A TICKING Bad loans, the perennial scourge of Indian banks, have a virulent edge this year
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RNI No. MAHENG/2009/28962 | Volume 13 Issue 03 | 16th - 31st M ar ’21
M umbai | Pages 52 | For Pr ivate Circulation
Bad loans, the perennial
scourge of Indian banks, have
a virulent edge this year
A TICKING
DEBT BOMB?
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Disclaimer: Insurance is a subject matter of solicitation. Mutual Fund investments are subject to market risks. Investment in Securities/Commodities market are subject to market risks. Read all the related
documents carefully before investing. Please read the Do’s and Don’ts prescribed by the Commodity Exchange before trading. We do not offer PMS Service for the Commodity segment .The securities
quoted are exemplary and are not recommendatory. NIRMAL BANG SECURITIES PVT LTD – BSE (Member ID- 498): INB011072759, INF011072759, Exchange Registered Member in CDS; NSE MEMEBR
ID- 09391): INB230939139, INF230939139, INE230939139; MSEI Member ID-1067) : INB260939138, INF260939138, INE260939139: Single Registration No.INZ000202536,PMS Registration No:
INP000002981; Research Analyst Registration No: INH000001766; NSDL/ CDSL: IN-DP-CDSL 37-99. NIRMAL BANG COMMODITIES PVT LTD – MCX (Member ID -16590 /NCDEX Member ID -0362
/ICEX Member ID -1165) : Single Registration No. INZ000043630; NCDEX Spot: 10084; Comtrack Participants: CPID -5040; CDSL Commodity Repository Ltd: 12013300 Nirmal Bang Securities Private
Limited CIN: U99999MH1997PTC110659; Nirmal Bang Commodities Private Limited CIN: U67120MH1995PTC093213
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DB Corner - Page 5
Beyond Thinking
CONTENTS
A Ticking Time Bomb?
Bad loans, the perennial scourge of Indian banks, have a virulent
edge this year – Page 6
Inside View
Investors would be better off learning about indices as they are a
measure of market sentiments – Page 10
A Mix Of Joy And Fear
The return of the GDP to the positive territory is an optimistic sign,
but things are far from celebratory due to rising inflation – Page 13
Pending Reforms
The fertilizer sector is on the cusp of re-rating over supportive
government policies and potential reforms – Page 16
Manufacturing Consent
By making rules and regulations favourable to foreign companies,
the Indian government hopes to attract more players to Make in
India, and boost employment opportunities – Page 19
Resilient & Thriving
Steel companies have seen demand surge. Sustainability of
Volume 13 Issue: 03, 16th - 31st Mar ’21 demand will be key for domestic steel companies, going ahead
– Page 22
Affordable Once Again
Editor-in-Chief & Publisher: Rakesh Bhandari The affordable housing segment has done remarkably well despite
Editor: Tushita Nigam
Senior Sub-Editor: Kiran V Uchil
a few hiccups resulting from the Covid-19 pandemic – Page 25
The Digital Playground
Art Director: Sachin Kamble A growing smartphone user base and rise in internet penetration is
Junior Designer: Orianne Fernandes buoying the digital gaming industry in India – Page 28
In A Legal Tangle
Operations: Namrata Sabbani
The Future Retail-Reliance deal is in a limbo due to the ongoing
Research Team: Sunil Jain, Vikas Salunkhe,
legal dispute between India’s second largest retailer and Amazon
Swati Hotkar Shewale, Nirav Chheda, Amit – Page 31
Bhuptani, Ritu Poddar, Aniket Jadhav, Value Creation
Swapnil Ufale The addition of niche products in the oral care segment is hoped to
boost earnings while catering to the growing needs of health
Printed and published by Mr Rakesh Bhandari on
behalf of Nirmal Bang Financial Services Pvt Ltd,
conscious people – Page 34
printed at Uchitha Graphic Printers Pvt Ltd Beyond Basics
65, Ideal Ind. Estate, Senapati Bapat Marg, Lower Passive High
Parel, Mumbai – 400013 and published at Nirmal
Bang Financial Services Pvt Ltd, 601/6th Floor, Of late passive funds have been giving good returns and are,
Khandelwal House, Poddar Road, Malad (E) therefore, worth exploring by investors – Page 37
Mumbai - 400097. Editor: Tushita Nigam
Beyond Numbers
REGISTERED OFFICE Mutual Fund Blackboard – Page 40
Nirmal Bang Financial Services Pvt Ltd Technical Outlook – Page 45
601/6th Floor, Khandelwal House, Poddar Road,
Malad (East) Mumbai - 400097 Beyond Learning
Tel: 022 - 6273 9600 Track & Treat
Track all your expenses and enjoy total control over your finances by
Web: www.nirmalbang.com
beyondmarket@nirmalbang.com using zero-based budgeting, which calls for justification of all
Tel No: 022 - 6273 8047 expenses vis-à-vis the income earned – Page 46
Beyond Buzz
Important Jargon – Page 49 3
Beyond Market 16th - 31st Mar ’21 It’s simplified...
DEBT-LY WOES
T he ongoing pandemic has led to irreparable losses. The magnitude of the destruction is so huge that it is going to take a long
time to clean up and fix the repercussions of coronavirus.
The banking sector in India is not an exception to this health crisis as it has been facing the fallout of failing businesses and
companies, leading to a scenario of bad loans (existing and new) and the need to restructure such loans.
In this situation what we need to look at is how banks will tackle the issue of rising non-performing assets (NPAs) with even the
timelines for sops doled out by the government coming to an end. Read our cover story to understand the burgeoning problem of
NPAs being faced by banks across the country.
We have also covered other note-worthy articles in this issue. Some of them include the impact of adding or removing a company
that makes up benchmark indices, the economic scenario in India with inflationary concerns looming high, the likelihood of re-rating
of the fertilizer segment with a slew of measures announced in Union Budget 2021-22, the positive impact on Prime Minister
Narendra Modi’s ‘Make in India’ campaign with international companies looking at setting up manufacturing units in India and the
employment opportunities it is likely to create subsequently.
You will also find articles on sectors such as steel, affordable housing, online gaming and oral care in this issue. With retail giants
Reliance and Amazon in a spat over Future Retail, we thought it appropriate to give you a low-down on the goings-on between the
retail giants and the possible outcome of the ongoing legal dispute.
