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India

Brief India: Chambal Fertilizers: Some Specks of Dirt on a Clean Road and more

By | Daily Briefs, India

In this briefing:

  1. Chambal Fertilizers: Some Specks of Dirt on a Clean Road
  2. Manappuram Finance Ltd. – A “Golden” Opportunity
  3. London Shanghai Stock Connect – The Dampest of Squibs. Inteqres Viewpoint

1. Chambal Fertilizers: Some Specks of Dirt on a Clean Road

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Chambal Fertilisers & Chem (CHMB IN) predominantly manufactures and markets urea. The company as on today has three large urea plants, while it also trades agri-products and other fertilizers such as di-ammonium phosphate (DAP), murate of potash (MOP) and NPK. The company, through one of its few subsidiaries also operates in the software industry in the US. Moreover, the company also operates through a joint venture in Morocco which is involved in the manufacturing of phosphoric acid.

Chambal had reported decent F19 and Q3F20 numbers alongside healthy overall margins. The company witnessed a growth of 34.9% while the EBITDA stood at a high of 12.3% in F19. Its own manufactured product i.e. Urea constituted over 60% of the sales while the traded goods accounted for the remaining 39%. Besides, the company had commenced the production in its Gadepan-III urea plant in January this year and is already operating at 100% capacity bolstering the overall sales. However, on the other hand, there is minimal growth seen in the bottom line due to a one-time exceptional loss of INR 1.9bn recognized in the income statement. There are few areas of concern that open a window for a top-line growth threat. Key highlights are as follows:-

2. Manappuram Finance Ltd. – A “Golden” Opportunity

We like the 5.9% bonds due 2023 issued by Manappuram Finance (MGFL IN) . We like the company’s primary business (making loans collateralized by gold ornaments), which is characterized by high margins and low credit losses. We do not foresee major risks (funding, asset quality, etc.), going forward.We like the pickup in yields offered by these bonds over those issued by Muthoot Finance (MUTH IN) .

3. London Shanghai Stock Connect – The Dampest of Squibs. Inteqres Viewpoint

Image 41514005621582821543929

Despite the fanfare only one Chinese company listed (and raised money) in London after the announcement of the London Shanghai Connect.  There have been no listing of Chinese Depository Receipts by companies listed in London.  This is starting to look like a white elephant.  We have reviewed the successful Depository Receipt programmes around the world and conclude that the pull to issue Chinese Depository Receipts is only weak at present.  We do think that companies are reviewing the option of issuing CDRs but there is no intense pressure to do so.  By following the factors we have identified, authorities and exchanges could build a more successful programme.

You are currently reading Executive Summaries of Smartkarma Insights.

Want to read on? Explore our tailored Smartkarma Solutions.

Brief India: RBI Announcement – Positive for Fincos’ Liquidity and more

By | Daily Briefs, India

In this briefing:

  1. RBI Announcement – Positive for Fincos’ Liquidity
  2. How Long Does It Take To Change One’s Behavior? Why Does This Matter in the Post COVID-19 World?
  3. Governments and Policies Adapting to Critical Known Unknown
  4. Costs of and Response to COVID-19
  5. Covid-19: RBI Has Gone All-Out-Attack

1. RBI Announcement – Positive for Fincos’ Liquidity

Today’s announcement of a slew of measures by the Reserve Bank of India to get credit flowing through the economy  while providing a breather for fincos and borrowers is positive for fincos’ liquidity.  We have earlier been comfortable with fincos’ (the 4 USD bond issuers)  liquidity positions. The RBI’s measures reinforce these issuers’ liquidity positions. 

2. How Long Does It Take To Change One’s Behavior? Why Does This Matter in the Post COVID-19 World?

Us unemploymentrate

The main subject of this report is as follows: “How Long Does It Take To Change One’s Behavior? Why Does This Matter in the Post COVID-19 World?” Certainly, COVID-19 will change the way people behave. The longer that COVID-19 lasts and the longer that millions of people are under lockdown, their behaviors will change further, potentially making them into a habit and this would have a tremendous impact on the global economy. 

