Living up to Expectations

Living up to Expectations


This week, we talk about the interim budget and what it means for you. We also talk about the body blow dealt to Paytm, the latest imbroglio unfolding at Byju’s and why the US Fed may not raise interest rates in March.

 

Welcome to Kuvera’s weekly digest on the most critical developments related to business, finance, and the markets.

 

Last week, we had given you a sneak peek into what we thought could be the overall direction of the interim budget, the last financial statement that this government would make before the general elections set to be held just over two months from now.

 

We had crystal gazed a bit and said that Finance Minister Nirmala Sitharaman’s speech might focus on four politically important groups of people- the youth, women, the poor and farmers.

 

Turns out, we were on target, as this is precisely what finance minister Nirmala Sitharaman stressed on, in her speech on Thursday. And then, she went a step further, saying her government had a detailed roadmap ready to make India a developed country by 2047.

 

The budget, unlike most pre-poll interim budgets, held back on populism. There were no big-bang announcements or it stayed away from launching fiscally imprudent sops.

 

But even if it was lacking in one ‘P’- populism, the interim budget was high on another, perhaps more desirable ‘P’- prudence.

 

Since it was a vote-on-account, the finance minister did not tinker with direct or indirect taxes, and had limited legroom when it came to making significant policy statements. But still the budget was high on prudent welfarism, which, if executed well, could bring big business for companies that power the country’s core sector.

 

There was continuation of scheme for houses for poor and intent to launch a new one for the middle classes too.

 

The government raised the capital expenditure outlay for the coming financial year by 11% to Rs. 11.11 lakh crore. Capex on infrastructure has a multiplier effect on economy and a continued focus on this will certainly bear fruit. However, there was also a hint that the government’s capex push is reaching its limit and it was time for the private sector to pick the tab now.

 

That Sitharaman’s mandarins at the finance ministry have managed to run the government prudently, despite several external shocks, is buttressed by the fact that the fiscal deficit for the current financial year at 5.8% beat the initial estimate by 10 bps. The target was next year was set at an ambitious 5.1%.

 

There was good news for the investors in gilt market as the government market borrowing plan for 2024-25–gross at Rs. 14.13 lakh crore and net at Rs. 11.75 lakh crore—was lower than most estimates.

 

While there was nothing much for the salaried class that pays the most taxes, the finance minister did seek to give a push to the tech startup sector, by promising to set up a Rs. 1 lakh crore fund that will dole out soft loans for research and development.

 

So, how would you rate the budget? How has it impacted sectors that you may have exposure to as a retail investor either via the mutual fund route or even directly?

 

Although there were no new incentives, may we urge you to make your investments to get the full benefit of the tax exemptions that are currently available, by investing in ELSS funds, NPS, PPF, health and life insurance and such other instruments.

 

Paytm Fiasco

 

While the finance minister may have shown the roadmap of what she said would be a golden era over the coming two decades, things seem to be going from bad to worse for one poster child of the country’s post-demonetisation digital economy- Paytm.

 

 

In a body blow to the fintech company, the Reserve Bank of India (RBI) on Wednesday ordered Paytm Payments Bank to stop accepting fresh deposits in its accounts or popular wallets after February 29, 2024.

 

The new age payments bank was told by the regulator that it will not be able to take fresh deposits, facilitate credit transactions, or offer fund transfers, including Unified Payments Interface (UPI) facility after February 29.

 

Withdrawal or utilisation of balances by its customers from their accounts including savings bank accounts, current accounts, prepaid instruments, FASTags, National Common Mobility Cards, etc. are to be permitted without any restrictions, up to their available balance, the central bank said.

 

But why did the RBI take such a drastic step?

 

The RBI said it had in March 2022 asked the Paytm Payments Bank to stop adding new customers. However, a Comprehensive System Audit report and subsequent compliance validation report of the external auditors revealed persistent non-compliances and continued material supervisory concerns in the bank, warranting further supervisory action, the RBI said, without disclosing details. The central bank acted under Section 35A of the Banking Regulation Act, 1949.

 

And what has Paytm said?

 

Paytm Payments Bank, an associate of One 97 Communications Limited (OCL), said it is taking “immediate steps” to comply with the RBI’s directions. OCL, as a payments company, works with various banks (not just Paytm Payments Bank), on various payments products, the fintech company said.

 

But how badly will Paytm be impacted?

 

Paytm said it expects a “worst case impact” of ₹ 300 crore to ₹ 500 crore to its annual earnings from RBI’s order barring Paytm Payments Bank from accepting fresh deposits. But it expects to “continue on its trajectory” to improve its profitability.

 

The markets clearly did not take these developments well and the Paytm stock got hammered at the bourses on Thursday and Friday hitting the 20% lower circuit on both the days. At Rs. 487.2 per share the counter is now at a discount of more than 77% on its IPO price of Rs. 2,150.

 

Byju’s Saga

 

Paytm is not the only tech company that has been going through the motions. Edtech major Byju’s, too, has been facing the heat over the past few months.

 

This week it all came to a head when Byju’s’ US unite filed for Chapter 11 bankruptcy proceedings in the U.S. court of Delaware, listing liabilities in the range of $1 billion to $10 billion. Byju’s’ Alpha unit listed its assets in the range of $500 million to $1 billion, according to a court filing, which showed estimated creditors in the range of 100 to 199.