Do not miss an interesting article on passive investing in the Beyond Basics section of this issue. With passive funds giving good
returns, it is an investment option that each one can explore.
And lastly for all those of you who are constantly battling with managing income and expenses, we have covered zero-based
budgeting for you in our Beyond Learning section. It will teach you how to assign a role to every rupee you earn so that you can
benefit from it to the fullesT.
Beyond Market 16th - 31st Mar ’21 It’s simplified...
DB CORNER
The Nifty Futures
has support at
the 14,820 level.
T he US Congress passed the $1.9 trillion plan, one of the largest rescue packages ever in the US, earlier
this month.
The “historic” package called The American Rescue Plan will help the US economy recover from the
coronavirus pandemic by providing $1,400 payments to most Americans, aid the unemployed, expand public
health care and enhance funds for vaccinations.
The US Federal Reserve plans to keep interest rates near zero for a longer period, reconfirming its support to the
economy until the job market recovers fully and inflation is on track to moderately exceed 2%.
India is staring at a second wave of coronavirus infections, which experts say is likely to have been caused by
lack of testing and contact tracing of infected individuals. This may, however, impact some sectors in the near
term.
The Indian stock markets look good in the coming weeks. The Nifty Futures has support at the 14,820 level. The
expected target on the upper side is around 15,550.
Traders and investors must keep a close watch on the rising number of coronavirus cases in the country as it may
restrict movement further. They could also expect a decline in Q4 earnings results of some sectors due to rising
costs as compared to the previous quarteR.
Sensex: 50,136.58 Disclaimer
Nifty: 14, 845.10 It is safe to assume that my clients and I may have an investment interest in the stocks/sectors
discussed. Investors are required to take an independent decision before investing. Investment in
(As on 30th Mar ’21) equity is subject to market risk. Our research should not be considered as an advertisement or
advice, professional or otherwise. The investor is requested to take into consideration all the risk
factors including their financial condition, suitability to risk return profile and the like and take
professional advice before investing.
5
Beyond Market 16th - 31st Mar ’21 It’s simplified...
BEYOND THINKING
Bad loans, the perennial
scourge of Indian banks, have
a virulent edge this year
A TICKING
DEBT BOMB?
6
Beyond Market 16th - 31st Mar ’21 It’s simplified...
T
measures have helped banks but they India Ratings & Research said.
are unlikely to escape the brunt of the
slowdown. According to the RBI’s It estimated that stressed loans from
financial stability report, bank NPAs retail advances could rise to 4.7% of
may rise to as high as 14.8% by the total in March ’22 from 1.60% in
September ’21 in case of a severe March ’21, led by slippages in
stress scenario, from 7.5% as of unsecured loans - especially at
September ’20. private sector banks.
At the baseline scenario, the central Private sector banks are likely to
he pandemic-induced economic bank stress tests see GNPAs at 13.5% experience higher slippages from
stress has put several firms out of by September ’21. retail loans with total stressed loans
business, led to a huge contraction in increasing about three times, mainly
Gross Domestic Product (GDP) and “If the macroeconomic environment due to their share in the number of
loss of jobs for millions. According worsens into a severe stress scenario, unsecured loans.
to a recent report by Pew Research, the ratio may escalate to 14.8%.
the pandemic has pushed a third of Among bank groups, public sector There could be a 170% increase in
India’s middle class into poverty. banks’ GNPA ratio of 9.7% in retail stress in the banking system,
September ’20 may increase to albeit on a low base as retail did not
In such a scenario, banks, which are 16.2% by September ’21 under the see a lot of NPA build-up. For PSBs,
already beset with the ballooning of baseline scenario while those of the increase is likely to be 150%, or
non-performing assets, have a tryst private sector banks and foreign 1.5 times, and for private banks, it
with fire. banks may increase from 4.6% and may be 270%, or 2.7 times.
2.5% in September ’20 to 7.9% and
Under the severe stress scenario 5.4%, respectively, over the same Much of this stress is set to come
modelled by the Reserve Bank of period,” the RBI said. from unsecured advances. The share
India (RBI), bank Non-Performing of unsecured exposures in private
Assets (NPAs) are likely to double to banks’ gross advances is about 15%,
14.8% of the total loans by Public sector banks will be most while for PSBs, it is almost 5%.
September ’21, from 7.5% as of impacted in case of a severe stress
September ’20. scenario with their GNPA ratio rising While stress in the retail segment
to 17.6% compared to 8.8% may not necessarily be manifested
The government and the Supreme projected for private sector banks and this year or the next, the trends in
Court have thrown lifelines to banks 6.5% for foreign banks, the RBI said. individuals’ income growth and the
and borrowers but those are about to quality of banks’ unsecured assets
end while the pandemic’s end is However, the central bank has said cannot be divergent for long, India
nowhere in sight. that the results of the stress test Ratings said.
should not be taken as forecasts.
After giving moratorium on loan “The adverse scenarios used in the MSME LOANS
repayments for the first few months, macro stress tests were stringent
the RBI rolled out a one-time conservative assessments under About 6,51,000 Micro, Small and
restructuring scheme for borrowers. hypothetical adverse economic Medium Enterprise (MSME)
The Supreme Court too suspended conditions so the model outcomes do borrowers had got restructuring done
tagging of overdue debt as NPAs not amount to forecasts,” the report till 31st Mar ’20. So some of the
since August ’20, recognizing it as said. borrowers did not line up for a
Covid-related stress, till further subsequent one-time restructuring
orders. RETAIL LOANS scheme.
So how will the scenario pan out? Stress in retail loans could treble by A company’s debt servicing burden
the end of FY22 due to the is reduced for 12-18 months by such
THE CURRENT STATUS slowdown in income growth and schemes and even a bulk of them
slower pace of job creation in the default, they may not add
The RBI and the government service sector, credit ratings firm substantially to the NPAs.
7
Beyond Market 16th - 31st Mar ’21 It’s simplified...