We are specifically interested in this topic because as millions of people around the world undergo “lockdown” for a period of one to three months, this could have an enormous behavior change once this lockdown period ends.

The change in behavior patterns (especially related to consumer spending) in the post COVID-19 world would also have a big impact on whether the global economy/stock market can turn around quickly (such as after the Great Financial Recession in 2008/2009) or whether the turnaround lasts longer (such as after the Internet tech/crash lasting for nearly 3 years from 2000 to 2002). 

3. Governments and Policies Adapting to Critical Known Unknown

Chart%201c

We argued in Lack of US market & macro volatility both reassuring and troubling that “the market’s willingness to look through domestic political and geopolitical events suggests that only a significant exogenous or endogenous shock currently beyond markets’ radar screens (an “unknown unknown”) is likely to really move the needle”.

That unknown unknown, a “black swan” event, has turned out to be a global viral pandemic on a scale not seen since the Spanish influenza pandemic of 1918-1919.

The coronavirus outbreak is now three months old but governments, central banks, corporates and households still face a critical known unknown, in our view, namely the total number people who had the coronavirus, acquired immunity and are no longer contagious and who currently carry the coronavirus and are thus potentially infectious.

This includes people who have not been clinically tested – more than 99.9% of the world’s population. We estimate that only 3.3 million people (4 out of every 10,000) have been tested for coronavirus, although testing data are patchy and often released with a lag. The main reason so few people have been tested is the still limited capacity to rapidly and reliably test a very large number of people.

In econometric terms that is a very small sample from which to extrapolate country-wide trends. One implication is that the actual mortality rate may be far smaller than reported.

The high number of tests-per-capita conducted in countries such as South Korea has been posited as an explanation for their relatively low number of coronavirus-related deaths. However, other factors have likely been at play, including the timing of clinical tests, demographics, national health systems’ capacity to treat infected patients and the timing and efficacy of self-isolation and self-distancing policies, including country “lockdowns”.

For now what policy-makers know they don’t know will likely continue to influence country-specific containment plans, as well as domestic measures to support economic growth while ensuring the functioning of financial markets.

4. Costs of and Response to COVID-19

Capture

As the epicentre of the coronavirus pandemic shifts from Europe to the US and the number of deaths and infection cases reach new highs, the costs of the crisis are beginning to be revealed. In Singapore economic activity contracted in 1Q20 at a faster pace than at the worst point during the GFC while Chinese industrial profits were down 38% in the first two months of the year. Despite this we are cautiously optimistic that Asian economic activity led by China will pick-up in the second half of the year. We are much more worried about advanced economies where policy mis-management threatens to tip the world economy into recession.

5. Covid-19: RBI Has Gone All-Out-Attack

The RBI took a gigantic stride to combat the Covid-19 pandemic along with the government, as highlighted by the seventh bi-monthly monetary policy statement 2019-20. The MPC meet outcome had fired from all the possible cylinders, giving a much needed impetus to steady the economy.

You are currently reading Executive Summaries of Smartkarma Insights.

Want to read on? Explore our tailored Smartkarma Solutions.

Brief India: Manappuram Finance Ltd. – A “Golden” Opportunity and more

By | Daily Briefs, India

In this briefing:

  1. Manappuram Finance Ltd. – A “Golden” Opportunity
  2. London Shanghai Stock Connect – The Dampest of Squibs. Inteqres Viewpoint

1. Manappuram Finance Ltd. – A “Golden” Opportunity

We like the 5.9% bonds due 2023 issued by Manappuram Finance (MGFL IN) . We like the company’s primary business (making loans collateralized by gold ornaments), which is characterized by high margins and low credit losses. We do not foresee major risks (funding, asset quality, etc.), going forward.We like the pickup in yields offered by these bonds over those issued by Muthoot Finance (MUTH IN) .

