Irdai rejects general insurers' call for blanket easing of solvency margins

The Insurance Regulatory and Development Authority of India (Irdai) has turned down a request made by general insurance companies for a blanket relaxation of solvency margins due to Covid-19. However, it said specific cases would be considered on merit.

Last month, the General Insurance Council (GI Council), in a letter to the Irdai had sought relaxations in certain regulatory requirements, such as those related to solvency ratio.

The Council, which is the representative body of general insurance firms, had asked for relaxation in calculating available solvency margins (ASM) on account of delays in tenders related to government schemes and delays in receiving subsidy.

“The authority doesn’t see the need for general relaxation. However, any specific issues would be considered on merit,” Irdai said in its response.

The GI Council had also said that given the huge mark-to-market (MTM) losses in equity investments during March, Irdai should allow firms not to account for diminution in the value of equity investments while finalising accounts for the financial year ended March 31, 2020.

“Insurers are required to adhere to the applicable accounting standards framed by ICAI and the authority’s regulations/circulars on preparation of financial statements and valuation of investment,” the regulator said in its response.

While insurance firms ignore MTM gains, they are required to regard MTM losses as expenses.

“Though the outbreak was relatively delayed in India, the scare, the preventive shutdown, and the economic fall are unprecedented, with the impact on markets quite telling. Without exception, the non-life insurance sector is severely burdened and we fear difficulties in meeting regulatory requirements,” M N Sarma, general secretary of the GI Council, stated in the letter.

The GI Council had also requested that firms be allowed to consider MTM position as on February 29, 2020 as the basis of computing solvency.

“Alternatively, Irdai may relax the minimum solvency requirement of 1.5x for the time being,” the letter had said. Many firms may see their solvency ratio fall below 1.5 due to the crisis.

On the issue of giving additional time for the launch of Arogya Sanjeevani, up to June 1, Irdai has said, “All the general and health insurers have received UIN. In the present Covid-19 crisis, rolling out the standard health product expeditiously would be in public interest.”

Further, on the request to condone a break of up to 60 days for continuity of benefits in case of delay in renewal of health insurance, the regulator said, “Thirty days are already available for this, which is sufficient. Further, if the renewal date falls during the lockdown period, the authority has also allowed for continuation of policy without break.”

Covid-19 testing picks pace as pvt labs asked to take some samples for free

As India enters the third week of a nationwide lockdown, states are ramping up testing capacities. Asymptomatic patients, who were confined to their homes, are likely to start showing symptoms and massive testing is the only way to identify and isolate them. Further, with hotspots emerging across major cities, the country’s apex health research organisation — the Indian Council of Medical Research (ICMR) — has already advised resorting to rapid screening tests (using blood samples) at these containment zones to arrest the spread of the virus.

A quick review shows that most states are testing between 600 and 1,500 people per day, and have already requisitioned 50,000 to 100,000 testing kits. At the central level, around 700,000 rapid test kits are expected to arrive around April 10 and the major testing ramp up would have to wait till then.

Rapid tests use blood samples to look for antibodies that react to coronavirus protein and give results within minutes. These have to be followed up with conventional the polymerase chain reaction (PCR) tests that take a few hours to deliver results.

But the availability of diagnostic kits is a growing concern. Protective personal equipment (PPE) worn by the health care workers is in short supply, too. India is roughly testing 20,000 samples per day and the plan is to scale this up to 100,000 samples per day within the next few weeks. A public health expert said India needs to test at least 130 million people, which is only 10 per cent of its population, to control community spread of the disease.

These look like very steep targets at the moment.

Maharashtra said on Wednesday it was running out of PPE kits and the Brihanmumbai Municipal Corporation (BMC) is now aiming to procure 35,000 PPE kits every week. So far, around 12,000 PPEs have been air-lifted and 30,000 or so are on their way. BMC has also ordered 50,000 rapid testing kits.

The BMC has said the outbreak here has reached the community transmission stage, as fresh cases are neither contacts of patients nor do they have any travel history. Worli, Prabhadevi, and Lower Parel are among the worst affected, apart from Dharavi.

More than 50 health care workers have been detected Covid-19 positive in the city. On an average, Mumbai is now testing 890 people per million. This, according to the BMC, is better than the national capital, which is testing 96 people per million.

Private labs here have been asked to conduct 25 tests for free per day.

Delhi has requisitioned 100,000 rapid testing kits and has received many kits from ICMR recently. Uttar Pradesh (UP), which is sealing off 15 of its worst-affected districts, is gearing up to double the daily testing of suspected cases to 1,500 from Thursday. Apart from the districts where Covid-19 patients have been identified, the state will now conduct tests in the remaining districts as well to minimise possibility of spread of the pandemic, UP medical, health and family welfare principal secretary Amit Mohan Prasad said on Wednesday. The state will also collect samples of people with symptoms of respiratory illness or influenza. A tender to procure rapid test kits will be opened on April 11.

“These antibody testing would be used on health workers and at the quarantine facilities, since the UP coronavirus curve has started to flatten. It is time to go for aggressive testing to further rule out the possibility of positive cases,” added Prasad.

Meanwhile, the state government will expand the current testing facilities from 10 to 24 district hospitals and medical colleges in the coming weeks. Besides, all the 75 districts in UP will be equipped with coronavirus sample collection centres.

Down South, many states have adopted a kiosk approach to collect samples, like Tamil Nadu, Kerala, and Karnataka. So far, Tamil Nadu has ordered 100,000 rapid testing kits from China, which will reach the state on April 9. Testing would begin around April 10. As on April 7, Tamil Nadu had around 14,000 test kits from the National Institute of Virology, Pune. Tamil Nadu has tested a little over 6,000 samples till Wednesday. It is doubling the number of testing facilities from the current 19.

A walk-in sample kiosk has been set up at a government hospital in Tiruppur, in line with those installed in South Korea. In these sterile cabins, throat swabs can be taken from patients standing outside the cabin. This helps in collecting more samples in less time. It also reduces the requirement for PPE kits. Similar arrangements have been made at Kerala’s Ernakulam.

Kerala received its first set of 1,000 PCR test kits from Pune-based MyLab. It was ordered by Thiruvananthapuram MP Shashi Tharoor. The state is waiting for the rapid test kits now. Kerala is buying 100,000 rapid test kits from China. Of this, 25,000 kits have been delayed due to clearance of ships in China. Kerala CM Pinarayi Vijayan has said there is no scarcity of test kits. The state will get 20,000 kits from ICMR by Thursday.

Karnataka, too, is in the process to procure 100,000 antibody test kits from a Singapore firm and aims to ramp up testing from 600-800 per day.

K Sudhakar, the state’s medical education minister, who is the official in-charge for all Covid-19-related matters in the state, has said these test kits would be used in red zones and also for some random testing to check community transmission. Karnataka is also in the process of procuring one million PPE kits for the safety of health care professionals.

Andhra, too, has ordered 100,000 rapid antibody test kits to pro-actively screen high-risk groups. It has expanded the testing capacity to 5,000-6,000 samples per day. Symptomatic survey is being conducted on people above 60 years, health workers and high-risk patients. The department is planning to conduct tests on 1,800-2,000 from these groups. Besides this, about 1,000 blood samples were collected from clusters where infective cases had been reported recently. The health department has stocked up 2 million tablets of hydroxychloroquine and 1.4 million tablets of azithromycin for a possible treatment of the coronvavirus infection. The government has already placed orders for 2 million PPEs and 1.4 million N-95 masks for medical staff dealing with coronavirus cases in the state.

The Andhra Pradesh MedTech Zone has started manufacturing 2,000 testing kits per day. The capacity will be increased to 25,000 per day. Telangana, however, has taken a different route. Unlike in other states, the Telangana government decided against using rapid testing. It thinks conventional testing is a must to confirm the cases. About 200,000 conventional testing kits, 500,000 PPEs, 500,000 N-95 masks, 2.5 million regular masks and 2.5 million surgical gloves have been ordered here. The government is distributing 5,000-10,000 PPEs a day to hospitals dealing with coronavirus cases.

Gujarat has requisitioned an additional 50,000 kits from ICMR even as plans are afoot to ramp up daily testing to over 1,000 in newer containment zones being identified. According to the Gujarat government’s health officials, the ICMR has so far supplied 17,000 RT-PCR kits to six public hospitals.

“At our six locations, we have a daily testing capacity of 1,500. Private labs in the state can do another 600-700 tests daily. Currently, 600-700 tests per day are being done,” said an official.

West Bengal has been relatively tight-lipped. It has identified seven clusters where rapid testing would be conducted. There are 30 NABL-accredited labs in the state to conduct such tests.

40-60% drop in air passenger traffic likely in FY21 amid Covid-19 crisis

Private Indian airports are staring at a steep 40-60 per cent fall in passenger volume this financial year due to the Covid-19 crisis.