Also, under the ECLGS, `1.69 lakh gold loans and home loans are close while it reported NPAs of 3.44%. For
crore was disbursed to 4.25 million to 100% but MSME and unsecured Bank of Baroda the actual NPA was
borrowers till 8th Jan ’21. This loans are at 80% to 85% while real 9.63%. But it reported 8.48%. In the
scheme allowed for an incremental estate financing efficiencies have case of Canara Bank, the actual NPA
20% exposure for business borrowers dropped to 75% to 80%, Crisil said. was 8.95% and the reported one was
that were no more than 30 days Vehicle finance efficiencies though at 7.46%.
delinquent on repayments as of 90% to 95% are improving, it said.
February ’20. The silver lining in this is just 16%
MUDRA LOANS more than the currently recognized
While the 20% loan value cannot NPA level, not any huge rise as
cover the entire cost of business Outstanding loans under the Pradhan modelled by RBI stress tests. Also,
operations, they are enough to Mantri Mudra Yojana (PMMY) are less than 2% to 3% of borrowers had
service debt burden for 12-24 also becoming a cause of concern. requested an OTR as of 31st Dec ’20.
months, and are unlikely to add to The Supreme Court moratorium over
NPAs, at least till the most of fiscal classifying loans as NPAs has so far Also, with the economy reviving,
2021-22. kept defaults under the lid. India Ratings has revised its outlook
on the overall banking sector to
NBFC LOANS However, about 25% loans under the stable for FY22 from negative
scheme could turn bad due to the because substantial systemic
Stressed loans for Non-Banking pandemic, according to estimates. As measures have reduced the
Financial Companies (NBFCs) rise on 18th February, NBFCs and Covid-linked stress below expected
to the highest level in 12 years. microfinance institutions have levels. Banks have also strengthened
disbursed a total of `2.19 lakh crore their financials by raising capital and
According to ratings agency Crisil, under the scheme. building provision buffers.
stressed loans are likely to rise to
between `1.5 lakh crore and `1.8 NOT TOO BIG? While the first half of 2021-22 may
lakh crore or 6% to 7.5% of the show some weak signals on true
Assets Under Management (AUM) While the economic contraction has credit quality, a large number of
by fiscal 2021-end, up from about hit hard, government measures such borrowers will have to start bearing
4% a year earlier, on account of a as the Emergency Credit Linked their full debt-servicing burden in the
sharp increase in stress in unsecured Guarantee Scheme (ECLGS) are second half, experts say.
personal, real estate, and MSME providing some relief to Covid-hit
loans. businesses. FISCAL 2022-23
Crisil expects gross NPAs from The RBI moratorium and its The real test will come in fiscal
personal loans to increase to 9.5% to subsequent One-Time-Restructuring 2022-23 when a larger number of
10% of loans in March ’21 from (OTR) scheme have helped in restructured accounts will start
2.2% a year earlier. Similarly, NPAs keeping the NPA levels of banks in bearing their full debt-servicing
from real estate financing could check. burden; it is when the credit-infused
quadruple to 15% to 20% from 4.5% liquidity may also thin out. Experts
in March ’20 while 7.5% to 8% loans While after the SC’s stay order, say the rapid GDP growth expected
to MSMEs could slip into NPAs from banks have suspended tagging the in 2021-22 will support recoveries,
3.4% as of March ’20. loans of borrowers as NPAs since but NPA levels may rise after that.
August ’20; they have started
Crisil said that unlike previous crises, reporting portfolio-level proforma Only if the growth momentum of
the pandemic has impacted almost all NPAs (the gross NPA rate). An 2021-22 is maintained the year after,
NBFC asset segments as a lockdown incremental `1 lakh crore of debt is can the situation be saved. Else, the
in the first quarter led to operations estimated to have become effect of Covid-19 will show on
being curbed impacting both non-performing. banks in fiscal 2023.
disbursements and collections
severely. For example, the actual bad debt for CLARITY AWAITED
Axis Bank at the end of 30th Dec
For NBFCs, collection efficiencies in ’20, was 4.55% of its total loans The situation will only get clearer
8
Beyond Market 16th - 31st Mar ’21 It’s simplified...
once the Supreme Court lifts the stay mid-2015, the banks started likely to worsen during the first six
and the banks will have to mark bad recognizing them as bad. months of 2021. Half of the
loans as NPAs. While banks are respondent banks reported a decline
declaring proforma GNPAs, experts With the situation repeating, it has in NPAs during the second half of
say they may be under-declaring led to a clamour for fresh asset 2020.
these numbers. quality review of banks to force them
to come clean on bad loans. About 78% of participating state-run
In 2011 too, banks had started banks have cited a reduction in NPA
accumulating bad loans after a IBA SURVEY levels. However, in terms of sector
lending binge between 2004 and outlook, nearly 68% of respondent
2010. But they did not declare these Meanwhile, bankers in a survey by bankers expect the NPA levels to be
bad loans as bad immediately. Only Indian Banks’ Association (IBA) said above 10% in the first half of the
after an asset quality review in that the asset quality of banks is year 2021.
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Disclaimer: Insurance is a subject matter of solicitation. Mutual Fund investments are subject to market risks. Investment in Securities/Commodities market are subject to market risks. Read all the related
documents carefully before investing. Please read the Do’s and Don’ts prescribed by the Commodity Exchange before trading. We do not offer PMS Service for the Commodity segment .The securities
quoted are exemplary and are not recommendatory. NIRMAL BANG SECURITIES PVT LTD – BSE (Member ID- 498): INB011072759, INF011072759, Exchange Registered Member in CDS; NSE MEMEBR
ID- 09391): INB230939139, INF230939139, INE230939139; MSEI Member ID-1067) : INB260939138, INF260939138, INE260939139: Single Registration No.INZ000202536,PMS Registration No:
INP000002981; Research Analyst Registration No: INH000001766; NSDL/ CDSL: IN-DP-CDSL 37-99. NIRMAL BANG COMMODITIES PVT LTD – MCX (Member ID -16590 /NCDEX Member ID -0362
/ICEX Member ID -1165) : Single Registration No. INZ000043630; NCDEX Spot: 10084; Comtrack Participants: CPID -5040; CDSL Commodity Repository Ltd: 12013300 Nirmal Bang Securities Private
Limited CIN: U99999MH1997PTC110659; Nirmal Bang Commodities Private Limited CIN: U67120MH1995PTC093213
Regd. Office: B-2, 301/302, 3rd Floor, Marathon Innova, Off Ganpatrao Kadam Marg, Lower Parel (W), Mumbai - 400013. Tel: 62738000/01; Fax: 62738010
For free account opening, call on +91 022 62738000 | www.nirmalbang.com
9
Beyond Market 16th - 31st Mar ’21 It’s simplified...