2. London Shanghai Stock Connect – The Dampest of Squibs. Inteqres Viewpoint

Image 41514005621582821543929

Despite the fanfare only one Chinese company listed (and raised money) in London after the announcement of the London Shanghai Connect.  There have been no listing of Chinese Depository Receipts by companies listed in London.  This is starting to look like a white elephant.  We have reviewed the successful Depository Receipt programmes around the world and conclude that the pull to issue Chinese Depository Receipts is only weak at present.  We do think that companies are reviewing the option of issuing CDRs but there is no intense pressure to do so.  By following the factors we have identified, authorities and exchanges could build a more successful programme.

You are currently reading Executive Summaries of Smartkarma Insights.

Want to read on? Explore our tailored Smartkarma Solutions.

Brief India: How Long Does It Take To Change One’s Behavior? Why Does This Matter in the Post COVID-19 World? and more

By | Daily Briefs, India

In this briefing:

  1. How Long Does It Take To Change One’s Behavior? Why Does This Matter in the Post COVID-19 World?
  2. Governments and Policies Adapting to Critical Known Unknown
  3. Costs of and Response to COVID-19
  4. Covid-19: RBI Has Gone All-Out-Attack
  5. The RBI Policy Bazooka: A Comprehensive Policy Move to Fight the COVID-19 Pandemic

1. How Long Does It Take To Change One’s Behavior? Why Does This Matter in the Post COVID-19 World?

Buffett 2

The main subject of this report is as follows: “How Long Does It Take To Change One’s Behavior? Why Does This Matter in the Post COVID-19 World?” Certainly, COVID-19 will change the way people behave. The longer that COVID-19 lasts and the longer that millions of people are under lockdown, their behaviors will change further, potentially making them into a habit and this would have a tremendous impact on the global economy. 

We are specifically interested in this topic because as millions of people around the world undergo “lockdown” for a period of one to three months, this could have an enormous behavior change once this lockdown period ends.

The change in behavior patterns (especially related to consumer spending) in the post COVID-19 world would also have a big impact on whether the global economy/stock market can turn around quickly (such as after the Great Financial Recession in 2008/2009) or whether the turnaround lasts longer (such as after the Internet tech/crash lasting for nearly 3 years from 2000 to 2002). 

2. Governments and Policies Adapting to Critical Known Unknown

Chart%203c

We argued in Lack of US market & macro volatility both reassuring and troubling that “the market’s willingness to look through domestic political and geopolitical events suggests that only a significant exogenous or endogenous shock currently beyond markets’ radar screens (an “unknown unknown”) is likely to really move the needle”.

That unknown unknown, a “black swan” event, has turned out to be a global viral pandemic on a scale not seen since the Spanish influenza pandemic of 1918-1919.

The coronavirus outbreak is now three months old but governments, central banks, corporates and households still face a critical known unknown, in our view, namely the total number people who had the coronavirus, acquired immunity and are no longer contagious and who currently carry the coronavirus and are thus potentially infectious.

This includes people who have not been clinically tested – more than 99.9% of the world’s population. We estimate that only 3.3 million people (4 out of every 10,000) have been tested for coronavirus, although testing data are patchy and often released with a lag. The main reason so few people have been tested is the still limited capacity to rapidly and reliably test a very large number of people.

In econometric terms that is a very small sample from which to extrapolate country-wide trends. One implication is that the actual mortality rate may be far smaller than reported.

The high number of tests-per-capita conducted in countries such as South Korea has been posited as an explanation for their relatively low number of coronavirus-related deaths. However, other factors have likely been at play, including the timing of clinical tests, demographics, national health systems’ capacity to treat infected patients and the timing and efficacy of self-isolation and self-distancing policies, including country “lockdowns”.

For now what policy-makers know they don’t know will likely continue to influence country-specific containment plans, as well as domestic measures to support economic growth while ensuring the functioning of financial markets.

3. Costs of and Response to COVID-19

Capture

As the epicentre of the coronavirus pandemic shifts from Europe to the US and the number of deaths and infection cases reach new highs, the costs of the crisis are beginning to be revealed. In Singapore economic activity contracted in 1Q20 at a faster pace than at the worst point during the GFC while Chinese industrial profits were down 38% in the first two months of the year. Despite this we are cautiously optimistic that Asian economic activity led by China will pick-up in the second half of the year. We are much more worried about advanced economies where policy mis-management threatens to tip the world economy into recession.

