Walmart aims to be Flipkart’s largest shareholder: Report

The investment will value Flipkart at about USD 20-22 billion.

Walmart Stores Inc. could buy upto 51 percent stake in Flipkart, according to a report the Economic Times reported citing sources.

Walmart could initially buy about 20-26 percent stake and then increase its shareholding to 51 percent in tranches, according the report.

The deal, estimated at about USD 10-12 billion, will involve purchase of shares from existing investors such as SoftBank Corp, Nasper and Tiger Global, sources told The Economic Times. 

Japanese conglomerate SoftBank Corp is one of the largest investors in the Bengaluru-based  company.

Walmart could take a hands-on role in running the company, if the current transaction goes through. It has already concluded the due diligence process, according to the report.

The investment values Flipkart at about USD 20-22 billion, the report said.

Walmart, Flipkart, and SoftBank declined to comment on the speculation, the report said.

Initial media reports had suggested Flipkart will buy a minority stake. But a Reuters report last month said Walmart is looking to buy more than 40 percent stake in Flipkart.

Mint report had also hinted any investment will likely make Walmart Flipkart’s biggest shareholder.

A deal with Walmart will help Flipkart compete with Amazon, which has been aggressively expanding its online and offline presence in India.

Bankers focus on stressed assets than NPAs; PNB to repay loans of banks: Frm RBI Guv

R Gandhi, Former RBI Deputy Governor said with the new framework in place there could be an uptick in non-performing assets (NPAs) because what need not have been recognised as an NPA will now be recognised as one.

Talking about the RBI’s revised framework in an attempt to resolve the stressed assets, R Gandhi, Former RBI Deputy Governor said with the new framework in place there could be an uptick in non-performing assets (NPAs) because what need not have been recognised as an NPA will now be recognised as one.

This will definitely impact the provisioning of banks because the moment an account is declared as NPA, banks will have to make additional provision. However, looking at the positives of such a move, is that everyone will know what exactly the problem with the bank is, he said.

As per the new framework, the lenders will have to report all special mention accounts (SMAs). The SMA accounts will have to be reported to Central Repository of Information on Large Credits (CRILC).

CRILC report will be monthly from April 1.

The Reserve Bank of India has also withdrawn the existing mechanism which included Corporate Debt Restructuring Scheme, Strategic Debt Restructuring Scheme (SDR) and Scheme for Sustainable Structuring of Stressed Assets (S4A).

The other important aspect of this framework is that the entire problems of stress will be fully accounted in the books of the banks and will be publicly disclosed, said Gandhi, adding that the bankers have not shifted focus from NPAs to stressed assets.

Gandhi believes that the nature of default is a default irrespective of whether it will be recognised as NPA or not.

Talking about the PNB case, he said the bank is expected to repay the loans of banks.

Govt may extend UDAN scheme to international flights

The government is planning to extend the regional connectivity scheme UDAN to provide affordable international flights to neighbouring countries, a Civil Aviation Ministry official said.

The government is planning to extend the regional connectivity scheme UDAN to provide affordable international flights to neighbouring countries, a Civil Aviation Ministry official said.

“The rethink is to enable state governments to use the UDAN platform for international connectivity,” Civil Aviation Secretary R N Choubey told a press conference at the Wings India 2018 summit, adding the central government will only facilitate the bidding process for UDAN International for which the money will have to be invested by the state government.

Choubey added the Assam government has expressed interest in connecting Guwahati airport with several South East Asian destinations and the state has taken a lead in ‘UDAN Version 2’ by allocating Rs 100 crore for three years for carriers willing to participate in the scheme.

While the government still has to work out details of UDAN’s international version, Choubey said, “It is for the government to decide whether they will fix a fare for the routes so to speak, or whether they will allow the fares to float in the market and allow minimum subsidy to be charged.”

Bilateral agreements will be required with neighbouring countries and slots at their airports under this version of the scheme, reported Economic Times.

UDAN, an acronym for ‘Ude Desh ka Aam Nagrik’, is a government initiative to bring flying in an airplane to the common man. In the the 2018-19 Union Budget, the scheme has got an allocation of Rs 1,014.09 crore, which is five times higher from the 2017-18 Budget allocation of Rs 200.11 crore for the scheme.