BEYOND THINKING
INSIDE
VIEW
Investors would be better off
learning about indices as they are a
measure of market sentiments
10
Beyond Market 16th - 31st Mar ’21 It’s simplified...I
The index is meant to represent the An index that is diversified across
theme it tracks. Also, it ensures that sectors helps capture the action
investors get access to a basket of taking place across sectors in the
stocks, which are liquid. The economy. Investors benefit from the
liquidity is assessed after factoring in growth of the economy.
the impact cost.
Over a period of time, the rebalanc-
The weight of the stock is ing of the index ensures that the
determined by the free float market index constituents from the relevant
capitalization. The higher the sectors make it to the index. For
ndices are a good measure of number, greater is the weight of the example, the Nifty had no exposure
sentiments in the stock markets. As stock in the index. to telecom stocks in 1995. Now it has
the extent of outperformance by 2.13% exposure to telecom stocks.
active money managers goes down, When a stock that is doing well Same is the case with information
the indices become an investment replaces a stock that is not doing technology companies.
vehicle for investors who are keen to well, the index changes. The
avoid fund managers’ risks. computation of index value changes Sectors that have reported massive
as the contribution of the new stock growth over time have made it to
Though indices in the developed is considered. indices. Thus, the different changes
markets have had a long operational in the indices make them relevant in
history, their constituents have Such inclusions also impact the way different times.
continued changing over a period of the earnings per share of the index is
time. Changes in indices also impact calculated. If the stock of a company Investors tracking the markets must
investors in addition to the perfor- that is posting good earnings growth understand that the inclusion and
mance of the index they are a part of. is included in the said index, then the exclusion in the indices alters
earnings of the index also takes sentiments around a stock. When a
Indices such as Nifty 50, which is support from the inclusion of that stock is getting included in the index,
tracked by many investors, used in particular stock. the demand for that stock goes up.
futures for trading purposes and to
offer many passive investment Index manufacturers ensure that the Index fund managers who mimic the
vehicles such as index funds and index in question is true to its label. index in question in their schemes
exchange-traded funds, have seen Though the free float market cap is have to buy the stock that is being
many changes in the past. the determining factor for ascertain- included in the index and have to sell
ing the weight of the stock and sector the stock that is getting excluded
This index and many other profes- in the index, there could be cases from the index. This leads to a
sionally-managed indices are wherein the exposure to a particular sudden change in preferences for the
rebalanced twice a year. In its recent stock can be capped. stock in question.
rejig, Tata Consumer Products is
slated to replace GAIL India. In case For example, Nifty 200 Momentum Investors who are trading in these
of changes in Nifty 50, four weeks’ 30 index limits the exposure to stocks either in the cash market or in
notice is mandatory. individual stocks at the lower of 5% the derivatives segment need to keep
or five times the weight of the stock this thing in mind while initiating
It has been observed that the stocks in the index based only on free float their positions.
that are not doing well or have faced market capitalization. Such measures
some corporate actions or are stuck ensure that there is adequate Index fund managers are expected to
with some scams are excluded from diversification for investors. buy the incoming stock in the index
the index. near the closing price of the stock on
For instance, Nifty 50 index has 50 the date of reset and sell the stock
Yes Bank was excluded from the stocks spread across 13 sectors. that is going out. This ensures that
Nifty 50 in 2020. After the scam Financial services, Information there is not much tracking error.
broke out in Satyam, this stock too Technology and Oil & Gas are the
was excluded from the index in top three sectors with 39.5%, 15.73% Tracking error can simply be defined
2009. and 12.81%, respectively. as the difference in performance
11
Beyond Market 16th - 31st Mar ’21 It’s simplified...between the portfolio of stocks and The size of the fund is also important the economic growth of the country.
the performance of the benchmark in to ensure efficient rebalancing of the If the economy is doing well, then
question before expenses to manage portfolio, in line with rebalancing of there is a fair chance that the index
the portfolio. the index in question. Extremely may go up and investors are also
small-sized index funds may find it likely to be rewarded.
Lower the tracking error, better it is difficult to rebalance if the stocks
for investors seeking passive coming in are priced high in absolute For example, in the last 21 years, the
exposure to the index. terms, while keeping the tracking Nifty 50 has rewarded investors with
error low. 11.36% Compound Annual Growth
This can be done relatively easily for Rate (CAGR). Investors should not
the diversified funds where the Also, very large funds may find it get anxious about market noise.
underlying stocks are traded in good difficult to rebalance the portfolio in
quantities on the exchange. However, line with the index, if the stock to be While investing in a diversified
as we go down the size of the bought is not liquid. index constructed on the basis of free
companies, it becomes difficult. float market capitalization methodol-
While traders and index fund ogy, market wisdom is at work. The
Indices that house small cap stocks managers have to keep track of the stocks that are favoured by investors
are difficult to replicate, given low inclusions and exclusions in the gain in terms of market capitalization
liquidity. The fund manager may find index, long-term investors keen on as prices surge. Such stocks make it
it difficult to sell a stock that is going passive investing can ignore such to index and also get higher alloca-
out of the index and buy the stock periodical changes. tion over a period of time.
that is coming into the index with
least impact cost. Hence, the tracking Investors have to focus on accumu- Investors are better off keeping their
error can be more in such index lating units of index funds that mimic costs low through an index fund, stay
funds as compared to index funds the index. Over a long period of invested and benefit from the
that track large cap-focused indices. time, the index moves in line with evolution of the index over timE.
