General Atlantic Partners took a 1.34% stake in Jio Platforms for a sum of Rs.6600 crore. This is the fourth such deal that Jio Platforms has closed. Earlier, Facebook, Silver Lake Partners and Vista Partners had taken a stake in Jio Platforms. Till date, Reliance has managed to monetize 14.8% stake in Jio Platforms for a consideration of Rs.67,500 crore. The last three deals have happened at approximately similar valuations. This stake sale combined with the rights issue of Rs.53,200 crore is expected to help Reliance become zero net-debt company by March 2021. That appears to be the goal for now.
With more than 5000 Coronavirus cases in India in 24 hours on 16th May 2020, the government had little choice but to extend the lockdown by another 2 weeks till 31 May. The existing restrictions for red zones will continue till that date and all rail and flight services will remain suspended till that date. Air India has already clarified that it will not issue tickets till the time the lockdown is actually lifted by the government. The states of Maharashtra, Delhi and Tamil Nadu have been the worst affected by the pandemic. The loss to the economy is likely to escalate for this very reason.
As part of the last day of the stimulus announcement, the government made two very important announcements. Firstly, all sectors are going to be opened up for the private sector and even in highly strategic sectors, private players will only be prevented from taking 100% ownership. Manufacturing will still be allowed in such cases. In another important move, the government decided to halt all fresh insolvencies under the IBC for the next one year. Also, COVID-19 debt will be excluded from the definition of default and the minimum amount has been raised nearly 100-fold to Rs.1 crore.
Foreign portfolio investors (FPIs) have invested Rs.17,363 crore in equity markets so far in the month of May 2020 but most of these inflows were driven by block deals. However, the trend may have changed to risk-off after the Fed warned of the US recession lasting longer and deeper than originally anticipated. However, the FPIs also withdrew Rs.18,355 crore from debt resulting in a net outflow of Rs.992 crore in the first 3 weeks of May. Analysts argue that the equity inflows look skewed due to the Rs.25,000 crore HUL block deal, which was largely lapped up by the foreign investors.
Eight of the top 10 companies on the Nifty reported a market cap loss of Rs.137,000 crore during the week ended 15 May 2020. Reliance Industries was the biggest contributor to the fall, losing nearly Rs.65,232 crore. The sharp fall in RIL was largely on the back of the stock going ex-rights on 13 May, leading to institutional selling. The stock had also rallied sharply by nearly 80% post March 23 this year and there was some froth going away from the stock. However, recent deals for Jio Platform are still assigning a rich valuation for the overall group. Other heavyweight stocks that lost value during the week included the likes of HDFC Bank, Hindustan Unilever, ICICI Bank and Infosys. While TCS was almost flat, the big gainer during the week was Bharti Airtel followed by some buying interest in ITC.
Moody’s has downgraded the power sector in India to Negative. There have been several reasons for the downgrade. Firstly, the power demand is expected to decline by 4-5% in FY21 due to slowing economic activity and cash flow problems. Secondly, power companies may have to operate at lower PLF forcing lower absorption of fixed costs. But, more importantly, the state owned distribution companies (DISCOMS) could delay payments as they rely on subsidies. Moody’s is of the view that the stronger players may be in a position to absorb the delays but mid-sized players may be hit hardest.