Such a disruption will take the clock back by many years — in terms of passengers handled — for these airports, thus raising questions among some of the airport operators over a delay in expansion plans.

Private joint venture airports (seven of them), including Mumbai, Delhi, Bengaluru, and Hyderabad accounted for over 54 per cent of the 349 million passengers in CY19. “Overall traffic is expected to decline by 50-60 per cent, but the impact will vary for each airport. Airports in Kerala may see a higher impact as a large percentage of their traffic is to West Asia,” said Satyan Nayar, secretary general of the Association of Private Airport Operators, based on feedback from its members.

According to people in the know, Delhi airport — the busiest in the country — handled 68 million passengers last year. GMR Group, which operates the airport, was expecting passenger growth to stabilise in 2020. However, a senior official of the airport said that based on existing conditions, numbers are unlikely to exceed 33 million this year.

He said this was primarily because there is no question of people starting to travel even after the lockdown is lifted, especially international. However, officials in Hyderabad and Delhi airports, which are run by the GMR Group, said: “At this point, we are assessing what domestic demand will be, once the suspension in operations is lifted. Various options including consolidating terminal operations are being evaluated. There is no plan to defer any ongoing expansion works.” They pointed out that Delhi was currently handling 25-30 operations, while Hyderabad was doing 4-7 a day, which were mostly foreign evacuation and cargo.

Further, with an extension of the lockdown looking certain, and with the Directorate General of Civil Aviation mandating social distancing norms on flights, which would reduce seat capacity substantially, traffic is not expected to get back to normal.

Mumbai airport spokespersons did not respond to an email. However, a director in one of the PPP airports, said: “We have no revenues, airlines have said they will not even pay rent until flights are allowed, so how can we pay revenue share to the Airports Authority of India? Or, how do we pay our loans? We have to relook our expansion plans and preserve cash, or delay it as it will take time to fill the existing capacity. Brace for even retrenchment.”

Aviation consultancy CAPA estimates domestic traffic to decline from around 140 million in FY20 to 80-90 million in FY21. International traffic is expected to fall from approximately 70 million in FY20 to 35-40 million in FY21, and possibly less, it said. Already, airport operators are seeking a financial package from the government, including a tax holiday, moratorium on payments, deferral of concession fees, and loans at attractive rates.

Extension of the lockdown and a projected fall in air traffic would also force airport operators to recalibrate their expansion plans. Construction of a new terminal at Bengaluru will be delayed and the work will commence once the lockdown is lifted, as the project capital is already tied, said a person in the know.

Coronavirus lockdown: Rs 1-trn stimulus package for MSMEs on cards

A second stimulus package the Centre is poised to announce in coming days will be worth around Rs 1 trillion and focus on help for small and medium businesses weathering the coronavirus outbreak, two senior officials said on Wednesday.

Last month, the government outlined a Rs 1.7-trillion economic stimulus plan providing direct cash transfers and food security measures to give relief to millions of the poor hit by an ongoing 21-day nationwide lockdown.

“The second package could be focused largely on MSMEs (micro, small and medium enterprises),” one of the senior government officials, with direct knowledge of the plan told Reuters.

The official said a separate package could be announced for bigger companies after assessing the extent of the hit they have faced due to the lockdown imposed to fight the outbreak.

Small businesses account for nearly one-quarter of India’s $2.9 trillion economy and employ more than 500 million workers, according to government estimates.

The new package aimed at MSMEs could include increases in the limits of bank loans for working capital needs, hiking threshold limits for availing of tax exemptions, and relaxing rules for deposits of income tax and other dues, the people aware of the matter said.

A finance ministry spokesman declined to comment.

The second government source said the government was also planning to partially clear tax refunds owed to small businesses within one month to provide some immediate relief.

The government on Wednesday said it would also release Rs 18,000 crore in tax refunds to small businesses and individuals immediately and impose expenditure curbs on a host of departments for the April-June period.

K E Raghunathan, former president of the All India Manufacturers Association (AIMO), said the government should also clear long-pending dues for the sale of their products to federal and state governments, as well as state-run firms.

Federal and state governments and state-owned companies owe more than $66 billion to small businesses, the government told Parliament last month.

chart“We do not know how long we will be able to survive if our dues are not cleared,” said Raghunathan, a small-time manufacturer of solar parts in Chennai.

Hundreds of thousands of cash-starved Indian small businesses have either deferred or cut their workers' wages this month while trade union leaders said more than 5 million workers, mainly on contract, have suffered wage losses.

Industry body AIMO, which represents some 100,000 small manufacturers, has said more than two-thirds of its members faced problems in paying salaries.

All govt departments told to cut expenses by 60% amid coronavirus outbreak

The Centre has begun to cut expenditure in right earnest as the financial impact of Covid-19 deepens.

Days after cutting the salaries and other allowances of MPs and ministers, the government has passed instructions to all departments to reduce their expenditure by as much as 60 per cent from their first-quarter spending plans.

Each department has to make the “savage cuts” by redoing the Budget maths.

The only exception is spending that deals with schemes related to the pandemic. Here too, there could be cuts for non-essential stuff. No instructions have been issued to states to prune expenditure but it is understood that these too could happen soon.

The sum to be reduced will roughly be from a budget of Rs 3.43 trillion of estimated government spending in the first quarter. The cuts have become necessary because all estimates show both tax and non-tax revenue of the government will come up far short of the Budget estimates in FY21.

The government’s borrowing calendar for the first half of the year has made no provision to cover the shortfall.

Normally under the government of India’s spending plans, the ministries and departments have to spend 25 per cent of their Budget in each of the four quarters of the year. This is meant to block them from bunching their expenditure at the end of the financial year, which was the unstated norm till about a decade ago.

The new norms allowed the expenditure monitors in each of these departments to keep track of how productively public money had been spent. In this fiscal year, the departments have finalised their expenditure plans. But now the finance ministry has issued a modified cash management plan to them, advising the cutbacks .

For this purpose, the government has divided the ministries into three groups. The first set will have to reduce their expenditure by 20 per cent, the next by 40, and the remaining by 60 per cent. It is up to the departments concerned to figure out how to make the cuts.

For FY21, the government had planned to spend Rs 30.42 trillion, according to Budget estimates. Leaving out the committed interest payments and transfers to states including centrally sponsored schemes, Finance Commission grants and sundry other grants, loans, transfer, the remainder is Rs 16.20 trillion. Subtracting other committed expenditures including wages and pensions, which amount to Rs 4.58 trillion, leaves about Rs 11.62 trillion for the entire year. From this the departments and ministries can make the cuts. The instructions make no mention of cutting wages and pensions.

Coronavirus impact: Centre's borrowing won't be cheap this time

The prospect of cheap borrowing is fading fast for the government, which will hold an auction of Rs 19,000 crore on Thursday, this fiscal year.

Wary of supply, bond dealers asked for sharp increase in rates from state governments during Wednesday’s auction. States borrowed at 150-200 basis points (bps) above government securities (G-Secs), or more than 450 bps above the policy repo rate, to raise money from the markets.

The ‘AAA’-rated public sector unit REC even withdrew a planned debt sale of Rs 5,000 crore. Kerala paid 8.96 per cent for a 15-year bond. The equivalent tenor G-Sec closed at 6.92 per cent.

What is interesting is that bond yields have shot up despite an extraordinary 75 bps policy rate cut by the Reserve Bank of India (RBI), which was accompanied by other liquidity boosting measures. The 10-year bond yields had fallen to 6 per cent, but as on Wednesday, it was at 6.44 per cent.

The government has to borrow Rs 4.88 trillion in the first half in this environment, which is getting increasingly difficult owing to the coronavirus disease (Covid-19)-induced slowdown.

Bond dealers say the yields will remain around the present level, but they don’t rule out further bond issuances. The government has not yet clarified on the extra borrowing. The expectation is that if it happens, it would likely be placed directly with the RBI.

“The market is looking at higher G-Sec issuances, than the borrowing calendar. Even after RBI rate cut and liquidity support, G-Sec yields are stagnant. Fiscal deficit target will be breached, but the extent is early to call. It depends on how soon people come back to work,” said Joydeep Sen, consultant for fixed income at Phillip Capital.

A section of the bond market expects the RBI to announce open market operations (OMO) to buy bonds from the secondary market, but not everyone is sure that that would help in boosting sentiment.

“The 10-year G-Secs are already up 200 bps above repo rate. These are unusual times. Noise, speculation, and lack of clarity over possible fiscal slippages … everything is making the market nervous. OMO is not enough, better visibility and clarity are essential,” said Soumyajit Niyogi, associate director at India Ratings and Research. The reduction of market hours is also making it difficult to gauge demand. The bond and currency markets closed at 2 pm on Tuesday, earlier than the usual 5 pm. The markets will function between 10 am and 2 pm till April 17 because of Covid-19.

