UBS has sounded that there was a distinct possibility that S&P and Fitch may cut the sovereign rating outlook for India to negative from stable. The rating by all the 3 top rating agencies now stands at Baa3 or equivalent, which is the lowest investment grade. Anything below that would classify Indian debt as junk status. Getting into junk status would have some serious implications. Firstly, it could result in outflows of FPIs from Indian debt and UBS estimates the outflows to the tune of $10 billion. Secondly, UBS believes that if India is shifted to Junk status, then the rupee could weaken substantially.
Amazon is reportedly in talks with Bharti Airtel to pick up a 5% stake at around $2 billion. That would peg the valuation of Bharti Airtel around the current market value of $42 billion. In the last few weeks, Reliance has managed to monetize close to 17.5% of its stake in Jio Platforms by placing shares with marquee names like KKR, General Atlantic Partners, Silver Lakes and Vista Equity; apart from Facebook. Amazon has been looking at making a significant investment in an Indian digital property and Bharti Airtel offers the best opportunity after the sharp turnaround it has engineered in the last 9 months.
According to a report by ICRA, gross NPAs of the banking system could worsen from 8.6% in March 2020 to 11.6% in March 2021. This spike in gross NPAs is likely to be an outcome of COVID-19 related lockdown and the lag effect. ICRA is apprehensive that the real stress on banks may be visible after August 31 when the moratorium gets over. This would also mean that banks would need recapitalization of another Rs.70,000 crore to tackle the higher NPAs and the slowdown in growth. Even the private banks are likely to see their average ROE levels fall from 12% levels down to just about 5.5%.
CII president, Uday Kotak, who recently took charge has argued against any interest waiver during the moratorium period. According to Kotak, it could end up becoming an unequal game wherein the banks pay the depositors but do not earn anything in return and hence could be credit negative for banks. This is with reference to a recent query by the Supreme Court to the RBI and the government as to why customers should not be given an interest waiver instead of moratorium. The current moratorium is only a deferral and the interest for the moratorium period will have to be paid by March 2021 in full.
In what could be a new paradigm in the Indian labour market, Indian construction companies are literally laying out the red carpet to get labour back to work. Construction works are wooing migrant workers back with flight tickets, extra payments and other facilities as there is a sudden shortage of labour in major cities. Just to illustrate, Prestige Estates has seen its labour force at sites dwindle from 2300 to 700 and they have no choice but to woo workers back. For most construction companies, the focus is to push deliveries fast so that the liquidity can be released from the contract. Projects like the Polavaram project are arranging special trains and giving hefty hikes to get labour back on projects. The state of Telangana alone has nearly 3.5 lakh migrant workers and that has been disrupted by COVID-19.
DLF reported a net loss of Rs.1858 crore for the Mar-20 quarter. But this was more of a one-time reversal of deferred tax assets of Rs.1917 crore after it adopted the lower tax rate in September last year. Due to the tepid demand for residential and commercial property in the Northern region, total revenues for the Mar-20 quarter also fell 30% to Rs.1874 crore. DLF also confirmed that it has not availed any moratorium or deferment of its debt obligations. DLF also expects the revenues to pick up from the second quarter of this fiscal year as construction activity makes a big comeback.