On the proposed sale of national carrier Air India and state-run helicopter operator Pawan Hans, Choubey said the government is expected to seek Expressions of Interest (EoIs) for Air India and Pawan Hans in the next fortnight. Following which, financial bids will be called for the same.

“We expect that the EoIs for Air India should come out possibly in couple of weeks. A revised EoI for Pawan Hans will also be coming forward around the same time,” Choubey added.

Expect good growth in domestic consumption & exports in 2018: A Prasanna

Direct tax collection until February of FY18 has risen nearly 20 percent. Corporate income tax collection has grown 19.7 percent and personal income tax collection has risen 18.6 percent. In an interview to CNBC-TV18, A Prasanna, Chief Economist at ICICI Securities Primary Dealership spoke whether these numbers are better than what market was expecting, how they compare with revised estimates and is that the reason why you are seeing some kind of relief in the bond markets.

Direct tax collection until February of FY18 has risen nearly 20 percent. Corporate income tax collection has grown 19.7 percent and personal income tax collection has risen 18.6 percent. In an interview to CNBC-TV18, A Prasanna, Chief Economist at ICICI Securities Primary Dealership spoke whether these numbers are better than what market was expecting, how they compare with revised estimates and is that the reason why you are seeing some kind of relief in the bond markets.

Prasanna said that the Income Tax department seems to be holding back refunds which is bumping up tax numbers.

He further said that the outlook for corporate tax looks good for next year as well.

According to him, revised tax collection target of Rs 10 lakh crore for FY18, should be met.

We expect good growth in domestic consumption and exports in 2018, he added.

Higher sales could help improve return on assets of a firm in first year post IPO: RBI

A study by the Reserve Bank of India shows that companies witness a sharp decline in return on assets and turnover ratios in the two years after an IPO

Firms witness a sharp decline in return on assets and turnover ratios in the two years after an IPO, or initial public offering, but is not weak if it is helped by sales which improves profits, says a study by the Reserve Bank of India (RBI).

The central bank uploaded on its website on Tuesday a Working Paper titled “Operating Performance of Initial Public Offering (IPO) Firms after Issue in India: A Revisit” by Avdhesh Kumar Shukla and Tara Shankar Shaw under the RBI Working Paper Series.

The paper says that the initial decline in the ratio of operating cash flow with total assets could be on account of enlarged capital expenditures, which firms resort to after the company goes public (IPO).

“Our analysis indicates that the post-issue operating performance of IPO firms measured as return on asset (ROA) and turnover ratio (TOR) records a sharp decline. However, contrary to the findings of extant literature, we find that the decline in ratio of operating cash flow with total assets is confined to the issue year and year after the issue only,” the study highlighted.

It is found that the operating performance does not deteriorate post IPOs, if a performance indicator like “profit” is normalised by sales volumes (i.e., return on sales) rather than assets (i.e., return on assets), the paper pointed out.

“We also find that as far as return on sales and sales growth are concerned there is no statistically significant change after issue,” the paper adds highlighting the importance of choice of right variables for matching and normalisation purposes.

Normalisation is a process of adjusting non-recurring expenses or revenues so that it only reflects the true earnings or usual transactions of a company.

Empirical results of our study indicate that IPO firms’ ROA (return on assets) and turnover ratios (TOR) record decline after issue while the ratio of net operating cash flows to total assets (RCFA) declines in the first year post issuance but recovers in subsequent years, the paper said.

Net operating cash flow is the amount which the owner can take out from the company in the form of dividend or other distributions.

“At the same time, ROS (operating profit to sales ratio) does not show any statistically significant decline. We find that faster expansion of asset base of IPO firms immediately after issue largely explains the decline in asset-scaled performance variables such as ROA. The decline is not observed when profit is scaled by sales,” it said.

However, ROA remains above the industry median.

The RBI working paper examines how the operating performance of the Indian firms changed after their IPOs based on data on non-financial firms, which floated IPOs during April 1, 2000 to March 31, 2011 and focuses on their long-term operating performance, for which it uses minimum three years post-issue data.

