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PM Gati Shakti National Master Plan – Infrastructure Big Push

PM Gati Shakti National Master Plan – Infrastructure Big Push
by 5paisa Research Team 14/10/2021

Just a couple of days before Dussehra, Prime Minister Modi announced the ambitious Gati Shakti (National Masterplan) for multi-modal connectivity. Apart from de-clogging these infrastructure projects, the PM Gati Shakti also endeavours to adopt a more integrated approach to mission-critical infrastructure projects. “No more silos”, is the message.

The PM Gati Shakti will be integrated in the sense that a total of 16 government departments will be updating and monitoring progress through a standardized dashboard. Some of the key departments with strong infrastructure implications include Railways, Highways, Hydrocarbons, Power, Telecom, Shipping, Aviation, among others.

Here is the gist of the PM Gati Shakti (National Masterplan)

I) A major roadblock for infrastructure projects has been the plethora of approvals leading to delayed clearances. This initiative will ensure single point clearance to all such clogs.

II) The PM Gati Shakti will encompass existing and proposed initiatives of various ministries and departments in one centralised portal and leverage technology to speed up things.

III) As the PM pointed out, there was a huge gap between macro level planning and micro level implementation. That catch will now be addressed by the Masterplan.

IV) Common dashboards to monitor progress of projects with clear accountability at various levels will ensure that projects do not get delayed for very frivolous reasons.

V) As per the latest estimates of ongoing and proposed projects, mega projects worth Rs.110 trillion in the National Infra Pipeline will be monitored under the PM Gati Shakti.

VI) One of the big advantages of this Gati Shakti initiative will be that complex projects like Bharatmala, Sagarmala, UDAN and Inland Waterways can be implemented with minimal time and cost overruns.

Project targets that will be fast-tracked under the Gati Shakti

Here are some of the key targets set under the Gati Shakti for diverse infrastructure projects.

I) A total of 11 industrial corridors with defence turnover potential of Rs.170,000 crore as well as 38 electronics clusters and 109 pharma clusters will be fast-tracked by 2024-25.

II) A total of 200,000 KM of national highways and 5,590 KM of 4/6 lane highways along coastal areas to be fast tracked by 2024-25. This includes full North East connectivity. 

III) Railways to handle 32% higher cargo of 1,600 million tonnes, decongesting half the Railway network and completing 2 Dedicated Freight Corridors (DFCs) by 2024-25.

IV) Enhancing the aviation footprint from the current 111 airports to 220 airports by 2024-25. Shipping cargo capacity to be enhanced by 37% to 1,759 MMTPA by 2024-25. 

V) Gas pipeline network to be doubled from 17,000 KM to 34,500 KM by 2024-25 with focus on connecting major demand and supply points. Renewable energy capacity to be enhanced from 87 GW to 225 GW by 2024-25.

The crux of the story is that this infrastructure push will not only create millions of additional jobs and orders for MSMEs, but also reduce the cost of doing business in India. In the process, it will improve India’s competitiveness in global trade.

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India China Trade to Cross $100 Billion in 2021

India China Trade to Cross $100 Billion in 2021
by 5paisa Research Team 14/10/2021

In the midst of the pandemic, the supply chain disruptions caused by China and the Doklam/Ladakh stand-off, it was expected that Indo-China trade would get impacted. But, what has happened, is the exact opposite. India-China merchandise trade looks set to cross $100 billion comfortably for the calendar year 2021 and actually end up much higher.

For the first 9 months of 2021 ended September, trade volumes (imports plus exports) touched an all-time high of $90 billion. For the first 9 months of 2021, China saw its total trade spike by 22.7% to $4.38 trillion. India has been one of the many countries that has not only imported extensively from China but also boosted its exports to China.

If you look at the Indo-China trade from India’s perspective, the total trade at $90 billion is 49% higher than the corresponding 9 months in 2020. Even if one were to argue that 2020 was an exceptionally weak base due to the pandemic, the current trade with China is 22% higher than the pre-pandemic period of 9 months ending September 2019.

In a way, the benefits of trade have worked both ways. For example, India’s total merchandise imports from China were up 51.7% at $68.46 billion. On the other hand, India’s exports to China were also up by 42.5% at $21.91 billion. That also means that India’s trade deficit with China touched a record level of $46.55 billion in the first 9 months of 2021.

The bigger worry is the composition of trade. India’s exports to China are predominantly iron ore, base metals and cotton. Most of these are low value added products. On the imports side, if you leave out the emergency imports of oxygen concentrators, the predominant imports from China were electrical and mechanical machinery.