4. Covid-19: RBI Has Gone All-Out-Attack

The RBI took a gigantic stride to combat the Covid-19 pandemic along with the government, as highlighted by the seventh bi-monthly monetary policy statement 2019-20. The MPC meet outcome had fired from all the possible cylinders, giving a much needed impetus to steady the economy.

5. The RBI Policy Bazooka: A Comprehensive Policy Move to Fight the COVID-19 Pandemic

After the much needed nation-wide lock-down India announced this Tuesday (Mar 24), and subsequent fiscal stimulus of INR 1,70,000cr for the under-privileged by the Government, today RBI announced a comprehensive monetary and regulatory boost for the economy to help strive through these unprecedented times under the COVID-19 pandemic.

Key Policy Announcements:

  • Policy rate (Repo Rate) cut by 75bp to 4.4%
  • Reverse Repo Rate cut by 90bp to 4.0% (note that this was cut more than policy rate to discourage excess liquidity being parked with RBI)
  • Cash Reserve Ratio (CRR) cut by 100bp to 3.0%
  • Mandatory investments of funds raised from RBI’s LTRO (Long-term Repo Operation) auction into corporate bonds to boost liquidity in the bonds market where yields have spiked on the back of panic selling and resultant illiquidity. To allay any mark-to-market concerns, these bond investments will be allowed to be classified as held-to-maturity (HTM).
  • Regulatory measures that include three month moratorium on term loans and three month interest deferral on working capital (WC) loans

Overall, the policy package announced by RBI was quite comprehensive and will be positive for the broader Indian economy, thereby helping Indian financials cope through this unprecedented COVID-19 pandemic.

You are currently reading Executive Summaries of Smartkarma Insights.

Want to read on? Explore our tailored Smartkarma Solutions.

Brief India: London Shanghai Stock Connect – The Dampest of Squibs. Inteqres Viewpoint and more

By | Daily Briefs, India

In this briefing:

  1. London Shanghai Stock Connect – The Dampest of Squibs. Inteqres Viewpoint

1. London Shanghai Stock Connect – The Dampest of Squibs. Inteqres Viewpoint

Image 41514005621582821543929

Despite the fanfare only one Chinese company listed (and raised money) in London after the announcement of the London Shanghai Connect.  There have been no listing of Chinese Depository Receipts by companies listed in London.  This is starting to look like a white elephant.  We have reviewed the successful Depository Receipt programmes around the world and conclude that the pull to issue Chinese Depository Receipts is only weak at present.  We do think that companies are reviewing the option of issuing CDRs but there is no intense pressure to do so.  By following the factors we have identified, authorities and exchanges could build a more successful programme.

You are currently reading Executive Summaries of Smartkarma Insights.

Want to read on? Explore our tailored Smartkarma Solutions.

Brief India: London Shanghai Stock Connect – The Dampest of Squibs. Inteqres Viewpoint and more

By | Daily Briefs, India

In this briefing:

  1. London Shanghai Stock Connect – The Dampest of Squibs. Inteqres Viewpoint
  2. HDFC Bank: NRC & Search Committee Merely a Formality – HDFC Will Choose the CEO

1. London Shanghai Stock Connect – The Dampest of Squibs. Inteqres Viewpoint

Image 41514005621582821543929

Despite the fanfare only one Chinese company listed (and raised money) in London after the announcement of the London Shanghai Connect.  There have been no listing of Chinese Depository Receipts by companies listed in London.  This is starting to look like a white elephant.  We have reviewed the successful Depository Receipt programmes around the world and conclude that the pull to issue Chinese Depository Receipts is only weak at present.  We do think that companies are reviewing the option of issuing CDRs but there is no intense pressure to do so.  By following the factors we have identified, authorities and exchanges could build a more successful programme.