The sample consists of 413 IPO firms, of which largest numbers of issues were floated in 2000-01 followed by the financial year 2007-08.

Average age of IPO firms was 11 years at the time of issue.

According to the study, IPO firms witness a sharp expansion in assets size and capital expenditure in the post-issue period.

The average issue size of sample firms was Rs 216.30 crore (median is Rs 58.4 crore). Average return on the listing day was 20.4 percent (median is 13.7 percent), indicating very high underpricing by many of the firms.

“Median shareholding of promoters and promoter groups in firms declines to 49.7 percent post issuance, from 70.4 percent prior to issuance which is lower than what has been reported by Jain and Kini (1994) and Mikkelson, Partch and Shah (1997) in case of the United States (US),” the authors noted.

Giving a snapshot of performance indicators, the paper said, “Median change in operating returns of IPO firms post issuance relative to year [-1] was (-) 3.0 percent, (-) 4.4 percent, (-) 5.6 percent and (-) 6.2 percent in years [0], [1], [2] and [3], respectively.

“Industry-adjusted operating returns also showed a similar trend. Median industry adjusted operating returns in year [0], [1], [2] and [3] vis-à-vis year [-1] were (-) 2.5 percent, (-) 3.9 percent and (-) 3.5 percent, respectively,” it said.

The study concludes that the primary reason for the decline in the operating performance is rapid rise in assets of an IPO firm given a consistent decline in ROA and a similar trend in TOR (turnover ratios) in the three years post issuance compared to the matched firms.

Author Shukla is Assistant Adviser in the Department of Economic and Policy Research at RBI while Professor Shaw is a member of faculty at the Department of Humanities and Social Sciences, Indian Institute of Technology Bombay (IIT- B), Mumbai.

Honda ready for larger play in the volume segment

Armed with new models, the company has set a target to achieve a market share of 10 percent in India.

Honda Cars India is ready to target the compact vehicle space with new generation models, signaling a change in its age-old strategy of restricting itself to the premium segment.

Instead, the company will look to address vehicle demand by offering premium products in every segment. New models, based on the platform that will be seen on the third generation Amaze compact sedan, will be launched in the country by Honda in the coming years.

Armed with new models, the company has set a target to achieve a market share of 10 percent in India.

By the end of January, the company’s share stood at 5.3 percent as per data supplied by the Society of India Automobile Manufacturers (SIAM).

The all-new Amaze, which is set for launch in a few months, will be positioned as a premium car within the compact sedan segment.

The Amaze platform will spin off sports utility vehicles (SUV) and most likely crossovers, which have been a hit amongst Indian buyers with models such as the Honda WR-V. Honda’s SUV or crossovers will most likely be positioned in the sub-Rs 10 lakh segment to compete against the Hyundai Creta and Renault Captur.

It is unlikely that Honda will go after the affordable compact hatchback segment anytime soon considering the cut-throat competition there and very limited success with the Brio.

Speaking  Yoichiro Ueno, President and chief executive, Honda Cars India said, “We have four models – Brio, Jazz and Amaze and WR-V. At this moment, the SUV segment is growing. We think this trend will continue. India has a very big small car market.”

Honda’s share in the domestic car market has struggled to move into double digit despite first entering India more than two decades ago. Honda has had a series of failures in India including BR-V, Mobilio, Civic, CR-V and Brio. Mobilio and Civic were withdrawn by the company since their volumes dipped to unsustainable levels.

Amaze clocks less than 10 percent of the volume generated by the segment leader Maruti Suzuki Dzire while its flagship car City has come under pressure from the Maruti Suzuki Ciaz and Hyundai Verna.

One of the models on Honda’s radar is the HR-V – a subcompact crossover.

“HR-V is very successful in many countries and we are receiving lot of requests from dealers and customers from India. But India is a very price sensitive market. It is important to meet customer expectations. Our assessment is about if we can achieve the price target for the HRV,” added Ueno.