Industry wants phased exit from lockdown, up to Rs 23 trillion package

Industry has demanded a calibrated lifting of the lockdown as soon as it is feasible and a Rs 23 trillion economic rescue package for itself and weaker sections of the society.

While Assocham demanded a Rs 15-23 trillion package ($200 billion to $ 300 billion), Ficci called for a Rs 9-10 trillion stimulus, PHDCCI asked for Rs 9 trillion and CII backed a rescue package of 2 per cent of GDP.

Two per cent of the GDP comes to about Rs 4.5 trillion if the size of the economy is assumed to be Rs 224.89 trillion for FY21 on the basis of which the latest budget was prepared. However, the size is likely to be much less than the assumption.

According to SBI group's chief economic advisor Soumya Kanti Ghosh, Rs 6.6 trillion would be needed to help the industry grow and pay wages to the labour and budgetary support to states. He also called for staggered lifting of lock down.

According to its note sent by CII to various ministries including finance and commerce, the GDP growth rate would not be more than two per cent in the current financial year and could be even less.

"It is our considered judgement that the impact is severely adverse... We are fully aligned with the government's view that the shutdown would need to be lifted as early as feasible, though in a calibrated manner," the chamber said.

CII said the government should create a dashboard to monitor daily epidemic curves of various key cities and states. The re-start calendar across cities and states should be based on the dashboard.

The progressive ramp up in terms of proportion of manpower allowed to get back to work should be based on the movement of the respective curves on the dashboard, it said.

The sectors where work from home is difficult and which provide mass employment could be re-started first.

In the phase one, manufacturing, e-commerce and construction. alongside, logistics and transport should be allowed to operate, in the phase two which should begin two-three weeks after the start of the phase 1, all other sectors could start, based on assessment on the dashboard, the chamber said.

The ramp up could be 50% employees to start with, for about three weeks. This could be increased gradually, based on how the curves are progressing in various cities and states.

Justifying its demand for a package to the tune of of 2 per cent of GDP, the chamber said since the crisis is not going to end soon, the government should not spend all its firepower at once.

Fearing that the pain in the real sector could very rapidly spread to the banking and financial sector, it wanted the Government to set apart a fund of Rs 30,000 crore that could be used by banks that meet certain criteria and under specified conditions.

Banks can use this fund by way of issuing tier I bonds, which will be convertible into equity at the option of the fund.

The chamber demanded additional support to the lowest strata of the society, besides Rs 1.7 trillion already announced by the government.

It called for providing Rs two trillion to JAM account holders.

It said rather than the government giving direct subsidies to industry, as has been done in a few other countries, it is preferable to leverage (5-6 times) through the banking system and support the industry through banks.

"Our estimates are that the economy would need a credit expansion of 14-15 per cent," it said.

As such, it demanded that banks should provide additional working capital limits, equivalent to April - June wage bill of the borrowers, backed by a government guarantee, at 4-5 per cent interest rate, with a refinance guarantee from RBI.

A similar carve out could be provided for the April – June interest obligations of the stressed sectors, the chamber said.

It also wanted that banks be allowed to provide enhanced credit limits for working capital across the board to all industries.

The chamber also demanded additional reconstruction loans to MSMEs, with the government guarantee up to 20 per cent of default, seamless transportation of goods and services across the country, allowing dhabas, repair shops to operate on highways.

It further demanded that the logistics service providers should extend insurance cover to the workers and their families to the tune of Rs 10-15 lakh for a period of 3 months. The additional cost could be adjusted in the freight rates.

The chamber also wanted that there should be a tri-partite dialogue between government, worker associations,unions and industry to allay the health and safety related concerns of the workers.

Also, a COVID insurance scheme could be announced for migrant workers, for three months. part of the cost could be borne by the government and part by industry, CII said.

And then, migrant workers should be issued e-passes by the local authorities to allow them to travel to their work places.

FICCI said Rs 9-10 trillion be injected for relief and rehabilitation across all levels of the economy including people at the bottom of the pyramid, informal workers, MSMEs and large corporate.

The chamber also wanted setting up of a post-COVID revival fund -- Bharat Self Sufficiency Fund-- with a corpus of Rs two trillion.

In a letter to finance minister Nirmala Sitharaman, Assocham said the Indian economy would need a transfusion of over $200 billion with an ability to go up to $300 billion, over the next 12-18 months. It said out of the corpus, $50-100 billion (Rs 3.8 trillion- 7.6 trillion) cash needs to be infused in the system over the next three months to arrest the loss of jobs and compensate for loss of income.

Such an infusion would help businesses and workers tide over the challenging situation, it said.

PHDCCI president D K Aggarwal said," the government has already provided a stimulus of Rs two trillion, therefore, our expectation is for the remaining Rs nine trillion in terms of various relief measures and benefits to India’s trade and industry."

Covid-19 impact: Missing disinvestment targets will have consequences

The economic travails this year will be challenging, and from the economist’s perspective, economic growth and fiscal deficit are the two main challenges. The government had embarked on a very ambitious disinvestment programme for the year of Rs 2.1 trillion. It sounded optimistic as we have never delivered such an amount before. The highest was Rs 1 trillion in FY18. The present programme includes the sale of Air India, Life Insurance Corporation of India (LIC) and Bharat Petroleum Corporation Limited (BPCL), which made this very aggressive target look possible.

For disinvestment to take place, there need to be a good number of buyers as well as valuation. Else, like in the past, divestment becomes an exercise of one public sector undertaking (PSU) buying into another. The challenge today is that the conditions do not look congenial and the market is just too volatile. The stock market has touched a new low post the announcement of a shutdown. There seems to be no sign of the shutdown ending or even a plan as to what should be done once this ends. Realistically speaking, FY21 will be a washout. The market is unlikely to reach the January levels anytime soon and unless it is moving in the upward direction continuously for three months, can one be assured that the valuation will be fair?

The other factor is the kind of disinvestment we are looking at. BPCL no longer looks as attractive with the price of oil below $30/barrel and the future of the sector being uncertain. A global recession is for sure, which means that oil prices will be depressed and the sale of such an enterprise will remain unattractive. Next, Air India has been on the block for some time now, and there is no clear plan about how to go about it given the overhang of debt which is around Rs 60,000 crore. To top it all, the future of the aviation industry is in jeopardy following the breakout of the pandemic as movement across countries will remain barred for at least six months after normalcy returns.

The domestic segment, too, looks static and it is doubtful if people will be willing to fly except under extreme conditions post the epidemic. In fact, with business getting used to conducting meetings through webinars, the cost saving involved in not travelling will make sense when India Inc is not expected to do well. Therefore, potential buyers would certainly not get in given the low prospects.

Lastly, LIC was to get in almost half of the targeted amount, which was always going to be a challenge when the Budget announced that the 80C section was going to be optional for taxpayers who could opt for the scheme where one could give up exemptions to join a system of lower tax rates. One can logically interpret this to mean that at some stage all the exemptions would go and insurance would be the last thing on a saver’s mind given that the returns are even lower than bank deposits and small savings.

ALSO READ: FY20 disinvestment mop-up at Rs 50,298 cr, govt misses budget target

Not meeting the target has severe challenges for the government and this is where growth comes in. An extended shutdown and lower growth means lower GST (the monthly target cannot be attained). That apart, it will lead to lower corporate, customs (ban on trade), and income (job loss) tax collections.

Overall tax revenue, including those to be transferred, was estimated at Rs 24 trillion and a now a 10 per cent fall cannot be ruled out. Add to this the low level of disinvestment and we can be looking at a shortfall of around Rs 2.5 trillion or so. The fiscal stimulus announced of Rs 1.7 trillion will add to the fiscal deficit further and the fiscal deficit ratio could be at 5.5 per cent.

The problem really is that any slippage in disinvestment combined with other revenue shortfall will mean that the government would have to rework some expenditure numbers, which could mean rolling over some of them. Minor cuts in salaries or MPLAD being withdrawn can contribute a little, but at the end of the day, borrowing will go up. This is probably the reason as to why the market is still skeptical despite the surplus liquidity in the system. The government would necessarily have to borrow more in the market, which will pressurize liquidity over time.

Brent can jump to $40 by 2020-end; India should stockpile crude oil now

Oil storage is about the only thing in demand in the crude market right now. The coronavirus (Covid-19) pandemic has obliterated consumption and forced producers and traders to store more oil on the water as land-based facilities near tank tops. While India will fill its caverns with crude, the lack of space means it’s also an opportunity lost.

The world’s third biggest oil importer is planning to fill up its strategic petroleum reserves (SPRs) in the coming months. India’s combined capacity of 5.33 million metric tons (mmt) in three locations in southern India – Vishakhapatnam, Mangalore and Padur – is just over half full.

The timing is close to perfect. There is a consensus among analysts that oil prices will remain under pressure. S&P Global Platts Analytics sees Brent crude trading below $20/barrel (bbl) over the next couple of months before rebounding to $40/barrel by the year-end. Even the recovery price is low by recent standards and depends on the shape and timing of the recovery from coronavirus as people return to their cars.