eyond P o w e r e d b y
Disclaimer: Insurance is a subject matter of solicitation. Mutual Fund investments are subject to market risks. Investment in Securities/Commodities market are subject to market risks. Read all the related documents carefully before investing. Please read the Do’s and
Don’ts prescribed by the Commodity Exchange before trading. We do not offer PMS Service for the Commodity segment .The securities quoted are exemplary and are not recommendatory. NIRMAL BANG SECURITIES PVT LTD – BSE (Member ID- 498): INB011072759,
INF011072759, Exchange Registered Member in CDS; NSE MEMEBR ID- 09391): INB230939139, INF230939139, INE230939139; MSEI Member ID-1067) : INB260939138, INF260939138, INE260939139: Single Registration No.INZ000202536,PMS Registration No:
INP000002981; Research Analyst Registration No: INH000001766; NSDL/ CDSL: IN-DP-CDSL 37-99. NIRMAL BANG COMMODITIES PVT LTD – MCX (Member ID -16590 /NCDEX Member ID -0362 /ICEX Member ID -1165) : Single Registration No. INZ000043630; NCDEX
Spot: 10084; Comtrack Participants: CPID -5040; CDSL Commodity Repository Ltd: 12013300 Nirmal Bang Securities Private Limited CIN: U99999MH1997PTC110659; Nirmal Bang Commodities Private Limited CIN: U67120MH1995PTC093213
Regd. Office: B-2, 301/302, 3rd Floor, Marathon Innova, Off Ganpatrao Kadam Marg, Lower Parel (W), Mumbai - 400013. Tel: 62738000/01; Fax: 62738010
For free account opening, call on +91 022 62738000 | www.nirmalbang.com
12
Beyond Market 16th - 31st Mar ’21 It’s simplified...A
BEYOND THINKING
What is encouraging, however, is means that the country will have
that the economic contraction for escaped the terrible devastation that
FY21 (for the year ended 31st Mar was feared just a few months ago.
’21) will most likely not be in double
digits as was feared earlier. In the The reason for the optimism,
middle of 2020 when the Covid-19 however mild, is the fact that the
pandemic was at its worst, it was country’s GDP returned to the
dreaded that the Indian economy positive territory, growing by a small
would be terribly devastated and that 0.4% in the third quarter (Q3) of this
the economy would contract in fiscal. This return to growth in the
fter a dramatic slide in the country’s double digits. October to December quarter of 2020
economy in the first quarter of this has materialized after two continuous
fiscal (FY21) following the However, as per the second advanced quarters of contraction in Q2 and Q1
lockdown imposed by the central quarterly estimates of GDP released of this fiscal.
government to combat the pandemic by the Ministry of Statistics and
caused by coronavirus, India’s Programme Implementation In the last fiscal (FY20), the
economy is slowly returning to (MoSPI), the country’s GDP for this country’s GDP had grown by 4%.
normal, although truth be told, things fiscal is likely to contract only minus
are still far from rosy. 8% which, if it turns out to be true, The government has also revised its
The return of the GDP to the positive
territory is an optimistic sign, but things are
far from celebratory due to rising inflation
13
Beyond Market 16th - 31st Mar ’21 It’s simplified...GDP figures for Q2 and Q1 of FY21 corresponding period of the previous crore to CGST and `17,534 crore to
- for Q2 (July to September ’20), year. SGST from IGST as regular settle-
there was a marginal improvement as ment. Besides, the Centre has also
the GDP contracted by 7.3% as An interesting highlight here is that settled `48,000 crore as IGST ad-hoc
against the previous estimate of November and December registered settlement in the ratio of 50:50
-7.5%. In the first quarter (April to inflows of US $10.1 billion and US between the Centre and States/Union
June period) of this fiscal, the $9.2 billion, respectively. What has Territories. The total revenue of the
contraction was more - at 24.4% as been heartening is that even during Centre and States after regular
against the earlier announced this coronavirus-affected year, FDI settlement and ad-hoc settlement in
-23.9%. This is the worst-ever inflows have continuously grown February is `67,490 crore for CGST
contraction in India’s economic since August ’20. and `68,807 crore for SGST.
history and hopefully will remain
just a one-time phenomenon. The Goods and Services Tax (GST) While the above are encouraging
revenues have also been healthy of signs, inflation has increased and
The important manufacturing sector late, which is yet another sign of the there are indications that it could rise
expanded in Q3 by 1.6% as against a worst being behind us. The GST further, going forward.
contraction of 1.5% in the second collection in February this year stood
quarter. Agriculture, forestry and at `1.13 lakh crore, up 7% on a The Index of Industrial Production
fishing also expanded by 3.9% in Q3. year-on-year (y-o-y) basis. This is (IIP) registered a decline of (-) 1.6%
A point that needs highlighting here also the fifth consecutive time that y-o-y to 135.2 in January. A high
is that agriculture is the only sector the revenue has breached the `1 lakh inflation rate could be problematic
that grew in all three quarters despite crore-mark and for the third consecu- and put a spoke in the wheels of
the rigorous lockdown resulting from tive month the `1.1 lakh crore-mark. economic recovery. The IIP figure
the coronavirus-induced pandemic. indicates that there is still a long way
This rise in GST collections is a clear to go before the country’s economy
Another sector that grew in Q3 was indication that economic activities regains its vigour of two to three
construction at a healthy 6.2% as are getting back on track and the years ago.
against a contraction of 7.2% in the Indian economy is beginning to gain
previous quarter (Q2 FY21). There traction, even though a full recovery Retail inflation as measured by the
was a contraction, however, in trade, is still some time away. The govern- Consumer Price Index (CPI) moved
hotels, transport, communication and ment also highlights the fact that its northward to 5.03% in February, the
services related to broadcasting at various measures to streamline tax highest in three months as against
7.7% in the third quarter, which, administration and improve tax 4.06% in the previous month. The
however, is a good improvement compliance are beginning to pay Wholesale Price Index (WPI)-based
from the contraction of 15.3% in Q2. dividends. inflation too increased in February to
a 27-month high at 4.17%. Core
Another significant highlight is the Of the `1.13 lakh crore, the Central inflation at 5.88% is also a cause of
Foreign Direct Investment (FDI) GST (CGST) stood at `21,092 crore concern.
inflow that has entered the country so and State GST (SGST) at `27,273
far this fiscal. The FDI inflow in the crore, while Integrated GST (IGST) With CPI inflation in the upper
first nine months of this fiscal stands stood at `55,253 crore. Cess margin of the Reserve Bank of
at a robust US $67.54 billion, the collected stood at `9,525 crore - this India’s (RBI)’s 6%-mark, rate cuts
highest-ever FDI inflow attracted so includes `660 crore collected on are unlikely in the next three-month
far. This is 22% higher as compared import of goods. period. Rate cuts are always
to US $55.14 billion in the year-ago welcome for India Inc and they are
nine-month period of April to In February, revenue from import of helpful in revving up growth.