2. HDFC Bank: NRC & Search Committee Merely a Formality – HDFC Will Choose the CEO

The succession fiasco at HDFC Bank (HDFCB IN) reveals how the banking regulator has allowed a founder with a minority stake to have a stranglehold on the selection of the chief executive officer (CEO) and the chairman of the bank. Strangely, the board of the bank has to date been unable to choose a successor to the present CEO, Aditya Puri.

Article 162 in HDFC Bank’s Memorandum and Articles of Association permits Housing Development Finance Corporation (HDFC IN), mortgage financier and founder of HDFC Bank, to nominate the bank’s non-executive chairman and CEO (subject to the approval of the board, shareholders and the regulator), as long as HDFC or the HDFC group holds a minimum of 20% equity stake in the bank. Such a clause in the memorandum of association granting a minority shareholder the power to nominate critical board members not only goes against basic corporate governance principles, but also defies the banking regulator’s objective of lowering founder holding in banks so as to reduce their influence in executive management. While such a clause may have been understandable in the first 5 years of a bank’s existence, the regulator needs to reconsider its decision to allow the founder to control the management in perpetuity.

In Indian banks, founders are normally minority shareholders, and it is the responsibility of the regulator to ensure that founders do not interfere in management. For the Reserve Bank of India (RBI) to permit the HDFC group to nominate the chairperson and CEO in HDFC Bank stands at stark variance with its own policy of compelling bank founders to reduce their stake to 15%.

In private sector banks, the nomination and remuneration committee (NRC) of each bank board recommends candidates for directorship to be approved by the board, shareholders and the regulator. Hence nominee directors of the founders can be part of the NRC, and it should be the sole responsibility of the NRC to recommend new board members and evaluate the performance of the executive directors. By allowing HDFC to nominate the chairperson and CEO in HDFC Bank reduces HDFC Bank’s NRC to a mockery.

You are currently reading Executive Summaries of Smartkarma Insights.

Want to read on? Explore our tailored Smartkarma Solutions.

Brief India: Governments and Policies Adapting to Critical Known Unknown and more

By | Daily Briefs, India

In this briefing:

  1. Governments and Policies Adapting to Critical Known Unknown
  2. Costs of and Response to COVID-19
  3. Covid-19: RBI Has Gone All-Out-Attack
  4. The RBI Policy Bazooka: A Comprehensive Policy Move to Fight the COVID-19 Pandemic
  5. Fault Lines and Positive Surprises: Buy Car Makers

1. Governments and Policies Adapting to Critical Known Unknown

Chart%203c

We argued in Lack of US market & macro volatility both reassuring and troubling that “the market’s willingness to look through domestic political and geopolitical events suggests that only a significant exogenous or endogenous shock currently beyond markets’ radar screens (an “unknown unknown”) is likely to really move the needle”.

That unknown unknown, a “black swan” event, has turned out to be a global viral pandemic on a scale not seen since the Spanish influenza pandemic of 1918-1919.

The coronavirus outbreak is now three months old but governments, central banks, corporates and households still face a critical known unknown, in our view, namely the total number people who had the coronavirus, acquired immunity and are no longer contagious and who currently carry the coronavirus and are thus potentially infectious.

This includes people who have not been clinically tested – more than 99.9% of the world’s population. We estimate that only 3.3 million people (4 out of every 10,000) have been tested for coronavirus, although testing data are patchy and often released with a lag. The main reason so few people have been tested is the still limited capacity to rapidly and reliably test a very large number of people.

In econometric terms that is a very small sample from which to extrapolate country-wide trends. One implication is that the actual mortality rate may be far smaller than reported.

The high number of tests-per-capita conducted in countries such as South Korea has been posited as an explanation for their relatively low number of coronavirus-related deaths. However, other factors have likely been at play, including the timing of clinical tests, demographics, national health systems’ capacity to treat infected patients and the timing and efficacy of self-isolation and self-distancing policies, including country “lockdowns”.

For now what policy-makers know they don’t know will likely continue to influence country-specific containment plans, as well as domestic measures to support economic growth while ensuring the functioning of financial markets.