But as far as SPR is concerned, India lags behind major consuming countries and its Asian neighbours such as China, Japan and South Korea. China’s total capacity is 550 million barrels, Japan’s SPR is 528 million barrels and South Korea has 214 million barrels. That compares to a paltry 39 million barrels for India, which equates to just nine days of cover in the event of a disruption compared with 198 days for Japan at the other end of the spectrum.

India’s reluctance stems from the high costs of involved. Not only in building out the tanks and necessary infrastructure but also in maintaining and holding the oil.

Saying that, the Indian Cabinet has approved another 6.5 million mt of SPR under the second phase given the country’s reliance on oil. India's crude imports averaged around 4.5 million barrels per day (b/d) in 2019.

It is global storage levels that have been acting as a barometer of the oil market’s glut and is why commentators remain bearish despite optimism around an orchestrated production cut deal from OPEC+. There is little to be gained from net consumers of oil to assist even if they can and so the burden is likely to stay on the shoulders of the Middle East and Russia.

Platts Analytics sees global storage levels filling up in May. Stocks on land are filling up fast and now participants have turned to the estimated 400 million barrels of floating storage pushing up freight rates for ships. Platts estimates up to 40 supertankers and 20 Suezmaxes are already placed on long-term charter. Some supertankers have been booked to store crude for up to three years, potentially the longest ever duration for floating storage.

Draining the stockpiles on land and sea may take years and with any production cut deal likely to take time to take effect, market forces are likely to have done the damage by then. Jeff Currie, Goldman Sachs’ head of commodities research told Platts this week that with storage running out, the time it takes for any production cut to take effect and the fact that the reduction won’t match up to the loss in demand, means it could be “too little, too late” for the oil market. The same could be said for India’s plans to store crude.

Gain some, lose some: What India's Covid-19 relief package means for biz

The government and the central bank moved quickly last week to help the economy as India manages life under a 21-day lockdown to stem the spread of the coronavirus pandemic. Their decisions bring opportunity for some businesses as others miss out.

The Reserve Bank of India (RBI) cut the repo rate by 75 basis points on Friday, following the finance ministry’s announcement of a relief package worth Rs 1.7 trillion for India’s poorest income groups and a Rs 50 lakh per head insurance cover for medical personnel fighting the pandemic. Neither of them gave any guidance on the macro indicators for the economy battered by the lockdown. “Projections of growth and inflation would be heavily contingent on the intensity, spread and duration of Covid-19…,” said RBI Governor Shaktikanta Das when he announced the lending rate cut, referring to the disease caused by the virus.

Das is justified, but it means India is off to 2020-21 with no guidance about the gross domestic product (GDP), the fiscal deficit and projections for inflation.

The markets got an indication of what the fiscal deficit could look like when the finance ministry said on Tuesday it will borrow Rs 4.88 trillion in the first half of fiscal 2020-21 to shore up resources. For the first time, the RBI’s monetary policy committee met before the borrowing calendar was released.

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So are the markets flying blind? The RBI and the finance ministry agree that liquidity supply is their priority now. That belief has international endorsement. On Thursday, the G20 bloc of nations pledged $5 trillion to support their economies. After a week of tumultuous developments, here is our assessment of the sectors that would gain and lose from these decisions. The gainers are FMCG, e-commerce, food processing, real estate, financial services, medical device, and insurance sectors. Automobile companies will get some help as challenges grow for bank, metals and infrastructure sectors.

FMCG

The clear winner from the promised high liquidity will be the FMCG sector. The Nifty FMCG index at the NSE has done better than other sectoral indices in the past 30 days, dropping only 18.9 per cent, next to the pharma index at 15.66 per cent. A Business Standard report quotes market research firm Nielsen to say: “the panic buying of food items and hygiene products in the recent weeks has pushed up growth rates of food and non-food categories by 300 and 400 basis points respectively, compared to the numbers in January. However, companies argue the spike will not compensate for the fall in the overall growth rate during the quarter due to the virus”.

The FMCG index measures up something more: an expected softness in inflation numbers this summer despite high liquidity in the economy. Consumer price inflation is expected to ease as people defer purchases during the lockdown and certainly defer high-end purchases. Sales of white goods will be down, so air-conditioners and air coolers could see muted performance this summer. Manufacturers of packaged food items and all toiletries will gain, especially as states end restrictions on moving perishable commodities.

ALSO READ: From Mumbai to Noida, these are India's coronavirus hotspot cities

Insurance

The finance ministry’s announcement of an insurance cover for medical personnel helps insurance companies. Three-fourth of the lives covered under such companies' health policies come from government-sponsored schemes. An estimated 22 lakh health personnel will be covered now and the number may go up by next renewal.

Auto

The extension of EMI forbearance will give breathing space to people who have bought automobile loans but face financial difficulties in sticking to their repayment schedule. It won’t encourage more people to buy cars till the economy recovers, but the automobile sector is beset with so many problems that even this limited relief has been welcomed. The Supreme Court provided another relief when on Friday it allowed the sale of 10 per cent of BS IV compliant vehicles for 10 days more beyond April 1, except in Delhi-NCR. Companies have just under 2 lakh passenger and commercial vehicles as their total stock. The industry estimates a total cash inflow of Rs 700 crore if sales materialise.

Food processing

In distress, food products priced competitively sell well. Lockdown rules have been eased to allow food delivery companies to continue business. The centre and states may soon have to issue food stamps to feed people who have lost their jobs say government sources. These factors could help the food processing industry.

E-commerce

Demonetisation of high value currency notes in November 2016 boosted India’s nascent digital payment companies. E-commerce companies are in a sweet spot this time. The centre and the states last week rushed to help e-commerce companies that had discontinued supplies after allegations of police stopping and harassing delivery personnel. The government’s attitude for e-commerce firms has changed quickly. India’s fair trade regulator, the Competition Commission of India, announced in February it was investigating e-companies after the brick-and-mortar retail sector complained of unfair business practices. Now, the department of industrial promotion and internal trade has a control room to ensure the logistics operations of e-commerce firms run unhindered. This is one sector that should do well because of the lockdown.

Medical devices

India’s medical devices market is worth more than $5 billion annually and may cross its current CAGR of about 16 per cent, buoyed by Prime Minister Narendra Modi’s plan to spend Rs 15,000 crore to strengthen medical infrastructure. The health ministry is working out the modalities to position India as a supplier for SAARC nations for future medical needs, potentially bringing businesses to companies.

Financial services

Social distancing is preventing the use of cash, but that’s an opportunity for digital payment and financial service companies. RBI Governor Das ended his monetary policy statement with an exhortation to use digital money, making clear which way the policy support would go.

Real estate

The RBI asking banks and other lending institutions to allow a three-month moratorium on loans is a major relief for home loan borrowers and developers. Borrowers get some respite on their financial flows while developers can hope their existing loans from banks will not go sub-standard. Though only few projects are ongoing, yet deferral of interest on working capital is also clearly a positive for the sector.

Banks

It falls to all banks to ensure that governments, industry and households stay solvent, but that will put pressure on their balance sheets. A big reason for that is the RBI allowing borrowers to defer paying three instalments on all types of loans--from farms, housing, personal, to industry. Interest on working capital loans can be deferred too. The interest rate will increase if borrowers opt for deferrals but over an extended tenor.

Aggregate deposits of banks will go down as the government hands out close to Rs one trillion in cash support to the poor. State governments will withdraw from their balances as they offer cash and food support for the poor. They are short of cash too. As many as 18 states planned to raise money from the market on March 23, but Andhra Pradesh, Bihar, MP and Punjab failed to do so. The other states had to offer high yields to interest buyers. Das pointed out the risks when he said: “I would urge members of public as well as the public authorities, who have deposits in private sector banks, not to resort to any panic withdrawal of their funds”.

Both the asset (loan payment) and liabilities (deposits) of banks and non-bank financial institutions (NBFC) get hit. Banks will not have to provide additional risk capital for deferred loans or classify them as sub-standard or non-performing assets, the RBI has said. That forbearance was needed to prevent a huge capital blockage for the banks, negating the entire liquidity package. The 100 bps cut in cash reserve ratio of net demand and time liabilities should also be read in this context.

The RBI has pushed back the timeline for banks to comply with one more of Basel III norms. According to the forbearance offered, banks can wait for another six months before they raise more Tier I capital to meet Capital Conservation Buffer norms under the Basel III glide path. The five weakest state-owned banks shall still fall short, and RBI has not made clear if it will provide any additional forbearance for them.

For the medium term, RBI has taken this chance to allow banking and NBFCs operating from Gujarat International Finance Tec-City (GIFT) to participate in the offshore NDF market, with effect from June 1, 2020. Trade in Indian Rupee, Chinese Renminbi, South Korean Won, Brazilian Real and Russian Rouble account for two thirds of the volume of the global NDF market, and this should raise the fee income of both state-owned and the large private sector banks.