One perspective is that the import of machinery will have productive downstream effects and hence the deficit is acceptable. However, it is also true that China now accounts for 40% of India’s total trade deficit. The bigger question is whether this trade pattern is consistent with overall policy of the Indian government that has been trying to underplay China’s role in various investments and technology on security grounds. That remains a puzzle.

Also Read:- Drop in Retail Inflation, IMF Bullish on Indian Markets

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US Inflation Touches 13-year High, What Does it Mean for India?

US Inflation Touches 13-year High
by 5paisa Research Team 14/10/2021

For the month of September 2021, US inflation touched 5.4%, largely driven by a spike in food and housing inflation. This is the highest level of retail inflation in the US in the last 13 years, and this level was last seen during the peak of the global financial crisis. On a MoM basis, the inflation was up 0.4% while even core inflation was up 0.2% MoM.

The recent Fed statement made it amply clear that high inflation was a reality and here to stay. Jerome Powell, the Fed Chair, kept repeating that the high inflation was caused by supply chain bottlenecks. Powell has now turned to the narrative that high inflation may stay put for much longer than originally anticipated.
Spike in US inflation is representative of the problem that most countries, including India, are facing.

Demand for consumer goods has spurted in the last few months in tandem with the economic recovery. However, supply could not keep pace either because raw materials were just not available or too pricey to make economic sense. This demand supply gap has given a free run to inflation.

Check:- Drop in Retail Inflation, IMF Bullish on Indian Markets

Economists are veering around to the view, that irrespective of the cockiness shown by Jerome Powell, there is only so long he can put off a rate hike. The Fed’s original inflation upper end target was 2% and it is a full 340 bps above that threshold. In terms of policy, the Fed taper could start in November and rate hikes probably in the first half of 2022 itself.

What does this US inflation number mean for India? Firstly, it is a signal that the supply chain constraints are not going away soon. India’s 4.35% inflation in September may be more of base effect, but overall inflation would still trend higher. This could have implications for cost of funds as is already evident in the rising 10-year bond yields.

The other implication is for RBI monetary policy. Over the last 10 years, the RBI has tried to align its monetary policy with the US. If the Fed gets hawkish, it is unlikely that the Monetary Policy Committee will maintain its dovish stance. Liquidity could be the first casualty, impacting Indian stocks that are largely liquidity driven. 

The bigger risk is that RBI may be forced to hike rates to keep Indian bonds competitive in risk adjusted terms. That would be a bigger challenge to contend with.

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Aluminium Companies May be Hit by Supply of Coal Shortage

Aluminium May be Hit by Coal Shortage
by 5paisa Research Team 14/10/2021

When the coal crisis came to the fore, threatening a virtual blackout in many states, it looked like the power sector was the worst affect. However, now the downstream impact is being felt. One such instance is of aluminium companies, which is an extremely power intensive and coal-intensive operation. That has pushed the sector into a major crisis.

The shortage of coal for aluminium producers has become acute in the last few days after the government ordered coal supplies to be urgently diverted to the power plants to help them replenish their inventory. Most power plants were down to 1-2 days of inventory. That diversion meant that a key consumer of coal like aluminium got hurt the most.

This has put aluminium producers like Hindalco and Nalco in a fix. Indian aluminium plants generally rely on captive power plants since their business is very power intensive. However, this needs a steady supply of coal. Currently, domestic coal supplies are stretched and global coal supplies from Indonesia and Australia are almost unaffordable after the 4X price rally.

India’s aluminium industry has repeatedly complained to the government about the lack of coal supply to their captive power plants. Aluminium manufacturers have demanded secure linkages for sustainable operations. The Federation of Indian Mineral Industries has warned the Coal ministry that the coal shortage could lead to factory closures in aluminium industry.

The problem is aggravated for the aluminium industry due to the skewed cost structure of the sector. For example, currently, coal accounts for almost 40% of the production cost of 1 tonne of aluminium. Since the power intensity of aluminium is too high, the focus of captive power has helped to reduce the dependency on the grid. Therein lies the real problem.

Currently, around 9,000 MW of captive power plants have been established to meet their critical power supply needs for the aluminium industry. However, without coal these captive power plants cannot be operated, and most of the captive plants of aluminium companies are running very low on coal stocks. The fear is that if the coal situation does not improve in the next few days, aluminium output cuts could be the only option.

