Daily Financial News Analysis – 25th July’20

Table of Contents

Financial Stability Report

There is “a growing disconnect between the movements in certain segments of financial markets and real sector activity”, RBI governor Shaktikanta Das wrote in the Financial Stability Report issued Friday.
The nationwide lockdown imposed in March was lifted in stages starting May but various states have put in place localised closures this month to stem Covid-19 outbreaks, blunting a revival that had begun in June.
Rating agencies and economists have forecast a contraction in gross domestic product by as much as 9.5% accompanied by a surge in defaults.
But the benchmark Sensex has climbed more than 45% since its March lows.
RBI declared a moratorium on loan payments for six months until August end to help borrowers hit by closures in the wake of the coronavirus outbreak.
While the Financial Stability Report does not provide an assessment of the impact of the moratorium on banks, it warned about a rise in defaults.
The bad loan situation that had been easing for the past few quarters could worsen again.
GNPA (gross non-performing assets) ratio of all banks may increase from 8.5% in March 2020 to 12.5% by March 2021 under the baseline scenario.
Since March, the central bank has announced several measures, including interest rate cuts, and flooded the market with liquidity.
But government finances could get out of shape, it said.

Niti Aayog vice chairman on Economy

Mr Rajiv Kumar: The economy will start recovering in the fourth quarter of the current fiscal and rebound to 6% growth in FY22 as green shoots are already visible in 15-16 sectors where business is back to pre-Covid levels.
The government may unveil another stimulus programme to support demand.
More structural reforms are in pipeline for strong and sustainable recovery.
The timing of the pandemic was unfortunate for India.
Reforms in farm sector will be a good driver of our economy.
Problem is going to be on the demand side.
Chief economic advisor KV Subramanian: demand push was on the cards and only the timing needed to be decided.
Kumar said asset monetisation of public sector holdings is the best way of funding infrastructure, as many projects are either underutilised or unutilised.
Government holding in land can be brought in as equity and private players can be roped in to do projects on a PPP (public private participation) mode.

Formal Job Creation

May 2020: Improvement in formal job creation
Net addition of about 318,000 subscribers to the Employees’ Provident Fund Organisation
1. 133,000 added in the previous month
The net addition, however, continued to be less than the average monthly addition in the past two years.
Net addition under the Employees State Insurance Corporation (ESIC) increased to about 460,000 from 241,000 in April.
National Pension Scheme (NPS) stood at 43,888 in May, a dip from 64,647 subscribers added under the scheme in April.
New enrolments under the EPFO had almost halved to 572,000 in March from more than 1.02 million in the previous month.
During 2019-20, the number of net new subscribers under the EPFO rose to about 7.86 million, compared with 6.11 million in 2018-19.
Net additions from September 2017 to April 2020 totalled 15.5 million under the EPFO and 38.6 million under the ESIC.
In that period, the NPS added a net of 2.026 million subscribers.
The ministry has been releasing the payroll data of new subscribers under the EPFO, ESIC and NPS since April 2018, covering the period starting from September 2017.

Kharif sowing

Higher than normal monsoon rainfall across the country has boosted sowing of kharif crops by 19% on year.
This will be another year of bumper harvest
So far there are no reports of any serious pest attacks on the standing crop
As of now, most rabi crops are being sold profitably by farmers
Most of the farmers in West Bengal, Uttar Pradesh, Punjab, Haryana, Chhattisgarh, Odisha, Andhra Pradesh and Telangana are dependent on rice for their income.
While kharif oilseeds, pulses, coarse cereals are mostly grown in Madhya Pradesh, Maharashtra, Karnataka, Gujarat and Rajasthan.
As sowing areas under all categories of crops are higher y-o-y, there may not be a fall in kharif production, rather it can be higher from last year’s record 144 million tonne.
This has helped avert a rural distress during the pandemic period, along with the works available under the rural employment guarantee scheme.
Farmer have used climate resilient varieties of paddy and adopted good agricultural practices
Rice production has been increasing in recent years, even as area has remained unchanged, indicating rising productivity.
However, a bumper production may not be able to bring in good news for farmers if prices are subdued due to lack of demand.
Normal functioning of restaurants and hotels are not expected in near future, unless Covid vaccine is developed.
Unless demand increases, the prices may be depressed.

Going Green

State-run NTPC is going green.
NTPC currently has 928 MW of operational renewable energy generation units, out of which 870 MW are solar plants.
It is going to acquire some RE assets than greenfield projects.
The PSU has issued tenders to acquire 1,000 MW of operational solar plants, running for at least a year, and supplies power to their buyers at not more than Rs 5 per unit.
The move is seen by industry experts as the power major’s initial step, while it traverses a route over the next 10 years to have massive RE assets of 45,000 MW.
Even as its thermal capacities are also being increased, it will have RE capacity of 30% of total generation portfolio of 1,30,000 MW by then, from nominal level now.
Of course, domestic solar modules and panel manufacturers are facing the heat of Chinese imports and the government is trying to safeguard their interests by assorted import duties.
But the long-term business prospects of solar developers in the country are still bright.
Under the latest round of reverse auction for solar projects by state-run Solar Energy Corporation, a tariff of Rs 2.36 a unit was discovered, an all-time low.
Average tariff of thermal power by NTPC under power purchase agreements (PPAs) is Rs 3.90 per unit.
Currently, the total installed capacity of the power behemoth stands at 62,910 MW.
In line with the diversification strategy, NTPC is also planning to enhance its presence in consultancy, power trading and foray into newer sectors such as electric mobility and battery storage.
2,298 MW of the company’s solar projects are under various stages of implementation.
Apart from its own projects, NTPC acts as an aggregator of renewable energy through which is it supplies power to a number of states from solar and wind plants owned by other developers.
The ministry of new and renewable energy has identified NTPC as the nodal agency for setting up 20,000 MW solar and wind power capacity, and nearly 4,000 MW of such projects has been commissioned under this mode so far.
NTPC, in February, had also signed an ‘implementation support agreement’ with Rajasthan to develop a 925 MW Nokh solar park in Jaisalmer.
The company is expected to invest more than Rs 3,500 crore in building the project and the state will invest about Rs 450 crore in developing the ancillary infrastructure.