Infra and metals

The centre and the states are working to re-appropriate expenditure from unspent balances under various infrastructure projects to pay for health-related relief packages. Modi has asked states to treat healthcare as their top priority. With fiscal calculations askew because of the coronavirus, the centre and the states may not have funds to invest for approved infrastructure projects. This is bad news for steel, iron ore and even copper and to some degree aluminium.

Covid-19: India FY21 growth projection down 20 bps to 4.8%, says UN report

India's GDP growth for the current fiscal is expected to slow down to 4.8 per cent, a UN report has said. It also warned that the Covid-19 pandemic is expected to result in significant adverse economic impact globally.

The UN 'Economic and Social Survey of Asia and the Pacific (ESCAP) 2020: Towards sustainable economies' said that Covid-19 is having far-reaching economic and social consequences for the region, with strong cross-border spillover effects in trade, tourism and financial linkages.

India's GDP growth for the fiscal year 2019-2020 was estimated at 5 per cent and is forecast to slow down to 4.8 per cent for the current fiscal 2020-21.

Economic growth for the country could stand at 5.1 per cent for fiscal year 2021-22, the report said. It also noted that these are very preliminary forecasts based on the data and information available up to March 10.

ALSO READ: Coronavirus LIVE: Delhi's Bengali market sealed; 55 new cases in Gujarat

"As the Covid-19 pandemic is still evolving rapidly and showing no signs of abating as of March 31, 2020, its negative impacts on economic performance of countries and territories in Asia and the Pacific will likely be very significant," a disclaimer accompanying the GDP chart for economies in the Asia and Pacific in the report read.

"India's economic growth declined considerably by more than the earlier estimate (5 per cent in 2019 compared with the previous estimate of 7 per cent), as uncertainties ahead of the general election and tighter credit conditions weighed on manufacturing activities and investments. Weakness in income growth and a rising unemployment rate also undermined consumer sentiment. Its exports were affected by global trade tensions as well, while extreme weather events -especially rainfall - disrupted agricultural activities," the ESCAP report said.

The report also noted that the outbreak, first reported in China and subsequently globally, has significantly increased the downside risks to the Asia and Pacific region's near-term economic outlook.

ALSO READ: Covid-19: E-commerce saves the day as delivery workers emerge as heroes

"While the pandemic was initially expected to affect primarily China's economy (mostly in the first quarter of 2020), its spread worldwide, including in the Asia-Pacific region, could result in significant adverse economic impacts. High economic integration regionally and internationally could exacerbate the economic slowdown through multiple channels, such as trade, tourism, and financial markets," it said.

The report cautioned that despite measures to contain Covid-19, such as quarantines, and the lockdown of cities, the spread of the novel coronavirus has already adversely affected regional and global economies.

"The regional economic impact is anticipated to be greater than that experienced 17 years ago when the Severe Acute Respiratory Syndrome (SARS) broke out," it said for the outlook for the Asia and the Pacific region. "It is not only because of China's growing economic importance but also because of increasingly globalised production structures."

Preliminary estimates by ESCAP suggest that the Asia-Pacific region's GDP could experience declines of 0.6-0.8 per cent (valued at $132 billion to 172 billion) as a direct result of the COVID-19 pandemic through trade links alone.

ALSO READ: Covid-19 impact: Commercial vehicle sales to contract another 8-10% in FY21

The report noted that the global economy is experiencing a significant slowdown. In 2019, global economic growth is estimated to have expanded at its slowest pace since 2008, at 2.3 per cent, a sharp deceleration from 3 per cent growth in 2018.

Growth is forecast to slow to 2.0 per cent in 2020 before experiencing a modest pick up in 2021, as the global economy loses growth momentum amid a pandemic and an uncertain economic and geopolitical environment.

Further, against an increasingly uncertain global environment, economic growth in the developing countries and territories of the Asia-Pacific region weakened considerably in 2019 to 4.3 per cent, a sharp slowdown from 5.3 per cent in 2018 and 5.0 per cent projected earlier for 2019. The slowdown was led by the large economies, namely China, India and Russia.

The Covid-19 pandemic has affected supply chains and disrupted manufacturing operations around the world. It noted that the pharmaceutical industry is facing shortages in the supply of raw materials.

"India, which produces 20 per cent of the world's drug supply by volume, imports from China 70 per cent of the raw materials for manufacturing such pharmaceuticals. If the Covid-19 pandemic is prolonged, supplies are anticipated to be disrupted."

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The report emphasised that in order to overcome the effects of the global pandemic requires the whole world, including the Asia-Pacific region, to strengthen cooperation and coordination.

It took note of the recent call by India to South Asian Association for Regional Cooperation (SAARC) leaders to coordinate virus containment measures. India proposed the establishment of a Covid-19 emergency fund under SAARC and offered an initial contribution of $10 million in this regard.

The report said that since at least the start of the millennium, the Asia-Pacific region has been the engine powering global economic expansion.

The region's strong economic growth has more than tripled people's income and largely improved their access to basic services, such as health care, education and electricity. As a result, about one billion people have been lifted out of extreme poverty mostly in China and India in the past two decades.

Risks, and some rewards, as India does business in the times of coronavirus

More than 106,000 people have been infected by the coronavirus across the world and at least 3,600 have died as the disease upturns a modest growth in the world economy since mid-2019 and threatens key sectors of India's economy where some see a “silver lining” in China practically shutting down.

Multilateral lending agencies, like the World Bank and the International Monetary Fund (IMF), estimate that the coronavirus will have a long-term impact on global economic growth.

The Asian Development Bank (ADB) estimates that the world's gross domestic product (GDP) could reduce by 0.1%-0.4%, noting that financial losses could range from $77 billion to $347 billion. Growth in China could reduce by 0.3% to 1.7% and in developing Asia, excluding China, by 0.2% to 0.5%, the ADB said in an analysis outlining best- and worst-case scenarios.

The Organisation for Economic Cooperation and Development (OECD), the influential think tank, reckons this year world economy may grow at its slowest rate since 2009 because of the coronavirus.

The OECD has forecast a 2.4% growth for the world economy in 2020, down from 2.9% in November. A longer "more intensive" outbreak could halve growth to 1.5%, it said.

The IMF has promised $50 billion and World Bank $12 billion to fight the disease and its impact.

India: risks a lot, gains some

India's economy hasn't caught the bug but if the coronavirus crisis persists worldwide its plans to revive growth could be disturbed.

India's gross domestic product (GDP) growth fell to an unprecedented 27-quarter low of 4.7% in the quarter ended December 2019 (with the previous quarter’s growth having been corrected) due to contraction in investment and manufacturing output for two successive quarters. GDP growth is set to stagnate at 4.7% in the March quarter (Q4) too, according to the annual estimate by the National Statistical Office (NSO).

According to the United Nations Conference on Trade and Development (UNCTAD), India could lose $348 million in trade because of the coronavirus. India figures among UNCTAD's top 15 economies most affected by the slowdown in manufacturing in China.

India's chemicals sector could lose $129 million, textiles and apparel $64 million, automotive $34 million, metals and metal products $27 million--to list just some businesses.

The sharp drop in oil prices, partly caused by the coronavirus crisis, will help India, which imports almost 88% of its requirement. A $20 per barrel fall in oil prices saves India a sum of almost $30 billion per annum.

Monday morning, brent crude oil prices were quoted at $33 per barrel, a fall of almost 28% from previous close.

Indian rating agency ICRA estimates that a reduction in $1/mmbtu in the pooled gas price for the fertiliser sector could lead to a Rs 1500-Rs 1600/tonne fall in production cost for urea manufacturing units, helping the government's subsidy outgo and lower working capital borrowings for companies.

“A silver lining for the Indian urea industry in this crisis is on the natural gas pricing front. R-LNG, which now meets around 57% of the natural gas consumption for the domestic urea industry, has been witnessing a downtrend in prices," said K Ravichandran, group head and senior vice president at ICRA.

"With the decline in the term LNG prices and the weak spot gas prices, pooled price for the urea players will moderate leading to a lower cost of production and a lower subsidy outgo for the government,” said Ravichandran.

The gains could be for companies making and shops selling such anodyne items hand sanitizers and facemasks. V-Medicos, a medicine shop in Uttar Pradesh's Noida city, is clocking high sales of the two products as people resort to panic buying.

"When there is so much demand, what else do we do?" a sales executive at the shop told news agency PTI about selling Rs 150-masks for Rs 300.

Studies show that the coronavirus crisis could help leather, ceramics, plastics, paper, steel, textile sectors in India. A report by rating agency CRISIL said the domestic ceramics might gain briefly as some marginal business shifts to India from China. The leather and leather-goods industry--operating at 60 per cent capacity--can take up orders the United States and the European Union place in China.

The paper industry may gain, especially in the paperboard segment, and so could plastics when cheap imports from China dry up, said the CRISIL report.