Also Read - Indian Power Companies Face Worst Ever Coal Shortage

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Adani Wilmar and Star Health Get SEBI Approval for IPO

Adani Wilmar and Star Health Get SEBI Approval for IPO
by 5paisa Research Team 18/10/2021

With a slew of IPOs already slated to hit the primary market in the last week of October, there are more big IPOs getting lined up. Two more companies got SEBI approval for their proposed IPOs and can now seriously start actioning the IPO process.

Adani Wilmar IPO

Adani Wilmar, the FMCG company and a joint venture between Adani Group and Wilmar of Singapore, has got approval for its proposed Rs.4,500 crore IPO. The entire IPO will be a fresh issue of shares. The Adani Wilmar joint venture proposes to use the fresh funds to expand the business organically and inorganically as well as to build its brand.

Adani Wilmar will become the seventh listed company from the Adani fold, once the IPO is through and the stock gets listed. Adani Wilmar (of Fortune edible oil brand fame) has plans to become India’s largest food-based FMCG company by 2027. Apart from being a food retailer, Adani Wilmar will target to own the entire food ecosystem from farm to fork.

The IPO price band is yet to be decided but it is reported to value Adani Wilmar at around Rs.45,000 crore to begin with. Since, Adani Enterprises owns 50% in the joint venture, the company will see value discovery to the tune of Rs.22,500 crore due to the IPO. However, there will not be any OFS component in the Adani Wilmar IPO.

Star Health Insurance IPO

The Star Health Insurance IPO of Rs.5,500 crore will be a combination of fresh issue and an offer for sale. The fresh issue component will be worth Rs.2,000 crore. The balance Rs.3,500 crore approximately will be accounted for by the OFS of 6.01 crore shares in an indicative price band of Rs.580 to Rs.600. 

The biggest seller in the OFS will be Safecrop Investments selling close to 3.07 crore shares. The rest will be sold by other early investors in the company as well as some early promoters. Incidentally, Rakesh Jhunjhunwala is one of the early investors in the company, although he is reportedly not participating in the OFS.

Check - Rakesh Jhunjhunwala's Portfolio

The fresh issue proceeds will be used by Star Health to create a capital cushion and for maintaining solvency levels. Star Health is the largest private sector player in the health insurance space with 15.8% market share.

Also Read:-

1. List of Upcoming IPOs in 2021

2. List of Upcoming IPOs in October 2021

3. Star Health Insurance Files DRHP - Insurance IPO

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Why Reliance walked in and walked out of the Zee Deal

Reliance walked in and walked out of the Zee
by 5paisa Research Team 18/10/2021

In the midst of the ongoing fracas between Invesco Fund and the Zee management, led by Punit Goenka, it emerges that Reliance walked in and then walked out of the deal to buy a strategic stake in Zee Entertainment. The Reliance group has confirmed that the deal fell through as they were uncomfortable with the tiff between Invesco and Punit Goenka.

Punit Goenka, son of Subhash Chandra, is the MD & CEO of Zee Entertainment. However, the Subhash Chandra family has just 3.44% in Zee Entertainment while Invesco Fund is the largest stakeholder in Zee with 17.88%. The tiff arose as Invesco felt that the promoter family was exercising clout disproportionate to its holdings.

Check - Invesco wants EGM to Replace Punit Goenka from the Post of MD & CEO

Invesco, on its part, confirmed that it had just tried to facilitate the deal between Reliance and Zee, which needed a big fund infusion. Meanwhile, Punit Goenka has accused Invesco of working at the behest of large media interests to take over Zee. In the process, RIL did not want to get embroiled in a deal what was seen as anti-promoter.

The Zee side of the story is that they were uncomfortable since Invesco was trying to push the deal very hard, which was not what they expected from a large investor. Zee also felt that the offer of Rs.220 per share and valuation of Rs.21,130 crore for Zee was not in the largest interests of small shareholders of Zee.

Invesco has a different story. Apparently, they tried to facilitate the deal and negotiations happened between Reliance and Chandra family. However, Invesco did not accept that the Chandra family should get a stake of 4% in the merged entity and Punit Goenka continues as the MD and CEO. Invesco did not want any special shareholder preferences.

Check - Subhash Chandra Takes Up a Good Deal on his Zee Stake

In a way, this is also roiling the Zee-Sony deal. Invesco is uncomfortable with Sony deal as post-merger, its own stake will be down to 8.4% while Zee promoters will have 4% in the merged entity due to the non-compete fee of 2% stake paid by Sony. Invesco feels there was no question of non-compete fee when Punit Goenka will be CEO for next 5 years.

For now any deal looks like Catch-22 with the largest institutional investor and the original promoter family not seeing eye to eye.