December. goods was 15% higher as compared However, with inflation a key focus
to the year-ago month while revenue area for the Reserve Bank, it is
In the three-month period from from domestic transactions (includ- unlikely to resort to rate cuts in the
October to December of this fiscal, ing import of services) was 5% short term.
FDI inflows were up a significant higher.
37% to US $26.2 billion as compared Retail inflation has gained because of
to US $19.09 billion in the The government has settled `22,398 an increase in food prices. The
14
Beyond Market 16th - 31st Mar ’21 It’s simplified...Consumer Food Price Index (CFPI) in fuel prices is one reason for food rate hike, which will result in interest
or inflation in the food basket rose to prices to have moved northward. rates increasing - this could affect
3.87% in February from just 1.96% people’s savings and thereby hit
in the previous month. The Commodity prices too are facing consumption as people will use their
month-on-month (m-o-m) increase in inflationary pressure - the rising cost money mainly for essentials and not
the food basket was led by prices of of fuel and energy has contributed to for products such as automobiles,
oils and fats, which shot up 20.78%. increase in prices of most commodi- jewellery or electronic goods.
ties and services.
There were also double-digit upward Additionally, while India’s GDP
movements in the prices of pulses Here, it must be pointed out that a grew by 0.4% in Q3 FY21, it must be
and products at 12.54%, non-alcohol- gradual increase in inflation is admitted that on key economic
ic beverages at 13.92%, meat and welcome, especially in the situation parameters such as investment and
fish segment at 11.34% and eggs at that the world economy finds itself in exports, weakness still persists.
11.13%. due to coronavirus. In India as well,
a small jump in inflation can be There has been forward movement
Going forward, higher inflation interpreted as a sign of demand for sure in the last two to three
could have an adverse impact on picking up, which will have a months with business activity
economic growth. High energy prices positive impact on the economy. perking up but the government
could fuel retail inflation. Petrol and However, a sharp jump in inflation is would do well to keep an eye on
diesel prices are already quite high a cause of concern. inflation as rising inflation could
and they have contributed to rising otherwise spoil the party. The
inflation. If they continue to rise If inflation crosses the Reserve government, therefore, has to be on
further, then it could lead to an Bank’s upper margin mark of 6%, its toes for a large part of the current
upward movement in inflation. Rise then the apex bank might resort to a yeaR.
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Beyond Market 16th - 31st Mar ’21 It’s simplified...BEYOND THINKING
PENDING
REFORMS
The fertilizer sector is on the cusp of
re-rating over supportive government
policies and potential reforms
16
Beyond Market 16th - 31st Mar ’21 It’s simplified...S
`1,33,947 crore provided to the years as a precursor to vital reforms
fertilizer sector towards subsidy for in the sector.
FY21, 74% of which has already
been paid to the fertilizer companies This includes neem-coating of
till February ’21. With this, the fertilizers to avoid diversion, cap on
industry will enter FY22 with zero sale of urea per transaction and
pending subsidy bills. subsidy payments to manufacturers
only if sales are recorded at the
But will the industry exit FY22 with point-of-sale machines, thereby
zero subsidy bills? This will depend bringing in transparency.
hares of fertilizer companies have on the demand for fertilizers going
rallied on the bourses in the recent ahead and trends in raw material Here is a list of potential reforms.
past. Markets are expecting the prices, especially crude oil and
government to undertake incremental natural gas. GST On Natural Gas
reforms that could rerate the sector. Currently, natural gas is not within
Such expectations have only risen as For non-urea fertilizers, key input the ambit of Goods and Services Tax
the government is earnestly trying to costs such as phosphoric acid, (GST) and attracts Central Sales Tax,
clear the pending subsidy bills of the ammonia and sulphur, which are Central Excise Duty and State Value
sector. showing some uptrend of late, will Added Tax (VAT). These taxes are
impact the retail price of fertilizers, higher. A GST rate of 5% to 18% if
The pending subsidy bills remained a and thus the subsidy bill. applied may bring down gas prices
concern for the industry in the last substantially. Natural gas is used as a
decade. The government regulates INCREMENTAL REFORMS feedstock for the manufacture of urea
the prices of fertilizers. In fact, the and accounts for 50% to 80% of the
prices are lower than the cost of While worries of subsidy clearance raw material cost.
production and the difference is paid have abated somewhat, there are a
back to the industry by the govern- few measures which when undertak- Out of 31 urea plants in India, 28 are
ment in the form of subsidies. But en will be a real game changer for gas-based and 3 are naphtha-based.
due to fiscal constraints, these bills the sector. Not only will this improve the
had been mounting. financial position of companies, even
The government has already the government stands to benefit as
According to one analysis, for urea undertaken a few steps in recent the subsidy bill will get reduced
players the subsidy receivables from
the government accounted for 75%
of company’s revenue; for non-urea Production, Import & Sale Of Key Fertilizers
players it accounted for close to 25% (Unit: Lakh Metric Tonnes - LMT) Change (y-o-y)
of the revenue. The gap is huge. The
2019-20 2020-21 2019-20 2020-21
delay in subsidy payments forced
Overall Fertilizer Production 359 370 370 3.0%
companies to borrow in the short
term till the government cleared the Overall Fertilizer Imports 204 230 230 12.6%
dues, thus impacting their balance Overall Fertilizer Sales 486 581 581 19.4%
sheets. Urea Production 204 210 210 2.7%
Urea Imports 84 98 98 16.6%
WORRIES ABATE
Urea Sales 325 308 308 -5.3%
But now this concern seems to have DAP Production 38 34 34 -12.2%
tapered off to some extent. The DAP Imports 46 47 47 4.2%
government has allocated an amount DAP Sales 87 97 97 11.4%
of `79,530 crore for subsidy to the MOP Imports 34 38 38 14.4%
fertilizer sector for fiscal year MOP Sales 24 30 30 23.6%
2021-22.
