midcaps: Honeywell Automation, TVS Motor, Gujarat Gas, Phoenix Mill, Natco Pharma, Kajaria Ceramics, NIIT Technology, NALCO, Johnson Control, MOIL, CCL Products, TCIL and Dhanuka Agritech.

* Source for analysis: Q2FY20 preview reports from Motilal Oswal, Antique and BofAML.

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

3 Mins Read

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

RBI will cut rates by another 50–75 bps before April, economists predict

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

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The Reserve Bank of India will cut interest rates by another 50 to 75 basis points by April 2020, according to economists.

The RBI last month lowered its benchmark repo rate for a fourth meeting in a row. It has dropped 110 basis points so far this year to 5.40 percent.

The expectations of larger repo-rate cut are running high despite India’s retail inflation advancing to a 10-month high of 3.2 percent in August. The CPI inflation was, however,  below the RBI’s medium-term target of 4 percent, raising hopes that the central bank will cut repo rate in the October 4 policy.

India’s retail inflation inched up to 3.21 percent from 3.15 percent in July, government data released on Thursday showed.

Analysts expect inflation to remain soft and under 4 percent for the rest of FY20. Benign inflation and sluggish economic growth raise prospects of more than a 25 basis point cut in October, say economists.

One basis point is one-hundredth of a percentage point.

Expectations Running High

Samiran Chakraborthy, managing director and chief India economist at Citi, had assigned a 30 percent probability that the quantum of a rate cut in October could be more than 25 bps following dismal Q1 GDP data. Now after the low August inflation number, he has raised that to 60 percent.

Following in the footsteps of Citi, Bank of America Merill Lynch also believes that there is a strong case for a 50 bps rate cut this year with a 35 bps likely in the October monetary policy and remaining in December. The global brokerage also expects the RBI Monetary Policy Commitee lowering the repo rate to 4.5 percent by September 2020, if global growth weakens due to worsening trade war, it said in a research report.

Edelweiss also expects another 50–75 bps monetary easing in FY20.

Morgan Stanley, on the other hand, expects another 2-3 rate cuts this fiscal and sees repo rate hitting 4.75-5 percent by Match 2020 as against 5.4 percent currently.

Similarly, Sonal Varma, chief India economist at Nomura Global Market Research, said that the positive surprise on IIP growth is a sign of bottoming out of the industrial growth cycle. In a report, Bhandari said that the RBI’s FY20 GDP growth projection is still too optimistic (RBI: 6.9 percent, Nomura: 6 percent) and will be downgraded at the October 4 policy meeting. She also expects the RBI to deliver a cumulative 40 bps rate cut in Q4, most of which will likely be frontloaded in October itself.

Echoing similar sentiment, Pranjul Bhandari, chief India economist at HSBC, expects a 25 bps rate cut in October, followed by another 25 bps cut in Q1 2020, taking the repo rate to 4.9 percent by March 2020.

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

3 Mins Read

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