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FDI in India rose by 13% in 2020, as inflows declined in major economies due to pandemic: UN

25. January 2021 Sandeep Stock Market Research (0)

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Foreign Direct Investment into India rose by 13 per cent in 2020, boosted by interest in the digital sector, and while fund flows "declined most strongly" in major economies such as the UK, the US and Russia due to the COVID-19 pandemic, India and China bucked the trend, the UN has said.

An investment trends monitor issued by the United Nations Conference on Trade and Development (UNCTAD) on Sunday said that global foreign direct investment (FDI) collapsed in 2020 by 42 percent to an estimated $859 billion from $1.5 trillion in 2019.

Such a low level was last seen in the 1990s and is more than 30 per cent below the investment trough that followed the 2008-2009 global financial crisis.

The decline in FDI inflows was concentrated in developed countries, where fund flows fell by 69 percent to an estimated $229 billion.

However, FDI in India rose by 13 percent, boosted by investments in the digital sector.

"China was the world’s largest FDI recipient, with flows to the Asian giant rising by 4 percent to $163 billion. India, another major emerging economy, also recorded positive growth (13 percent), boosted by investments in the digital sector,” the report said.

It added that "in relative terms, FDI flows declined most strongly in the UK, Italy, Russia, Germany, Brazil and the US due to the dramatic impact of COVID-19. India and China bucked the trend”.

FDI in South Asia rose by 10 per cent to $65 billion.

India’s 13 percent rise in FDI saw the total foreign investments for 2020 touching $57 billion.

The report noted that acquisitions in India’s digital economy was the largest contributor to this rise.

Cross-border merger and acquisition (M&A) sales grew 83 percent to $27 billion, the report said, citing social networking giant Facebook’s acquisition of 9.9 percent stake in Reliance Jio platforms, via a new entity, Jaadhu Holdings LLC.

Similarly deals in the energy sector propped up M&A values in India, it said.

Further, India and Turkey are attracting record numbers of deals in information consulting and digital sectors, including e-commerce platforms, data processing services and digital payments.

Despite projections for the global economy to recover in 2021, the UNCTAD expects FDI flows to remain weak due to uncertainty over the evolution of the COVID-19 pandemic.

The organisation has projected a 5 percent to 10 percent FDI slide in 2021 in last year’s World Investment Report.

The effects of the pandemic on investment will linger, said James Zhan, Director of UNCTAD, investment division.

"Investors are likely to remain cautious in committing capital to new overseas productive assets,” Zhan said.

According to the report, the decline in FDI in 2020 was concentrated in developed countries, where flows plummeted by 69 percent to an estimated $229 billion.

Flows to North America declined by 46 percent to $166 billion, with cross-border mergers and acquisitions dropping by 43 percent.

Announced greenfield investment projects also fell by 29 percent and project finance deals tumbled by 2 percent.

Greenfield investment is a kind of FDI, in which the parent company creates a subsidiary in the host country and builds its operations from the ground up.

The United States recorded a 49 percent drop in FDI, falling to an estimated $134 billion.

The decline took place in wholesale trade, financial services and manufacturing.

Cross-border M&A sales of US assets to foreign investors fell by 41 per cent, mostly in the primary sector.

On the other side of the Atlantic Ocean, investment in Europe dried up as well.

In the United Kingdom, FDI fell to zero, and declines were recorded in other major recipients.

Looking ahead, the FDI trend is expected to remain weak in 2021.

Data on an announcement basis, an indicator of forward trends, provides a mixed picture and point at continued downward pressure.

Sharply lower greenfield project announcements (-35 percent in 2020) suggest a turnaround in industrial sectors.

Similarly, the 2020 decline in cross-border M&As (-10 per cent) was cushioned by higher values in the last part of the year.

Looking at M&A announcements, strong deal activity in technology and pharmaceutical industries is expected to push M&A-driven FDI flows higher.

For developing countries, the trends in greenfield and project finance announcements are a major concern, the report said.

Although overall FDI flows in developing economies appear relatively resilient, greenfield announcements fell by 46 percent and international project finance by 7 percent.

These investment types are crucial for productive capacity and infrastructure development and thus for sustainable recovery prospects.

Risks related to the latest wave of the pandemic, the pace of the roll-out of vaccination programmes and economic support packages, fragile macroeconomic situations in major emerging markets, and uncertainty about the global policy environment for investment will all continue to affect FDI in 2021," the report said.

The coronavirus has killed over 2.1 million people, along with over 99 million confirmed cases, across the world so far.

Unemployed supertankers are about to get junked on Asia’s beaches

25. January 2021 Sandeep Stock Market Research (0)

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Covid-19 is destroying the market for supertankers that deliver about a fifth of the world’s crude oil. The result is likely to be booming trade on the beaches of Bangladesh, India and Pakistan, where obsolete ships go to get blow-torched and sold for scrap.