The report said that India's steel industry might benefit from import substitution and textile if low cost manufacturing shifts from China.

Risk to safety net

The gains will be futile if the coronavirus isn't controlled. Growth across Asia-Pacific will slow to 4.0% in 2020, the lowest since the 2008 global financial crisis. A U-shaped recovery was expected later in 2020 but by then overall economic damage could hit $211 billion if the disease persists, according to an article by S&P Global Ratings.

The article said emerging Asian markets, like Indonesia, Malaysia, the Philippines, and India, are insulated because their exposure to Chinese and global supply chains is relatively limited.

That safety net could vanish quickly for two reasons: the coronavirus overwhelming countries' healthcare infrastructure and financial conditions tightening quickly.

"If investors ask for a much higher risk premium for emerging market assets, policymakers will have much less space to cut interest rates and boost public spending," said Professor Stephen Roache of Yale University. This could add to downward pressures on growth.

In India, the coronavirus has upset plans and pockets. Vistara cancelled 20 flights between Delhi and Bangkok, 26 between Mumbai and Singapore and eight between Delhi and Singapore in March.

GoAir has suspended operations to Dammam in Saudi Arabia and some flights to Bangkok and Phuket in Thailand.

Business Standard reported on March 5 Indian airlines have asked the government to waive off landing and parking charges and more time to pay oil-marketing firms.

Consumers chicken out

Poultry prices in India have declined by a third since February as consumers avoid meat despite government and farmers saying that the Coronavirus doesn't spread through chicken and eggs.

Broiler chicken in the benchmark Bengaluru wholesale market was quoted at Rs 61.76 a kg in February on an average, as against Rs 91.58 a kg in January.

Broiler chicken in the Hyderabad and Muzaffarpur in Bihar markets sold at Rs 61.28 a kg and Rs 78.66 a kg in February, compared to Rs 86.28 a kg and Rs 90.13 a kg in January. Egg prices have plunged too.

Data compiled by the Poultry Federation of India shows that the Rs 1-trillion poultry sector employs 20 million people, directly and indirectly.

Similarly, India’s buffalo meat exports halved to 50,000 tonnes in February, leading to a nearly Rs 1,500 crore loss in revenue, according to an exporters’ association.

“As an industry, we have lost a business of close to Rs 1,500 crore, with exports to Vietnam, which largely caters to the Chinese market, not moving,” said Fauzan Alavi, spokesperson for All-India Meat & Livestock Exporters Association. “China market access remains extremely crucial for us.”

There is hardly any sector in the world that will remain insulated from the impact of the Coronavirus. Indian business hasn’t called in sick—that’s an opportunity but it must brace for the bug.

Petrol, diesel demand slumps 66%; ATF down 90% as lockdown hurts business

Demand for petrol and diesel is down 66 per cent in April, while aviation turbine fuel (ATF) consumption has collapsed by 90 per cent as most airlines have stopped flying, industry officials said. India's fuel consumption slumped as a nationwide lockdown halted economic activity and travel, which eviscerated demand.

In April 2019, India had consumed 2.4 million tonnes of petrol and 7.3 million tonnes of diesel. As much as 6,45,000 tonnes of ATF was used during the same time last year.

The collapse of demand in the world's third-biggest consumer during April comes on the back of worst fuel sales in more than a decade recorded in March 2020.

The country's petroleum product consumption fell 17.79 per cent to 16.08 million tonnes in March as diesel, petrol and ATF demand fell, according to official data released.

Diesel, the most consumed fuel in the country, saw demand contract by 24.23 per cent to 5.65 million tonnes. This is the biggest fall in diesel consumption the country has recorded as most trucks went off-road and railways stopped plying trains.

Petrol sales dropped 16.37 per cent to 2.15 million tonnes in March as the 21-day nationwide lockdown enforced to prevent the spread of COVID-19 took most cars and two-wheelers off the road.

With flights grounded since mid-March, ATF consumption fell 32.4 per cent to 4,84,000 tonnes.

The only fuel that showed growth was LPG as households rushed to book refills for stocking during the three-week lockdown period.

LPG sales rose 1.9 per cent to 2.3 million tonnes in March.

This is the first estimate of total petroleum product consumption in the country. This includes sales by both public and private sector companies.

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Previously, provisional numbers of the three public sector oil marketing companies -- Indian Oil Corp (IOC), Bharat Petroleum Corp Ltd (BPCL) and Hindustan Petroleum Corp Ltd (HPCL) -- were released that also showed a 17 per cent drop in petrol and 26 per cent slump in diesel sales in March.

Industry officials said the pattern in fuel consumption is continuing in April as the lockdown is to last till mid of the month and there are indications that part restrictions will continue even after the lockdown is lifted.

Petrol and diesel sales in April are one-third of what they were a year ago, they said adding that demand is expected to pick up when the lockdown is lifted and restrictions on public transport lifted.

LPG sales in April is up 30 per cent, they said adding that these are provisional trends and actual numbers will only be known at the month-end.

ALSO READ: 'Covid-19 hangs over future like spectre': RBI in Monetary Policy Report

Prime Minister Narendra Modi had announced a 21-day lockdown beginning March 25, shutting offices and factories, barring those involved in essential services. Also, flights were suspended, trains stopped plying, vehicles went off the road and cargo movement stopped as most people were asked to stay home to help check the spread of coronavirus.

March is the first month in two-and-a-half years when petrol sales have seen a negative or de-growth.

Naphtha consumption in March was up 15.7 per cent to 1.38 million tonnes, possibly because of its increased use in power plants. But, other industrial fuels such as fuel oil posted a 10.4 per cent drop to 4,82,000 tonnes.

Bitumen, used in road construction, saw a 41 per cent drop in consumption to 5,25,000 tonnes.

In the full 2019-20 fiscal (April 2019 to March 2020), petroleum product consumption was almost unchanged at 213.68 million tonnes as compared to 213.21 million tonnes of fuel consumed in the previous 2018-19.

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LPG consumption saw a 5.8 per cent rise to 26.3 million tonnes, while petrol sales were up 5.9 per cent to 29.97 million tonnes.

ATF sales slipped 3.6 per cent to 8 million tonnes and diesel consumption was down 1.1 per cent at 82.6 million tonnes.

Diesel sales had shown modest growth in April 2019 to February 2020.

Plunging fuel demand has OMCs worried on all fronts

National oil companies are staring at inventory losses as they have to bring down refinery throughputs because of the plunging demand for fuels following the nationwide lockdown to contain the deadly coronavirus infection.

India is the world's third-largest energy consumer but the Covid-19 lockdown has shut businesses, suspended flights, stopped trains and brought almost the entire vehicular movement to a halt, impacting fuel demand.

ALSO READ: Covid-19: Odisha becomes the first state to extend lockdown till April 30

For the full the month of March, total retail volume has come down by 17 per cent, led by a 26 per cent dip in diesel demand and a 17 per cent fall in petrol and practically demand for aviation fuel is down 33 per cent, according to the national data shared by IOC on a year-on-year basis

The only fuel that saw a demand spike in the month was cooking gas that, too, after panic buying since the national lockdown. Overall, LPG demand rose 1.7 per cent in the month, according to the IOC data.

There are 27.59 crore active LPG customers in the country.

Centre okays Rs 15,000 cr fully funded emergency health package for states

With an aim to strengthen national and state healthcare systems amid coronavirus crisis, the Central government on Thursday approved a 100 per cent centrally funded package of Rs 15,000 crore for states and Union Territories.

The project named ’India Covid-19 Emergency Response and Health System Preparedness Package' will be implemented in three phases from January 2020 to March 2024, according to media reports.

ALSO READ: Coronavirus LIVE: Centre okays Rs 15,000 cr Emergency Fund to states, UTs

"With the objectives of emergency COVID-19 response, strengthening national and state health systems to support prevention and preparedness, procurement of essential medical equipment, consumables and drugs, strengthening of surveillance activities including setting up of laboratories and Bio-security preparedness," a circular signed by National Health Mission Director Vandana Gurnani highlighted, as quoted by ANI.

The key activities to be implemented under Phase -1 includes support for the development of dedicated COVID-19 hospitals and isolation blocks, ICUs with ventilators, oxygen supply in hospitals and strengthening of laboratories in hospitals.

The central package will also assist the state/ UTs for Procurement of Personal Protection Equipment (PPE), N95 masks and ventilators, over and above what is being procured and supplied by the Government of India.

The three phases of the project are Phase - 1 from January 2020 to June 2020, the second phase is from July 2020 to March 2021 and the third phase from April 2021 to March 2024.

Industrial output grows 4.5% in February; highest in 7 months

India's industrial production grew at the fastest pace in seven months at 4.5 per cent during February, mainly on account of uptick in mining and manufacturing activity as well as power generation, official data showed on Thursday.