As part of change of operations in India, Honda recently announced top managerial changes which included the exit of Ueno from the company. Gaku Nakanishi will replace Ueno from the start of next month. Nakanishi has been associated with Honda for over three decades and has worked in several international markets including North America, Mexico, Japan and Thailand. Nakanishi takes over at a time when Honda has lost ground to Tata Motors.

Indian media and entertainment sector touched Rs 1.5 trillion in 2017: FICCI

As per industry estimates, there are around 2 million paid digital subscribers across application providers, and between 1 and 1.5 million customers who have moved entirely to digital media consumption.

The Indian M&E sector touched Rs 1.5 trillion in 2017, a growth of almost 13% over 2016. With its current trajectory according to the latest FICCI-EY report ‘Re-imagining India’s M&E sector’, the sector is expected to touch Rs2 trillion by 2020, at a CAGR of 11.6 %.

The growth according to the report was led by the digital segment. India saw the birth of the digital subscriber with these subscribers making a strong impact on the sector at a growth rate of 50%.

As per industry estimates, there are around 2 million paid digital subscribers across application providers, and between 1 and 1.5 million customers who have moved entirely to digital media consumption. By 2020 expectations are that there will be 4 million digital only consumers which, along with millions of other tactical and mass customers will generate subscription revenues of Rs 20 billion.

By 2020, India is expected to become the second largest online video viewing audience globally.

The primary factor for the consumers to adopting to digital format were falling data rates, availability of niche content and also global content, increased OTT-only content, sports and falling data charges.

The report mentions advertisers also shifted spends to the digital medium, which led to digital advertising now contributing 17 % of total advertising in 2017. The share of digital advertising is expected to grow to 22% by 2020.

“This growth will make Digital the third largest segment of the Indian M&E sector by 2020, overtaking Filmed Entertainment’ the report said.

“The need is to promote India as an entertainment hub to the world, facilitate policy change for the betterment of the Indian M&E industry as well as create and encourage platform for Business-to-Business interface and dialogue,” said Rashesh Shah, FICCI president.

The TV industry grew from Rs 594 billion to Rs 660 billion in 2017, a growth of 11.2%. Advertising grew to Rs 267 billion while distribution grew to Rs 393 billion. Advertising comprised 40% of revenues, while distribution was 60% of total revenues. At a broadcaster level, however, subscription revenues (including international subscription) made up approximately 28% of revenues.

Industry trends in 2017 also favourably impacted subscription revenues, including-wider implementation of cable TV digitisation, higher realisation from domestic and foreign box office collections of films, increased adoption of subscription OTT platforms and finally increased in-app purchases in the gaming segment.

According to the same report going forward, micro- payments, enabled through the UPI and BHIM app developed by the National Payments Corporation of India, will further accelerate subscription revenues for entertainment content.

However, advertising revenues witnessed growth of just under 10%, due to spillover effects of demonetisation into Q1 of CY2017, the impact of regulations like RERA on ad spends of the real estate sector and advertising spend slowing down for between three to seven months across different segments of the M&E sector in order to manage inventories due to the implementation of GST in July 2017.

On the other hand print accounted for the second largest share of the Indian M&E sector, growing at 3% to reach Rs 303 billion in 2017. Print media is estimated to grow at an overall CAGR of approximately 7% till 2020 with vernacular at 8%-9% and English slightly slower. This growth is expected despite the FDI limit remaining unchanged at 26% and therefore, restricting access to foreign print players and the imposition of GST at 5% on the advertising revenues of the print industry for the first time in history. While magazines contributed 4.3% to the total print segment, the segment was at largely status quo with not many significant new launches in 2017.

India replaces China as world’s fastest growing economy, GDP growth at 7.2% in Q3

Economy poised to move in a faster lane, recovering from the disorderly effects of demonetisation and GST.

The Indian economy grew at 7.2 percent in October-December 2017, and will likely expand 6.6 percent in 2017-18, latest official estimates said on Wednesday, amid strong revival signs in consumption spending and investment activity.