2. Costs of and Response to COVID-19

Capture

As the epicentre of the coronavirus pandemic shifts from Europe to the US and the number of deaths and infection cases reach new highs, the costs of the crisis are beginning to be revealed. In Singapore economic activity contracted in 1Q20 at a faster pace than at the worst point during the GFC while Chinese industrial profits were down 38% in the first two months of the year. Despite this we are cautiously optimistic that Asian economic activity led by China will pick-up in the second half of the year. We are much more worried about advanced economies where policy mis-management threatens to tip the world economy into recession.

3. Covid-19: RBI Has Gone All-Out-Attack

The RBI took a gigantic stride to combat the Covid-19 pandemic along with the government, as highlighted by the seventh bi-monthly monetary policy statement 2019-20. The MPC meet outcome had fired from all the possible cylinders, giving a much needed impetus to steady the economy.

4. The RBI Policy Bazooka: A Comprehensive Policy Move to Fight the COVID-19 Pandemic

After the much needed nation-wide lock-down India announced this Tuesday (Mar 24), and subsequent fiscal stimulus of INR 1,70,000cr for the under-privileged by the Government, today RBI announced a comprehensive monetary and regulatory boost for the economy to help strive through these unprecedented times under the COVID-19 pandemic.

Key Policy Announcements:

  • Policy rate (Repo Rate) cut by 75bp to 4.4%
  • Reverse Repo Rate cut by 90bp to 4.0% (note that this was cut more than policy rate to discourage excess liquidity being parked with RBI)
  • Cash Reserve Ratio (CRR) cut by 100bp to 3.0%
  • Mandatory investments of funds raised from RBI’s LTRO (Long-term Repo Operation) auction into corporate bonds to boost liquidity in the bonds market where yields have spiked on the back of panic selling and resultant illiquidity. To allay any mark-to-market concerns, these bond investments will be allowed to be classified as held-to-maturity (HTM).
  • Regulatory measures that include three month moratorium on term loans and three month interest deferral on working capital (WC) loans

Overall, the policy package announced by RBI was quite comprehensive and will be positive for the broader Indian economy, thereby helping Indian financials cope through this unprecedented COVID-19 pandemic.

5. Fault Lines and Positive Surprises: Buy Car Makers

Image 74356928621585274600719

Where are the weakest points in the global economy that could send activity into a tailspin and threaten the banking system? Italy would seem to be the prime candidate for collapse. The economy was already flirting with recession but will definitely enter one when first quarter 2020 data are published. Weak economies are always the most vulnerable when an external shock hits. Italy’s banks are bound to require a bailout from either the government or the ECB – neither of which are well placed to provide the capital. 

You are currently reading Executive Summaries of Smartkarma Insights.

Want to read on? Explore our tailored Smartkarma Solutions.

Brief India: HDFC Bank: NRC & Search Committee Merely a Formality – HDFC Will Choose the CEO and more

By | Daily Briefs, India

In this briefing:

  1. HDFC Bank: NRC & Search Committee Merely a Formality – HDFC Will Choose the CEO

1. HDFC Bank: NRC & Search Committee Merely a Formality – HDFC Will Choose the CEO

The succession fiasco at HDFC Bank (HDFCB IN) reveals how the banking regulator has allowed a founder with a minority stake to have a stranglehold on the selection of the chief executive officer (CEO) and the chairman of the bank. Strangely, the board of the bank has to date been unable to choose a successor to the present CEO, Aditya Puri.

Article 162 in HDFC Bank’s Memorandum and Articles of Association permits Housing Development Finance Corporation (HDFC IN), mortgage financier and founder of HDFC Bank, to nominate the bank’s non-executive chairman and CEO (subject to the approval of the board, shareholders and the regulator), as long as HDFC or the HDFC group holds a minimum of 20% equity stake in the bank. Such a clause in the memorandum of association granting a minority shareholder the power to nominate critical board members not only goes against basic corporate governance principles, but also defies the banking regulator’s objective of lowering founder holding in banks so as to reduce their influence in executive management. While such a clause may have been understandable in the first 5 years of a bank’s existence, the regulator needs to reconsider its decision to allow the founder to control the management in perpetuity.