Factory output, as measured in terms of the Index of Industrial Production (IIP), had recorded a growth of 0.2 per cent in February 2019. It had registered a growth of 4.9 per cent in July 2019.

The production contracted by 1.4 per cent in August, 4.6 in September and 6.6 per cent in October last year. It grew 2.1 per cent in November and 0.1 per cent in December 2019 and 2.1 per cent in January 2020.

 

ALSO READ: 'Covid-19 hangs over future like spectre': RBI in Monetary Policy Report

Last month, provisional data showed IIP growth of 2 per cent in January, 2020.

According to a data by the National Statistical Office (NSO), the manufacturing sector output grew at a rate of 3.2 per cent in February compared to a contraction of 0.3 per cent in the same month a year ago.

Electricity generation increased by 8.1 per cent as against a growth of 1.3 per cent in February 2019. Mining sector output surged by 10 per cent compared to a growth of 2.2 per cent earlier.

The IIP growth during April-February period of the last fiscal decelerated to 0.9 per cent from 4 per cent expansion in the same period of 2018-19.

The data for February showed that production of capital goods, a barometer of investment, shrunk by 9.7 per cent as compared to a contraction of 9.3 per cent in the corresponding month of the previous year.

As per use-based classification, primary good registered a growth of 7.4 per cent, intermediate goods 22.4 per cent, and infrastructure/construction goods 0.1 per cent in February 2020 as against the same period a year ago.

The consumer durables output fell 6.4 per cent, while non-durables remained flat.

In terms of industries, 13 out of 23 industry groups in the manufacturing sector have shown positive growth in February 2020.

The industry group 'Manufacture of basic metals' has shown the highest positive growth of 18.2 per cent followed by 8.0 per cent in 'Manufacture of chemicals and chemical products' and in 'Manufacture of other non-metallic mineral products', as per the data.

On the other hand, the industry group 'Manufacture of motor vehicles, trailers and semi-trailers' has shown the highest negative growth of (-) 15.6 per cent followed by (-) 14.8 per cent in Manufacture of computer, electronic and optical products', and (-) 9.9 per cent in Manufacture of fabricated metal products, except machinery and equipment.

Soap vs handwash: In time of crisis, firms set aside age-old differences

Given the magnitude and scale of the current Covid-19 crisis and the need to reinforce simple hygiene habits among people, soap brands Dettol and Lifebuoy are finding common ground. Using different tools to put forth the point of cleanliness above all and the need to wash one’s hands well, the two are setting aside their age-old differences.

The two brands have been fighting a bitter battle over their ads in court for years, while one emphasises the efficacy of soap, the other pitches the potency of its handwash. In fact as recently as a month ago Hindustan Unilever (HUL) hauled RB Health (formerly Reckitt Benckiser) to the Bombay High Court over an ad spot.

The ad for Dettol Handwash, made an oblique reference to Lifebuoy soap from HUL by showing a bar similar to the latter in terms of colour and proportion.

HUL’s contention in court was that not only had RB Health disparaged its brand, but was also sending a “wrong” message that suggested soap and water for hand hygiene was not as effective as handwash. RB clarified that it was emphasising on personal hygiene and restating the proven fact that liquid handwash should be preferred over bar soaps.

“Unilever has filed an ill-advised suit claiming that Lifebuoy and red colour soaps are disparaged. Reckitt unilaterally decided to hold back the advertisement till April 21, 2020 and the Bombay High Court was informed about the same,” the company stated. While fighting over a bar of soap may have seemed ill-timed, experts at the time had seen nothing unusual as both Lifebuoy and Dettol are known to be combative.

However all that is now history. RB has released a new ad for Dettol soap that speaks of the importance of hand hygiene (using soap) to protect from germs. In a crisis, the brand seems to be saying that substance matters more than form.

The shift in stance, said experts, should be viewed from the prism of availability and affordability. “The fact remains that soaps is a highly penetrated category in India versus handwash, which is urban-centric,” said N Chandramouli, CEO, TRA, a brand advisory and insights firm based in Mumbai.

“Soaps are also affordable. And one soap is shared by many members within a family on an average. If there are ads that question the efficacy of soap versus handwash, it obviously raises doubts in the minds of people. The emphasis should not be on sowing doubts in a pandemic. Brands have to work together to drive home a common message on hygiene and cleanliness,” he says.

Experts say that the conventional fight between Dettol and Lifebuoy now appears insignificant. In a pandemic, it is immaterial what is used to clean one’s hands they say and the brands too understand that this is no time to cross swords.

Nothing prevents brands from engaging in friendly fire, though. Shweta Purandare, secretary general, Advertising Standards Council of India (ASCI), said that comparative advertising was permitted, provided claims were backed by evidence. “Having said that, it is important to be socially responsible and allay fears of consumers during a pandemic,” she said.

Although permitted, it would be churlish to advertise in this manner and could do long term damage to the image of the brands. “Soap or handwash is not the point right now. Marketers have to be extremely sensitive to this given the crisis that is unfolding before us,” said KS Chakravarthy, co-founder and chief creative officer, Tidal7 Brand and Digital.

In the new Dettol commercial, this is the message being reiterated and a bar of Dettol soap is visible in the commercial. Pankaj Duhan, chief marketing officer, RB South Asia, RB Health said, “In a difficult environment, Dettol has a duty to shape the right personal hygiene habits. Handwashing with any soap is accessible and highly effective.”

Lifebuoy, on the other hand, has used brand ambassador Kajol to communicate the need for hand washing as a good hygiene habit. On Wednesday, HUL also announced that it was partnering with UNICEF to launch a nationwide campaign against Covid-19. “The need of the hour is simple and effective communication across both urban and rural India and our partnership with UNICEF aims to do just that,” Sanjiv Mehta, chairman and managing director, HUL, said.

Street may be ignoring potential headwinds for Jubilant due to lockdown

In the current uncertain times, the stock of Jubilant FoodWorks (Jubilant) — the Indian franchise for Domino’s Pizza — is among the top outperformers in the discretionary retail space. While Jubilant’s stock has shed about 16 per cent over the last month, those of Titan, Trent, Bata, and Westlife Development, among others, have fallen 20-34 per cent during the same period.

Some analysts now believe the recent correction adequately factors in the near-term pain for Jubilant. And, fast recovery in top line post the lockdown, with support from online delivery and raw material tailwinds, will support the stock. However, there are factors that could play spoilsport, which investors should be cognizant of.

To start with, there is still no clarity on the lifting of the lockdown. If the lockdown gets extended, it will severely hurt the wallet of households and their spending power, and consequently, Jubilant’s earnings.

Besides the closure of mall stores, higher chances of cancellation of key events, such as the Indian Premier League, will pull down Jubilant’s top line, say analysts. This, along with the higher share of fixed-cost (approximately 60 per cent of the overall cost structure), will directly take a toll on its earnings.

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With just 14 days of the lockdown falling in the June quarter, analysts at PhillipCapital estimate around 25 per cent decline in Jubilant’s same-store-sales growth (SSSG, a key performance indicator for retailers) in Q1, and 21-35 per cent earnings cut for FY21-FY22. This sufficiently indicates potential damage to Jubilant’s performance in the event of a prolonged lockdown.

Nonetheless, even after the lockdown, how the demand for discretionary food like pizza and burger pans out is still a question. Pay cuts, job losses, and preference towards home-made food could eat into the overall demand for such non-essential food items. Even now, the company has witnessed pressure on delivery in recent times, according to HDFC Securities.

Further, promoter stake sale and exuberance among online delivery players to grab market share are some other risk factors for Jubilant, say analysts at PhillipCapital, which believes the near-term pressures are priced in.

What though offers comfort is Jubilant’s debt-free balance sheet, good cash position, and strong brand equity.

For now, investors may be better off waiting for clarity to emerge on the lockdown and a revival in delivery demand, as the stock’s current valuation of 46x its FY21 estimated earnings is still not attractive, given the current scenario.

US approves Google request to use US-Asia undersea cable for data traffic

The Federal Communications Commission (FCC) on Wednesday approved Alphabet Inc unit Google's request to use part of a US-Asia undersea telecommunications cable after the company warned it would face significantly higher prices to carry traffic by other means.

Google agreed to operate a portion of the 8,000-mile Pacific Light Cable Network System between the United States and Taiwan, but not Hong Kong. Google and Facebook Inc helped to pay for construction of the now completed telecommunications link, but US regulators have blocked its use.

The Justice Department earlier told the FCC in a petition it supported Google's revised request. The agency said US agencies believe "there is a significant risk that the grant of a direct cable connection between the United States and Hong Kong would seriously jeopardize the national security and law enforcement interests of the United States."

Hong Kong is a special administrative region of China, whose relations with the United States have soured over the deadly coronavirus pandemic, which originated in Wuhan, trade disputes and security concerns.

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In a statement, Google thanked the FCC for approving its request and added: "dedicated global network deployment and operations team is continually increasing capacity to meet the needs of our users, and that includes our sub-sea cable system."