 

The ed-tech company, founded by Byju Raveendran, was once one of India’s hottest startups, valued at $22 billion in 2022, but has more recently seen lenders initiating bankruptcy proceedings against it. Some of Byju’s investors said the company’s valuation had fallen to between $1 billion and $3 billion.

 

Byju’s said on Monday it would raise $200 million through a rights issue of shares to clear “immediate liabilities” and for other operational costs. It has also been negotiating the repayment of a $1.2 billion term loan in the last few months and laid off thousands of employees.

 

Byju’s has also been in the crosshairs of the Indian government over alleged violations of foreign exchange laws.

 

Meanwhile, Byju’s shareholders have moved a resolution seeking the ouster of the founders of the company, including Raveendran.

 

As many as six shareholders of Byju’s parent company Think and Learn Private Limited have now moved a resolution to oust the founders from having control over the ed-tech firm in the midst of the financial crisis, a news report said.

 

Fed Holds Rates

 

The US Federal Reserve said this week that it was keeping the key lending rates unchanged and that a rate cut in March, too, was unlikely.

  

In a statement after a two-day meeting, the Fed removed its previous reference to “additional (rate increases).” Instead, the Fed said it believes the risks to its goals of stable inflation and full employment “are moving into better balance.”

 

The Fed’s stance affirms that the central bank is almost certainly done raising interest rates after 16 months of aggressive hikes to tame high inflation and a rate cut is now far more likely than an increase.

 

But the Fed also suggested it’s in no rush to reduce rates and wants to make sure inflation has been subdued for the long term before acting.

 

Federal Chair Jerome Powell said the language was intended to convey that a March rate cut hasn’t been ruled out but is unlikely. “The timing of (the first rate decrease) is linked to our gaining confidence that inflation is on a sustainable path down to 2%,” Powell said. “I don’t think it is likely (Fed officials) will reach that level of confidence by the time of the March meeting. It’s probably not the most likely case.”

 

Market Wrap

 

Although the interim budget had little to offer to the industry per se, the stock markets seemed enthused, with both the benchmark indices rallying more than 0.6% on Friday, the day after the finance minister’s speech.

 

This rally toward the end of the week meant that in the last five trading sessions, the Nifty and the Sensex were up 2.3% and 1.95%, respectively.

 

The counters that rallied the most during the week included Power Grid Corp of India, Bharat Petroleum Corp, Adani Ports and Special Economic Zone, Adani Enterprises, Tata Motors and ONGC. Other stocks that also aided to the overall momentum in the index were Maruti Suzuki, Eicher Motors, Hero Motocorp, Reliance Industries, Coal India, NTPC, State Bank of India and SBI Life Insurance.

 

On the other hand, the counters that ended up in the red despite the overall sense of optimism included Larsen & Turbo, Tech Mahindra, ITC, Titan, Bajaj Finance, Bharti Airtel, UPL, Asian Paints, Tata Consumer, Nestle India, Cipla and JSW Steel.

 

Results Wrap

 

  • Adani Enterprises Q3 PAT more than doubled, aided by growth across segments

  • India Cements trims Q3 net loss significantly on a sequential basis

  • Titan Co. reports profit of ₹1,053 crore in Q3, up by 15 per cent y-o-y

  • Data Pattern’s PAT up by 54 per cent in Q3

  • V-Guard posts 48 per cent growth in net profit at Q3 FY24

  • IHCL Q3 net profit rises 18% to ₹452 crore

  • Meta Q4 2023 results beat estimates, declares first dividend; shares spikes over 14%

  • Google parent Alphabet reports Q4 2023 revenue of $86 billion

  • Amazon reports better-than-expected results as revenue jumps 14%

  • Apple’s Q1 2024 revenue and profit beat Street view; iPhone sales up 6%

 

Budget Wrap

 

  • Disinvestment, monetisation target set at Rs 50,000 crore

  • Govt extends export incentive scheme for apparel, garment till March 2026

  • GST collections to drive FY25 gross tax revenue to Rs 38.31 trillion

  • PepsiCo names Jagrut Kotecha to lead India business

  • Defence allocation at Rs 6.21 trillion, but stays below 2% of GDP

  • MNREGA outlay at Rs. 86,000 crore

  • Tax exemptions to certain startups and investments made by sovereign wealth funds and pension funds to continue

  • Outstanding tax demands on individuals of small amounts for previous years withdrawn

 

Other headlines

 

  • ED inspects India Cements’ headquarters in Chennai

  • KKR, CPPIB, Petronus Tradetech sell Indus Towers’ share worth Rs 3,978 crore

  • Toyota registers highest-ever monthly sales in January at 24,609 units

  • Hyundai sales rise 8.5% in January to 67,615 units

  • H1B to EB-5: US hikes visa fees for various categories of non-immigrant visas

  • Power consumption rises nearly 6% to 133.83 billion units in January

  • India yet to see significant improvement in debt affordability: Moody’s

  • Landmark Indo-Pacific supply chain pact to come into force on February 24

 

That’s all for this week. Until next week, happy investing!

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