In Indian banks, founders are normally minority shareholders, and it is the responsibility of the regulator to ensure that founders do not interfere in management. For the Reserve Bank of India (RBI) to permit the HDFC group to nominate the chairperson and CEO in HDFC Bank stands at stark variance with its own policy of compelling bank founders to reduce their stake to 15%.

In private sector banks, the nomination and remuneration committee (NRC) of each bank board recommends candidates for directorship to be approved by the board, shareholders and the regulator. Hence nominee directors of the founders can be part of the NRC, and it should be the sole responsibility of the NRC to recommend new board members and evaluate the performance of the executive directors. By allowing HDFC to nominate the chairperson and CEO in HDFC Bank reduces HDFC Bank’s NRC to a mockery.

You are currently reading Executive Summaries of Smartkarma Insights.

Want to read on? Explore our tailored Smartkarma Solutions.

Brief India: Costs of and Response to COVID-19 and more

By | Daily Briefs, India

In this briefing:

  1. Costs of and Response to COVID-19
  2. Covid-19: RBI Has Gone All-Out-Attack
  3. The RBI Policy Bazooka: A Comprehensive Policy Move to Fight the COVID-19 Pandemic
  4. Fault Lines and Positive Surprises: Buy Car Makers
  5. Morning Views Asia: Guangzhou R&F Properties, Kwg Property Holding, Sunac China Holdings

1. Costs of and Response to COVID-19

Capture

As the epicentre of the coronavirus pandemic shifts from Europe to the US and the number of deaths and infection cases reach new highs, the costs of the crisis are beginning to be revealed. In Singapore economic activity contracted in 1Q20 at a faster pace than at the worst point during the GFC while Chinese industrial profits were down 38% in the first two months of the year. Despite this we are cautiously optimistic that Asian economic activity led by China will pick-up in the second half of the year. We are much more worried about advanced economies where policy mis-management threatens to tip the world economy into recession.

2. Covid-19: RBI Has Gone All-Out-Attack

The RBI took a gigantic stride to combat the Covid-19 pandemic along with the government, as highlighted by the seventh bi-monthly monetary policy statement 2019-20. The MPC meet outcome had fired from all the possible cylinders, giving a much needed impetus to steady the economy.

3. The RBI Policy Bazooka: A Comprehensive Policy Move to Fight the COVID-19 Pandemic

After the much needed nation-wide lock-down India announced this Tuesday (Mar 24), and subsequent fiscal stimulus of INR 1,70,000cr for the under-privileged by the Government, today RBI announced a comprehensive monetary and regulatory boost for the economy to help strive through these unprecedented times under the COVID-19 pandemic.

Key Policy Announcements:

  • Policy rate (Repo Rate) cut by 75bp to 4.4%
  • Reverse Repo Rate cut by 90bp to 4.0% (note that this was cut more than policy rate to discourage excess liquidity being parked with RBI)
  • Cash Reserve Ratio (CRR) cut by 100bp to 3.0%
  • Mandatory investments of funds raised from RBI’s LTRO (Long-term Repo Operation) auction into corporate bonds to boost liquidity in the bonds market where yields have spiked on the back of panic selling and resultant illiquidity. To allay any mark-to-market concerns, these bond investments will be allowed to be classified as held-to-maturity (HTM).
  • Regulatory measures that include three month moratorium on term loans and three month interest deferral on working capital (WC) loans

Overall, the policy package announced by RBI was quite comprehensive and will be positive for the broader Indian economy, thereby helping Indian financials cope through this unprecedented COVID-19 pandemic.

4. Fault Lines and Positive Surprises: Buy Car Makers

Image 74356928621585274600719

Where are the weakest points in the global economy that could send activity into a tailspin and threaten the banking system? Italy would seem to be the prime candidate for collapse. The economy was already flirting with recession but will definitely enter one when first quarter 2020 data are published. Weak economies are always the most vulnerable when an external shock hits. Italy’s banks are bound to require a bailout from either the government or the ECB – neither of which are well placed to provide the capital. 