The economy is poised to move into a faster lane, swiftly recovering from the disorderly effects of demonetisation and the goods and services tax (GST). The rebound in India’s “real” inflation-adjusted gross domestic product (GDP) growth from 6.5 percent in the previous quarter (July-September) will likely help regain its lost status as the world’s fastest growing major economy outpacing China, which grew 6.8 percent in October-December 2017.

Latest estimates broadly mirror the trends seen in high frequency indicators like corporate income and industrial output data. It is in line with the government’s earlier estimates. In January, the government had projected that India’s GDP would grow at 6.5 percent in 2017-18. Implicit calculations suggest that GDP in the October-March period would grow at 7 percent.

The Central Statistics Office’s (CSO’s) second advance estimates released today are based on actual data for three quarters, which give a better picture of the health of the economy.

The CSO also estimated that gross value added (GVA), which is GDP minus net taxes, grew 6.7 percent in October-December from 6.2 percent in the previous quarter and 6.9 percent in the same quarter of 2016-17. GVA is set to grow at 6.4 percent in 2017-18 from 7.1 percent in 2016-17. It is a more realistic guide to measure changes in the aggregate value of goods and services produced in an economy.

The manufacturing sector grew 8.1 percent in the third quarter of 2017-18, from 6.9 percent in the previous quarter, and 8.1 percent in the same quarter of the previous year. The sector is projected to expand at 5.1 percent during the full year, inching towards last year’s 7.9 percent growth, indicating that factories and firms have moved on from the irritants caused by GST.

A mid-year switchover to GST from July 1 prompted anxious shops and companies to de-stock and clear up the inventory pile ahead of the new system’s kick off. Companies had significantly cut back production in June as part of a business strategy to carry over as little old stock as possible into July. Nobody was quite sure whether prices would rise, fall or remain the same after GST, which partly explains the jostle to drain out old stocks at heavy price markdowns.

Latest lead indicators have shown encouraging turnaround signs over the last few months, with urban consumption recovering into the year-end. The manufacturing sector appears to have recovered from the post-GST lull, along with a jump in industrial production, primarily capital goods output. Available data also suggests healthy growth of corporate earnings in that quarter, despite rising commodity prices.

Government revenue expenditure (minus interest payments) also accelerated to 24 percent (year on year) from 12 percent in the year-ago period. Non-agricultural growth has shown signs of improvement thanks to better investments and the service sector, including public administration and credit growth indicators.

Double-digit growth of capital goods, the sharp rise in capital spending of the central government and the modest pickup in capital spending of state governments in the third quarter of 2017-18, are likely to have contributed to the 12 percent expansion in gross fixed capital formation (GFCF) in October-December 2017-18.

However, since the value of new investment projects and the value of projects completed recorded a contraction in the quarter, it may be premature to conclude that a broad-based revival in investment activity has commenced,” said Aditi Nayar, Principal Economist, ICRA.

The agriculture sector grew 4.1 percent in October-December from 2.7 percent in the previous quarter, and 7.5 percent in the same quarter of the previous year. It is projected to grow 3 percent in 2017-18 from 6.3 percent in the previous year, CSO estimates said. Farm sector growth will likely remain subdued because of unfavourable estimates for kharif output of crops such as oilseeds, pulses, cereals and cotton, and the base effect related to record high output in 2016-17.

The construction sector grew 6.8 percent in October – December from 2.8 percent in the previous quarter as well as in the same quarter of the previous year, broadly reflecting trends in output and sales of inputs, such as cement and steel, even as the sentiment remains weak after the RERA Act and the GST.

“Improvement was broad-based, with a pickup in most production/investment demand indicators. Under GVA, agricultural and non-agricultural activities have both picked pace. Besides base effects, better construction and agri sectoral performance bodes well for employment creation prospects. Looking ahead, the likelihood of higher rural incomes (on higher MSPs) and pre-election spending is likely to be supportive of 2018-19 numbers,” said Radhika Rao, India Economist, DBS Bank.

India to grow 7.6% in calendar year 2018: Moody’s

“There are some signs that the Indian economy is starting to recover from the soft growth patch attributed to the negative impact of the demonetisation undertaken in 2016 and disruption related to last year’s rollout of the Goods and Service Tax,” it said.