Last week, the 1,200-foot vessels plying the industry’s busiest trade route -- from the Middle East to Asia -- effectively had to subsidize the delivery of cargoes because of how large the surplus of ships has grown.

While the vessel glut has really been in place since when Covid-19 caused oil demand to collapse early last year, it has until recently been masked by a huge chunk of the fleet storing crude that was previously surplus to requirements. Now, with Saudi Arabia and other major producers keeping millions of barrels off the market, and consumption stronger, those stored cargoes are being snapped up again -- leaving the tankers unemployed.

“It is hard to imagine a set of circumstances that is more against tanker owners than the ones at the moment,” said Brian Gallagher, head of investor relations at Euronav NV, owner of the world’s third-largest fleet of supertankers. “When you have scrap prices at these levels that’s very attractive, it changes the dynamic for owners of older tonnage.”

That will see more of the vessels sent to the world’s scrapyards, according to multiple conversations with tanker-company executives, many of whom didn’t want to discuss publicly how challenging the market has become. Clarkson Research Services Ltd., a unit of the world’s largest shipbroker, expects about 2% of the fleet to get demolished in 2021, up from almost none for the past two years. Its forecast was made before the slump into negative rates.

The scrapping may not be enough to save the market in the coming months. The amount of oil being shipped at sea remains far below normal levels as OPEC and its allies continue to withhold huge volumes of production and vessels that were used as storage during the oil market’s mammoth 2020 glut are now coming back onto the market and looking for business.

More importantly, scrapping is typically seen as a tactic that stops the rot. It doesn’t usually drive a surge in rates. On Wednesday, daily earnings for supertankers sailing on the benchmark Middle East to China route were -$1,190, according to figures from the Baltic Exchange in London.

The Baltic’s numbers assume fixed costs for a vessel, which can be mitigated. For example fuel costs can vary and ships are able to slow down to limit their consumption. Several of the tanker owners said they were doing this when sailing back to the Middle East for cargoes.

Scrap Value
Clarksons Platou AS, a sister company of Clarkson Research, estimates that ship speeds could now be coming down by almost 25%.

A period of relatively high shipping rates meant the number of supertankers getting demolished stayed low over the past few years. There were just two very large crude carriers, or VLCCs, scrapped last year and four in 2019. That compares with a total of 44 across 2017 and 2018, according to Clarkson Research Services Ltd. It counts a total fleet of 823 VLCCs.

The current earnings malaise will force ships that are more than 15 years old to consider heading for the break-up yards of Asia, the executives said. Every five years a vessel has to undergo a special survey that costs millions of dollars, money that’s hard to find when vessels are making a loss.

The scrap value of a VLCC currently stands at $18.95 million, according to the most recent Clarkson Research data. That’s the highest since March 2018 and could offer a further incentive to scrap.

Even so, most owners don’t expect a recovery in earnings until the second half of the year, when expectations are that oil demand will start to snap back toward pre-coronavirus levels. That should result in more volumes of crude sailing across the world’s oceans.

Until then owners have little to cheer. Some reported as many as 15 ships being offered to pick up some cargoes in the Middle East. At the moment, oil that’s stored in tanks on land is being slowly worked off by refiners. That, combined with an ever greater number of tankers returning to the market after being used to store oil at sea, means any turnaround in the tanker market won’t come overnight.

“It’s a challenging background,” said Euronav’s Gallagher. “It feels like it’s going to be challenging for a while.”

Budget 2021: Govt may tweak customs duties on host of goods

25. January 2021 Sandeep Stock Market Research (0)

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They said that while import duties could be hiked on over 20 products such as cut and polished diamonds, rubber goods, leather garments, telecom equipment and carpet, the customs duties could be removed on select raw materials (like wood in rough, swan wood and hard board) used for furniture manufacturing and copper concentrate.

The government may tweak customs duties in the Budget next week on several goods, including furniture raw materials, copper scrap, certain chemicals, telecom equipment and rubber products, to promote domestic manufacturing and exports, sources said.

They said that while import duties could be hiked on over 20 products such as cut and polished diamonds, rubber goods, leather garments, telecom equipment and carpet, the customs duties could be removed on select raw materials (like wood in rough, swan wood and hard board) used for furniture manufacturing and copper concentrate.

"Expensive raw materials impact India''s price competitiveness in the international market. The country''s exports of furniture is very low (about one per cent), while countries like China and Vietnam are major players in the sector," they added.

The government may also consider reducing customs duties on coal tar pitch, and copper scrap, while raising the levies on certain finished goods like refrigerator, washing machine and clothes dryer, one of the sources said.