5. Morning Views Asia: Guangzhou R&F Properties, Kwg Property Holding, Sunac China Holdings

Lucror Analytics Morning Views comprise our fundamental credit analysis, opinions and trade recommendations on high yield issuers in the region, based on key company-specific developments in the past 24 hours. Our Morning Views include a section with a brief market commentary, key market indicators and a macroeconomic and corporate event calendar.

You are currently reading Executive Summaries of Smartkarma Insights.

Want to read on? Explore our tailored Smartkarma Solutions.

Brief India: Covid-19: RBI Has Gone All-Out-Attack and more

By | Daily Briefs, India

In this briefing:

  1. Covid-19: RBI Has Gone All-Out-Attack
  2. The RBI Policy Bazooka: A Comprehensive Policy Move to Fight the COVID-19 Pandemic
  3. Fault Lines and Positive Surprises: Buy Car Makers
  4. Morning Views Asia: Guangzhou R&F Properties, Kwg Property Holding, Sunac China Holdings
  5. India Economic Package: Baby Steps In Right Direction But The Fish Is Big

1. Covid-19: RBI Has Gone All-Out-Attack

The RBI took a gigantic stride to combat the Covid-19 pandemic along with the government, as highlighted by the seventh bi-monthly monetary policy statement 2019-20. The MPC meet outcome had fired from all the possible cylinders, giving a much needed impetus to steady the economy.

2. The RBI Policy Bazooka: A Comprehensive Policy Move to Fight the COVID-19 Pandemic

After the much needed nation-wide lock-down India announced this Tuesday (Mar 24), and subsequent fiscal stimulus of INR 1,70,000cr for the under-privileged by the Government, today RBI announced a comprehensive monetary and regulatory boost for the economy to help strive through these unprecedented times under the COVID-19 pandemic.

Key Policy Announcements:

  • Policy rate (Repo Rate) cut by 75bp to 4.4%
  • Reverse Repo Rate cut by 90bp to 4.0% (note that this was cut more than policy rate to discourage excess liquidity being parked with RBI)
  • Cash Reserve Ratio (CRR) cut by 100bp to 3.0%
  • Mandatory investments of funds raised from RBI’s LTRO (Long-term Repo Operation) auction into corporate bonds to boost liquidity in the bonds market where yields have spiked on the back of panic selling and resultant illiquidity. To allay any mark-to-market concerns, these bond investments will be allowed to be classified as held-to-maturity (HTM).
  • Regulatory measures that include three month moratorium on term loans and three month interest deferral on working capital (WC) loans

Overall, the policy package announced by RBI was quite comprehensive and will be positive for the broader Indian economy, thereby helping Indian financials cope through this unprecedented COVID-19 pandemic.

3. Fault Lines and Positive Surprises: Buy Car Makers

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Where are the weakest points in the global economy that could send activity into a tailspin and threaten the banking system? Italy would seem to be the prime candidate for collapse. The economy was already flirting with recession but will definitely enter one when first quarter 2020 data are published. Weak economies are always the most vulnerable when an external shock hits. Italy’s banks are bound to require a bailout from either the government or the ECB – neither of which are well placed to provide the capital. 

4. Morning Views Asia: Guangzhou R&F Properties, Kwg Property Holding, Sunac China Holdings

Lucror Analytics Morning Views comprise our fundamental credit analysis, opinions and trade recommendations on high yield issuers in the region, based on key company-specific developments in the past 24 hours. Our Morning Views include a section with a brief market commentary, key market indicators and a macroeconomic and corporate event calendar.

5. India Economic Package: Baby Steps In Right Direction But The Fish Is Big

In our previous insight, Covid-19 Action Plan: Too Little Too Late we highlighted and discussed certain measures that Honorable FM Nirmala Sitharaman has taken, more towards the taxation and compliance side. However this afternoon, the FM has iterated a relief plan to tackle the not-so-rich portion of the community. While the plan is a horizon in the correct direction, it however lacks a sturdy backbone that will enable appropriate sustenance.

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