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Nearly Rs2 lakh crores of asset sales planned/ completed by companies with debt exposure of around Rs 10 lakh
Companies are hiving off their non-core assets in order to pare off their debt. SBI estimates that Rs2  lakh crores  of  asset  sales  are  in  the  pipeline/already completed by debt-ridden  companies  having  a  debt exposure of around Rs 10  lakh  crore. The report titled 'The Journey from ‘House Of Debt’ to ‘House Sans Debt’ further adds that at least 10% of these asset sales should be through the listing route. The report states that around 270 companies reported a decline in debt by Rs47,813 crore whose financial year ends in 2015. 
 
Certain companies like Sanghi Industries,  Indo  Count  Industries,  Haldia  Petrochemicals, Ginni  Filaments  have  exited  Corporate Debt Restructuring (CDR) mechanisms. Some cash-rich Indian corporates have helped these companies to exit CDR mechanisms. For instance, cash-rich Piramal Group has bought non-convertible debentures (NCD's) of debt-laden companies to aid them exit CDR mechanism. It helped Sanghi Industries, the flagship company of the Ravi Sanghi Group dealing in the production and distribution of cement under the brand name 'Sanghi Cement ' exit CDR by buying Rs257 crore of its NCD's. Sanghi Industries was able to repay its CDR lenders ahead of schedule due to this purchase of NCD's. Similarly, cement company NCL Industries Ltd, the owner of the Nagarjuna Cement brand, has also been able to exit CDR mechanism due to purchase of Rs325 crore of non-convertible debentures (NCD's). The company management has stated that it has paid Rs125 crore to the existing bankers out of the proceeds of the issue. According to the SBI report, some foreign companies are also using this opportunity to either establish or consolidate their presence in the Indian markets. 
 
Credit to stressed sectors grew at 5.9% in FY14-15, but decelerated to 2.6% in FY15-16 as per the report. The report further stated that Oil and Natural Gas Corporation (ONGC), Grasim, Bajaj Holding, Gujarat Mineral Development Corporation Ltd (GMDC), Metals and Minerals Trading Corporation of India (MMTC), Lupin, DCM Shriram and some pharma companies reduced debt levels in the year 2015. Coming to major corporate groups, Reliance ADAG (Anil Dhirubhai Ambani Group), Jaypee Group and JSW Group reduced their debt equity ratios in 2015 vis-a-vis 2014. On the contrary, Adani Group, GMR Infrastructure, GVK Group, Tata and Vedanta group increased their debt equity ratios. GVK Group witnessed a huge rise in deby equity ratio to 11 in 2015 from 7.26 in 2014. 
 
The debt-laden Lanco group completed the sale of its Udupi plant for Rs6,300 crore. Jindal Stainless Ltd (JSL) undertook a restructuring of its business operations. Similarly, wind energy major Suzlon Energy of the Tulsi Tanti group had to sell its German subsidiary Senvion for Rs 7,200 crore. The proceeds from the sale were used to reduce its debt by around Rs6,500 crore. 
 
Many companies are in the process of planning to sell some of their assets. The Lanco group is planning to sell its power assets of a whopping Rs25,000 crore in order to pare of its debt. Tata Steel has decided to divest its UK assets purchased from Corus group Plc. in 2007 inorder to cut its losses and reduce its debt. It remains to be seen the extent to which other companies from high debt sectors like power, steel, infrastructure and realty sell off their assets inorder to reduce their debt. 
 
Recently, the Bankruptcy Code viz Insolvency and Bankruptcy Code 2016 was passed in the Rajya Sabha. The new law will replace many archaic legislations. Many are hopeful that this new law will help companies exit businesses faster.

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Weak correlation between monsoons and food inflation, finds Nomura
After two consecutive years of deficient monsoons, the Indian Meteorological Department has projected above-normal rains in 2016.  But, monsoon forecasts by the IMD have been wrong in the past. Will a poor or below-average monsoon lead to higher food prices or will a good monsoon lower food inflation? In fact, there has been little correlation between poor monsoons and food prices, despite what market commentators, economists and policymakers would have us believe. A recent research titled ‘Busting the monsoon and food price inflation myth’ by Nomura finds that while rains do impact food production, the production and food price inflation link is weak across food categories. Nomura expects food inflation to be approximately 5-5.50% in FY16-17 versus 5.10% in FY15-16
 
According to Nomura’s research, correlation between rains and food price inflation is has been low. In the past, during bad monsoons, food inflation has been less than 5% for FY01-02, FY02-03 and FY04-05. During good monsoons, in FY06-07, FY08-09 and FY10-11, food inflation has been above 8%. Despite two below-average monsoons over the past two years food inflation has remained below double digits. 
 
Using data for the last 15 years (FY01-02 to FY15-16), Nomura calculated the correlation between monsoon rainfall (percentage deviation from normal) and food price inflation is 0.14. Ideally, if a poor monsoon leads to higher inflation, the correlation should be negative.
 
The research finds that the average food price inflation in years with below-normal monsoons is 6.5%, surprisingly lower than for a normal monsoon year which is at 7.6%, indicating a weak correlation between monsoon rains and food price inflation.
 
 
Could the low correlation be because of the monsoon only affect certain food items? Analysts at Nomura find no clear link. The write that, “There is no single category driving food price inflation up (down) in bad (good) monsoon years. Food shocks have hit different food products across different years, irrespective of monsoon performance.” They find that “From pulses, edible oils, fruits & vegetables to cereals, the drivers of high food price inflation keep changing. Nor is the impact symmetrical. For instance, FY04-05 and FY09-10 were both below-normal monsoon years. Yet, protein food price inflation (pulses, egg, meat, milk, fish) was very low in FY04-05, but rose significantly in FY09-10.”
 
Rather than the monsoon, Nomura states the key drivers of food inflation are minimum support prices, nominal rural wages, non-labour agriculture input costs, and global food price trends. And since the above drivers have already stabilised, they do not expect food price inflation to fall from current levels, even if monsoon rains are normal. The analysts write that the, “Ongoing public infrastructure construction could raise demand for rural labour and gradually push up nominal rural wages. Rising diesel prices can incrementally add to agriculture input costs.” Similarly, they expect the government to remain prudent in its MSP announcements in 2016 and do not expect hikes to be any lower than the last two years. Hence they expect food inflation to be approximately 5-5.50% in FY16-17 versus 5.10% in FY15-16.
 
On 5 April 2016, the RBI Governor in the first bi-monthly monetary policy statement mentioned that “Going forward we will be looking for further monetary room in signs of good monsoon, further readings of low headline inflation, indications of softening in core inflation and further evidence of transmission of rate cuts.”  In an interview he also stated that “We’re looking for signs of a good monsoon. Unfortunately, India is still somewhat sensitive to monsoons, though people find it hard to see a link between monsoons and food prices. But there is potentially (a link), with this being the third bad monsoon in a row (if) that happens.” 

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COMMENTS

Karuthiah Gajendran

12 months ago

It is the failure of both central and state governments by not addressing the issue of drought and floods. If they had set up a proper infra structure to save and regulate rain and river water, there wouldn't be drought in India.

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