SSP Production 37 41 41 13.0%
Production, Import And Sale During April-January 2021 (10M-FY21)
This comes on the heels of around Source: CARE Ratings
17
Beyond Market 16th - 31st Mar ’21 It’s simplified...proportionately. LMT per year and reduce imports by property of soils in India. Any
70%. scheme that will encourage farmers
Direct-Benefit Transfer (DBT) to use more non-urea fertilizers will
Currently, the subsidy is disbursed to Cap On Subsidized Fertilizers be a welcome move and make
the bank accounts of producers or The government has imposed an agriculture sustainable and help
importers. A true DBT would be upper limit of 50 bags per month per maintain soil health.
when the funds are transferred to the person. Now there are reports that the
farmers’ accounts and lets them government is working on a plan to IN A NUTSHELL
decide on the type of fertilizer they limit subsidised fertilizer bags per
want to buy. user in any sowing season. The fertilizer sector is intimately
linked to agriculture. Currently,
DBT in the real sense will decontrol This would limit the subsidy burden Indian agriculture is in a sweet spot
the sector. There are several of the government and would be a with bumper production in many
challenges such as identifying the precursor to de-regulation of the crops and record purchase by the
real land record of farmers and fertilizer sector. government as buffer stock.
transfer of benefit to true beneficiar-
ies, among other things towards Boost To Non-Urea Sector This will support the consumption of
implementing this. An ideal NPK ratio of soil should be fertilizers over medium- to
4:2:1. But the ratio was 7.33:2.94:1 long-term. It is estimated that growth
Sops For Import Substitution in FY20. Clearly, farmers have been in fertilizer sale for the financial year
The government is trying to revive 5 using a lot of urea as compared to will be in higher single digit against
closed fertilizer plants in India. Some other fertilizers. the normal growth of 2% to 3% per
of them are about to be commis- year.
sioned, while others will be up for The usage of fertilizers by the Indian
use in a few years. Post the commis- farmers is heavily skewed towards Reforms in the sector are overdue
sioning of all the above plants the urea, which accounts for more than and are necessary in the interest of
domestic indigenous urea production 55% of the overall fertilizers used. soil health, crop productivity and
is slated to increase by at least 63.5 This has altered the chemical farmers’ incomE.
The Fertilizer Sector
Chemical fertilizers play an important role in enhancing agricultural productivity and making a country self-reliant in agricultural
produce. Fertilizers contain three basic nutrients for agriculture: nitrogen (N), phosphorus (P) and potassium (K).
Urea carries only one primary plant nutrient - nitrogen. Urea accounts for more than 55% of overall fertilizers used by farmers,
primarily because it is cheaper. There are 31 urea plants in the country.
On the other hand, non-urea fertilizers carry two or all three primary nutrients. The latter category includes Di-Ammonium
Phosphate (DAP), NPK (in various proportions), Single Super Phosphate (SSP) and Muriate of Potash (MOP) fertilizers.
While MOP is entirely imported, 50% of DAP requirements are imported in India. Further, 90% raw materials used for manufac-
turing of DAP are imported.
The government is making available fertilizers, namely urea and 21 grades of P&K fertilizers to farmers at subsidized prices
through fertilizer manufacturers/importers.
India is the second largest consumer of fertilizers behind China. In urea, India is the second largest manufacturer; but the
production always falls short of demand, forcing India to import fertilizers. India is not self reliant as far as fertilizers are
concerned.
Between April ’20 and January ’21, overall fertilizer sales stood at 58.1 million tonnes. Of this, 37 MT was locally produced and
the rest was imported.
18
Beyond Market 16th - 31st Mar ’21 It’s simplified...BEYOND THINKING
By making rules and regulations favourable to
foreign companies, the Indian government
hopes to attract more players to Make in India,
and boost employment opportunities
E
gy Group. products justifies the government’s
decision to increase its spend on
Amazon’s announcement was promoting local manufacturing. In
followed by news of Apple Inc’s this year’s Union Budget, the
decision to produce its latest iPhone government announced a $28 billion
12 in India for local customers. To be programme to convince foreign
sure, Apple already manufactures its manufacturers to make their products
advanced iPhones including iPhone in India.
SE, XR and iPhone 11 locally.
The programme includes a Produc-
arlier in February this year, Even so, these recent announcements tion Linked Incentive (PLI) scheme,
Amazon.com announced that it will have given a much-needed fillip to which will offer cash incentives for
set up a manufacturing line in Prime Minister Narendra Modi’s meeting sales targets in industries
Chennai to produce Fire TV stream- ‘Make in India’ campaign. such as automobile parts, textiles,
ing devices in partnership with an electronics, and pharmaceuticals. The
Indian subsidiary of Taiwanese News of foreign manufacturing incentives are estimated at `1.97 lakh
electronics giant Foxconn Technolo- giants choosing India to make its crore over a five-year period.
19
Beyond Market 16th - 31st Mar ’21 It’s simplified...The PLI scheme is ideal for compa- announced a $2 billion financial aid in its most recent Doing Business
nies that want to build factories at for its companies to shift production report. In contrast, China sits
scale. It is an output-oriented out of China. Globally, companies comfortably above India at 31st
scheme, which gives out incentives are rethinking their strategy of position and South Korea is at fifth
based on performance. Analysts manufacturing in China and many of position.
estimate that under the PLI scheme, them have shown interest in moving
if a manufacturer makes $1 million some of their production to India. The tough business environment has
of incremental sales of goods, they forced some companies to reconsider
will get $50,000 as cashback. Media reports suggest that at least their India plans. In 2020, American
1,000 foreign companies are looking cult motorcycle maker, Harley
PLI is expected to increase domestic at manufacturing in India, with 300 Davidson Inc exited India after doing
output by $520 billion over the next of these companies pursuing business here for 10 years. Harley
five years, creating 2.8 million jobs production plans in sectors such as Davidson came to India 10 years ago
in the process. “About $520 billion mobiles, electronics, medical in 2010, and has left behind 33
of production is estimated to take devices, textiles and synthetic dealership touch points. It closed its
place in India in the next five years fabrics. manufacturing facility in Bawal and
through PLI alone. There is also an reduced the size of its sales office in
estimate that workforce will double This list includes many big-ticket Gurgaon. The reason for exit was
in the sectors that have been given names. In January this year, Ameri- low profitability.