Moody’s Investors Service today estimated that India will grow 7.6 per cent in calendar year 2018 and 7.5 per cent in 2019, amid signs of economic recovery from impact of demonetisation and GST.

“There are some signs that the Indian economy is starting to recover from the soft growth patch attributed to the negative impact of the demonetisation undertaken in 2016 and disruption related to last year’s rollout of the Goods and Service Tax,” it said.

The Budget for 2018-19 includes some measures that could stabilise the rural economy that was disproportionately hit by the demonetization policy and is yet to recover, it said.

“As we have said before, the bank recapitalisation plan should also help credit growth over time, thereby supporting growth,” Moody’s said.

PFRDA moots 75% equity under NPS ‘active choice’; who will benefit?

At present, NPS subscribers who opt for Auto Life Cycle Fund can have equity allocation of up to 75% in equity.

The Pension Fund Regulatory and Development Authority (PFRDA) has proposed raising the equity investment cap under the ‘active choice’ of National Pension System (NPS) to 75% from the current 50%.

In a discussion paper issued recently, the authority has said that the proposal has been mooted in view of the demands from subscribers to allow more equity exposure for their investments. At present, NPS subscribers who opt for Auto Life Cycle Fund may allocate up to 75% in equity whereas in case of ‘active choice’ subscribers may invest up to 50% in equities.

So, how wise are subscribers in asking for such a high level of equity investment for their retirement corpus given the risks associated with the asset class? And if the pension regulator allows the higher limit, who should be opting for the highest equity limit of 75 per cent?

Leading personal finance advisors believe that though equities are good for the long run, a high equity component of 75% or around that level should be avoided by those who have only a few years left to retirement. “The young should have a higher part of their investments earmarked for equities.  A 75% equity exposure would be a fine allocation for a person before the age of 40, with about 20 more earnings years ahead. Ideally the investments would be in the regular, or SIP mode to avoid the common tendency to enter markets close to the peaks, based on momentum,” says Anil Rego, Founder and CEO, Right Horizons.

Rego said those who are risk-averse should not have such a high portion locked in equities. “Closer to retirement and beyond a person requires cash flow from investments to replace regular liquidity from salary. Such liquidity cannot come from equities, but rather be from fixed income investments. Equity would be a relatively miniscule part of the allocation with advancing age,” he said.

However, he was quick to point out that equity should not be ignored altogether. “No investor should avoid equity, whatever his age or situation. The quantum of equity in a person’s portfolio should be a personal choice, or be decided by the specific financial situation of the person. The valuations of the market should also have a bearing on the exposure as buying when stocks are expensive is a natural instinct and therefore not suitable for retirement planning.

The young especially should have a higher part of their investments earmarked for equities. Closer to retirement and beyond a person requires cash flows from investments to replace regular liquidity from salary. Such liquidity cannot come from equities, but rather be from fixed income investments. Equity would be a relatively miniscule part of the allocation with advancing age, and receive only money that is not earmarked towards any goal.

Arvind A Rao, Founder, Arvind Rao and Associates, also feels that the high equity component in their NPS corpus can work well for the younger subscribers. “Investors in the age group 25-45 years should be the ones who should opt for the highest equity exposure and people whose retirement is due within next 6-8 years should avoid the highest option,” he said.

Rao feels that the life-cycle fund with 75% equity may work better for investors who are not sure of how to decide their asset allocation in future “The life-cycle fund with 75% equity works best for investors who do not want to actively determine their asset allocation patterns and would prefer to stick to thumb rules and life-cycle based asset-allocation strategies,” he said.

Amar Pandit, Founder & Chief Happiness Officer of HappynessFactory.in, feels one should determine asset allocation on the basis of goal and not on age. “Asset allocation is not a function of one’s age but it is about need. If retirement is a long term goal (i.e. at least after 7-10 years), one can definitely keep higher allocation in equity. This is because equity markets can be volatile in short to medium term but tend to perform well in the long run,” he said.

Equity is suitable for investors with long investment time horizon and those who have the risk appetite to handle short term fluctuations and volatility, he said.