The FCC is allowing Google to operate the segment for the next six months.

Google told regulators earlier this year it has "an immediate need to meet internal demand for capacity between the US and Taiwan, in particular, to connect Google's Taiwan data center to Google data centers in the United States and to serve users throughout the Asia-Pacific region."

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It added that without that "capacity, the value of large, recent capital investments Google has made in the United States is significantly reduced."

The Justice Department also added that without temporary authority "Google would likely have to seek alternative capacity at significantly higher prices."

Google has also agreed to "pursue diversification of interconnection points in Asia," as well as to establish network facilities that deliver traffic "as close as practicable" to its ultimate destination.

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The United States has expressed concerns about China's role in handling network traffic and potential for espionage. Around 300 sub-sea cables form the backbone of the internet by carrying 99% of the world's data traffic.

Meanwhile, a Facebook affiliate also sought FCC approval to use a portion of the cable connecting the Philippines to the United States to handle the traffic. "We are navigating through all the appropriate channels on licensing and permitting," the company said on Wednesday.

Covid-19 impact: Commercial vehicle sales to contract another 8-10% in FY21

The commercial vehicle (CV) industry, already under pressure due to the economic slowdown, axle load norms, GST and other issues, is now facing another challenge in the coronavirus outbreak. These factors are likely to lead to a further contraction of 8-10% in FY21, with profitability and credit metrics of CV OEMs likely to remain under pressure.

ICRA said that it continues to maintain a negative outlook for the commercial vehicle (CV) segment over the near-term, given the slowing economic growth, current overcapacity in the CV ecosystem and not so benign financing environment, with challenges further aggravated by the recent and rapid spread of novel coronavirus in India. The demand headwinds are expected to continue over the near-term given the macroeconomic challenges in view of the recent pandemic outbreak, coupled with weakening financial profile of fleet operators and significant price hikes because of transition to BS-VI emission norms. This would exert pressure on earnings and overall credit profile of CV OEMs, which have witnessed sharp earnings contraction over the past 3-4 quarters.

Shamsher Dewan, Vice President, ICRA, said that in particular, the M&HCV (truck) segment has been significantly impacted over the past year, with volumes contracting by a sharp 42 per cent in 2019-2020.

The excess capacity created in the system after the revision of axle load norms in July 2018 and faster turnaround of vehicles post GST implementation, coupled with a slowdown in the economy and infrastructure projects and the resultant lower freight availability continue to weigh on demand prospects.

Moreover, the rapid spread of coronavirus and the lockdown imposed in the country has had a significant impact on the movement of goods and freight availability over recent weeks and is likley to continue over the near-term. Accordingly, the outlook for the next fiscal, especially the first half, remains weak given the macroeconomic headwinds in view of recent pandemic outbreak coupled with significant price hikes because of transition to the new emission norms. Any recovery in the latter half hinges on a pick-up in construction activity. However, despite some channel inventory filling measures of OEMs, M&HCV (Truck) sales are expected to close the upcoming fiscal with a further decline of 12-14% during FY21, said Dewan

Girish Wagh, president, Commercial Vehicles Business Unit, Tata Motors Ltd said, domestic sales in March 2020 came in at 5,336 units, deeply impacted by the COVID 19 lockdown as well as the planned transition to BSVI. Retail sales were significantly ahead of bulk sales (>300%) and were 16 per cent higher than offtake for the entire year. Wagh further said that while nearly all BS IV vehicles in the ecosystem had been retailed, some were awaiting registration, which was halted due to the lockdown, but would be cleared in the window provided. The production of of BSVI vehicles was on track and the company had already sold the initial few BSVI vehicles, he noted.

"Our focus is to secure the extensive business continuity plan including ensuring full support to all our customers in need, particularly those who are transporting the essential goods during this challenging period," he said after releasing March numbers.

The LCV (truck) segment has been facing headwinds from the macroeconomic and consumption slowdown since the beginning of FY20. Coupled with subdued demand from rural and allied sectors, and tight financing environment, apart from inventory correction by OEMs, wholesale dispatches of LCVs (trucks) contracted by 13 per cent during YTD FY20. Despite the rural demand sentiment witnessing an uptick in recent months, supported by expectations of a healthy rabi output, ICRA expects the outbreak of novel coronavirus and the associated lockdown and restricted movement of goods to have a bearing on the segment over the near term. Accordingly, despite recovery expectations during the latter half, the LCV segment is expected to contract further by 7-9% during FY21. Moreover, prolonged disruptions due to recent coronavirus outbreak pos further downside risks to this.

According to Icra, with cash flows of fleet operators under pressure due to the aforementioned factors, replacement demand for new trucks is likely to remain muted till any meaningful pick-up in the economy and infrastructure projects fructifies. Additionally, the recent pandemic outbreak remains a significant unknown which can have a bearing on the economy and CV sales over the near to medium term. ICRA believes an improvement in economic environment and resolution of liquidity constraints remain critical for a sustained revival in the industry. "In absence of either, we maintain a subdued outlook for the industry for the next fiscal," ICRA stated.

The sharp volume contraction and resultant negative operating leverage coupled with elevated level of discounts exerted significant pressure on earnings and credit metrics of CV OEMs during the current fiscal. These pressures are expected to continue, at least over the next couple of quarters, before recovery sets in the industry. Furthermore, any unsold BS-IV inventory and its write-off can also exert pressure on CV OEM’s profitability. Accordingly, ICRA expects profitability and credit metrics of CV OEMs to likely remain under pressure in the near-term.

Cognizant withdraws full-year guidance for 2020 amid Covid-19 uncertainties

Cognizant Technology Solutions Corporation has withdawn the full-year guidance on its financial performance for the year 2020 amid uncertainities brought on by the Covid-19 crisis. The withdrawal comes on the back of falling client demand, expecially in the travel and hospitality space.

The compaany put first quarter revenue at $4.22-4.23 billion, up 2.7-2.9 per cent (3.4-3.6 per cent in constant currency) over the previous year's quarter. This included a negative 50-basis-point impact from the exit of certain content services.

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The company said today its financial performance during the first two months of the quarter was on track to exceed the previous guidance, driven by a strong show across the North American market. However, during the second half of March, Covid-19 increasingly affected its business causing delays in project fulfillment as delivery, particularly in India and Philippines, was being done on a work-from-home basis.

During the second quarter starting April, the company expects the pandemic to further reduce demand as Covid-19 will have a larger impact on society and the economy, causing broader disruptions across industries.

"The long-term fundamentals of our business remain strong. However, given the unprecedented nature of this crisis, the uncertainty about its duration and its impact on our ability to forecast performance, the company is withdrawing its 2020 guidance that was provided on February 5, 2020," Cognizant said.

On February 5, the company had put year-on-year revenue growth for the whole of 2020 in the range of 2-4 per cent in constant currency terms. This includes an estimated negative 110-basis-point impact from the exit of certain content services business it had announced earlier.

Commenting on the latest first quarter guidance, Brian Humphries, Chief Executive Officer said, "I am pleased with our business momentum in the first two months of the quarter and grateful for the dedication and professionalism of our associates in March, both of which enabled us to meet our previously announced revenue guidance."

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"In this fluid environment where uncertainty prevails, we are well-positioned with deep client relationships across more than a dozen industries, and a strong balance sheet that provides solid financial flexibility," he added. The company, which has 292,000 associates, acted fast to limit the impact of Covid-19 on its business by enabling work-from-home capabilities across its delivery teams, Humphries said.

In order to strengthen financial flexibility, Cognizant took steps such as drawing down $1.74 billion on its revolving credit facility on March 23, bringing the Company's total cash and investment balance as of March 31 to around $4.7 billion (which includes a $400 million in restricted time deposits in India), or net cash of $2.2 billion. The Company has no significant debt maturities until 2023. During the first quarter, it completed the acquisitions of Code Zero and Lev and repurchased approximately eight million shares. Since March 31, it has not initiated any new share repurchase schemes.

"We are confident that the combination of our strong balance sheet, and our robust operating and cash generative business model, will enable us to weather this disruption," said Karen McLoughlin, Chief Financial Officer. "The execution of our 2020 Fit for Growth program along with prudently managing our cost structure to react quickly to changes in the demand environment is critical to maintaining financial flexibility to navigate near-term headwinds while repositioning the business for long-term success."

The company has earlier announced that in India and the Philippines, Cognizant will offer staff at the associate level and below an additional payment of 25 per cent of base pay for the month of April. Cognizant has also offered 14 days sick-leave coverage globally for Covid-19 cases without impacting other sick leave or vacation programmes.

It has announced a $10-million philanthropic commitment to support communities around the world in addressing the pandemic's immediate and long-term impact. Cognizant and its US- and India-based foundations will provide critical resources to strengthen public health systems, education and workforce institutions, and the economic outlook of communities worldwide, the company said.