PLI. This will help increase income can electric vehicle and clean energy
and demand,” Prime Minister Modi company, Tesla Inc filed paperwork In September last year, Toyota Motor
said recently. to register a business in India, Corp threatened to push back on its
leading to speculations that it might expansion plans because of the high
PLI could not have come at a better be considering manufacturing in taxes India levies on new-vehicle
time. The ‘Make in India’ campaign India. purchases. Foreign manufacturers
has not exactly been a grand success. constantly struggle with India’s
When it was announced in 2014, the The government added some weight red-tapism, complex laws, poor
campaign’s target was to increase the to the rumour by commenting that it infrastructure, lack of quality power,
contribution of manufacturing to is prepared to offer incentives to higher cost of finance and high taxes,
Gross Domestic Product (GDP) from Tesla, to make manufacturing in among other things.
15% in 2014 to 25% by 2025. This India, cheaper than what it is in
did not happen. The share of China. In fact, poor infrastructure and
manufacturing currently stands at logistics result in higher costs for
around 17%. All these announcements indicate a companies. In 2018, the median time
turnaround in India’s Make in India spent by a container ship during one
With PLI scheme, Goldman Sachs campaign. The government has also port call in China was 0.62 days
estimates that the contribution of indicated that it would reduce versus 0.93 days in India, according
manufacturing in GDP could increase compliance burden on companies, to United Nations Conference on
to 25% in a few years and create thereby improving the ease of doing Trade and Development.
millions of jobs. The government is business. Prime Minister Modi has
keen on wooing big-name foreign said that the government would Amends are being made to make
manufacturers to India. Covid-19 and reduce the burden of almost 6,000 India an attractive manufacturing
the subsequent global lockdown compliances on companies both at destination. In September ’20, the
exposed the over-dependence of the State and Central level. government reduced corporate tax to
companies on China. Production 25.17%. The applicable tax for new
came to a complete halt, when many Improving the ease of doing business manufacturers is now at 17%,
parts of China, went into a lockdown, will do a lot to improve India’s making it the lowest in South East
impacting production. image among foreign manufacturers Asia. Lowering tax rates is expected
- some of whom have burnt their to attract foreign companies.
Manufacturers from countries such hands doing business in India.
as the US, Japan and South Korea But, low taxes do not change the fact
now realize that they cannot be India ranks 63rd among 190 that production cost difference
dependent on China alone. Japan has countries the World Bank surveyed between India and South East Asian
20
Beyond Market 16th - 31st Mar ’21 It’s simplified...countries is as high as 10% to 12%. Nirmala Sitharaman announced this help Indian companies build scale so
The government, however, does not policy as a measure to protect Micro that they become competitive.
see this as a problem. It cites the Small and Medium Enterprises
large market size of India as an (MSMEs) and other companies, It does not mean that the government
incentive for manufacturers. India is which face competition from foreign is giving up on its plans to increase
home to 18% of the world’s popula- companies. The government went exports. The plan is to protect local
tion, making it a huge market that ahead and declared that all global companies from imports till the time
manufacturers can cater to. tenders up to `200 crore would be they reach large economies of scale,
disallowed in government procure- to produce products locally. This
In some ways, the Make in India ment. strategy may or may not work in all
campaign has been reinvented. In sectors. Only time will tell if India
2020, when every country was facing The new version of Make in India is can be both protectionist and a big
shortages, be it of ventilators or semi about protecting domestic manufac- exporter at the same time
conductors, the government turers and pushing them up the value
announced a new policy of “Aatma chain. The first version turned India The primary idea behind Make in
Nirbhar Bharat” (self-sufficient into an assembly hub in sectors such India or Aatma Nirbhar Bharat is to
India). This has been termed by some as mobile phones, lighting and create 10 million new jobs every year
experts as Make in India 2.0. consumer electronics. Manufacturers to accommodate the growing
imported electronic components and workforce. Job creation has become
The two policies have different assembled products locally to cater even more important in the post-
priorities though. Make in India is a to the local customers. This assem- Covid-19 era, where unemployment
wider policy covering 25 sectors, bling of products did create jobs but is on the rise.
with a focus on exports. On the other not as expected.
hand, Aatma Nirbhar Bharat focuses Government sops along with the fact
on bulk drugs, electronics and The second version of Make in India that India is a huge market for any
defence sectors. Its priority is to will encourage vertical integration company should be able to attract
reduce import bill and consume more because of the import substitution foreign manufacturers to India.
locally-manufactured products. policy, which will force manufactur-
ers to use locally-manufactured The fact that many of them are
According to some experts, Aatma components. actively considering India for their
Nirbhar Bharat is a protectionist manufacturing needs is a good sign
policy, which could backfire. In May Import substitution will create and an indication that Make in India
’20, India’s Finance Minister economies of scale. The idea is to campaign might just take ofF.
Disclaimer: Insurance is a subject matter of solicitation. Mutual Fund investments are subject to market
risks. Investment in Securities/Commodities market are subject to market risks. Read all the related
documents carefully before investing. Please read the Do’s and Don’ts prescribed by the Commodity
Exchange before trading. We do not offer PMS Service for the Commodity segment .The securities
quoted are exemplary and are not recommendatory. NIRMAL BANG SECURITIES PVT LTD – BSE
(Member ID- 498): INB011072759, INF011072759, Exchange Registered Member in CDS; NSE MEMEBR
ID- 09391): INB230939139, INF230939139, INE230939139; MSEI Member ID-1067) : INB260939138,
INF260939138, INE260939139: Single Registration No.INZ000202536,PMS Registration No:
INP000002981; Research Analyst Registration No: INH000001766; NSDL/ CDSL: IN-DP-CDSL 37-99.
NIRMAL BANG COMMODITIES PVT LTD – MCX (Member ID -16590 /NCDEX Member ID -0362 /ICEX
Member ID -1165) : Single Registration No. INZ000043630; NCDEX Spot: 10084; Comtrack Participants:
CPID -5040; CDSL Commodity Repository Ltd: 12013300 Nirmal Bang Securities Private Limited CIN:
U99999MH1997PTC110659; Nirmal Bang Commodities Private Limited CIN: U67120MH1995PTC093213
Regd. Office: B-2, 301/302, 3rd Floor, Marathon Innova, Off Ganpatrao Kadam Marg, Lower Parel (W),
Mumbai - 400013. Tel: 62738000/01; Fax: 62738010
For free account opening, call on +91 022 62738000 | www.nirmalbang.com
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Beyond Market 16th - 31st Mar ’21 It’s simplified...You can also read