The government is already taking steps to boost domestic manufacturing such as introduction of production-linked incentives scheme (PLI) for several sectors including air conditioners and LED lights.

In crackdown on fake GST invoices, 258 arrested since November: Report

25. January 2021 Sandeep Stock Market Research (0)

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As many as 258 people have been arrested since mid-November during the government's crackdown on fake GST invoices.

More than 2,500 cases have been registered against 8,000 entities since mid-November, as a part of the government's crackdown on fake goods and services tax (GST) invoices.

As many as 258 People Have Been Arrested including eight chartered accountants, Mint reported. Fake GST invoices are used to fraudulently avail input tax credit (ITC).

The government has asked the Institute of Chartered Accountants of India (ICAI) to take action against the accountants, the report said.

Authorities have recovered more than Rs 820 crore from the accused, a government official told the business newspaper.

The last chartered accountant (CA) who was arrested was taken into custody in Jaipur on January 23 along with four business accomplices, Mint said.

Data was shared between GST, income tax and customs, which helped spot violations, the report said. Data analytics and artificial intelligence were also used to identify frauds.

Authorities have also identified the final beneficiaries, which includes two major ecommerce firms, the report said.

Yellen vote in US Senate committee to test support for Biden economic plan

22. January 2021 aakash Stock Market Research (0)

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The Senate Finance Committee will vote on Friday on Janet Yellen's nomination for Treasury secretary, an early litmus test of bipartisan support for President Joe Biden's ambitious plans for coronavirus relief, infrastructure investment and tax hikes.

Yellen, who would be the first woman to head Treasury after breaking that same barrier as Federal Reserve chair from 2014 to 2018, is highly regarded by both her fellow Democrats and by Republicans. The vote two days after Biden became president is quick by recent standards.

Biden has proposed a $1.9 trillion coronavirus relief plan and has pledged to invest $2 trillion in infrastructure, green energy projects, education and research to boost American competitiveness.

Friday's vote on Yellen's nomination may reveal the level of Republican opposition to the Democratic president's plans, for which he is seeking bipartisan support.

Already some Republicans are expressing concerns over its price tag and increased debt in a return to fiscal conservatism after running up deficits with the 2017 tax cuts and nearly $5 trillion in coronavirus spending last year under former Republican President Donald Trump.

Republican Senator Pat Toomey, a longtime fiscal hawk, said at Yellen's hearing: "We're looking at another spending blowout."

Yellen's Republican predecessor, Steven Mnuchin, was not confirmed until three weeks after Trump's inauguration, and then by a 53-47 nearly party-line vote in a Republican-controlled Senate.

The committee vote is scheduled for 10 a.m. (1500 GMT) and Senate aides said it could pave the way for a full Senate confirmation vote later in the day on Friday.

Yellen faces both an evenly split committee and an evenly divided full Senate, with Vice President Kamala Harris casting the tie-breaking vote if needed.

CONCERNING COMMENTS

Yellen's confirmation hearing on Tuesday highlighted some Republican lawmakers' concerns about her role in executing Biden's economic policies, including a bigger federal debt burden and repealing parts of their signature 2017 tax cuts.

Yellen told senators they needed to "act big" on the proposed $1.9 trillion stimulus package or risk a longer recession and long-term economic scarring, job and revenue losses.

Her remarks represent a new attitude toward government debt among some economists and policy-makers: Focus on the interest rate being paid and the returns it will generate, rather than the overall amount borrowed. In recent months, Treasury's interest outlays have fallen from pre-pandemic levels due to lower rates.

In written answers to senators' questions, Yellen said she would study raising tax rates for "pass-through" small businesses including sole proprietorships, imposing a new minimum corporate tax and raising capital gains taxes on the wealthy. She also endorsed an effective carbon pricing system and financial regulation to combat systemic risks from climate change.

Outside partisan factors could cast a shadow over the confirmation vote, including the pending impeachment trial of Trump and an ethics complaint against Republican Senators Josh Hawley and Ted Cruz over their objections to Biden's Nov. 3 election victory even after pro-Trump rioters stormed the U.S. Capitol on Jan. 6.

With Yellen still awaiting confirmation, the Biden administration on Wednesday named Andy Baukol, a longtime career international finance official, as acting Treasury secretary. A confirmation hearing for Deputy Treasury Secretary nominee Wally Adeyemo has not yet been scheduled.

RBI remains net purchaser of US dollar in November, buys $10.261 billion

21. January 2021 aakash Stock Market Research (0)

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The Reserve Bank of India (RBI) continued to remain a net buyer of the US currency in November after it bought USD 10.261 billion from the spot market, data showed.

During the reporting month, the central bank purchased $14.289 billion and sold $4.028 billion, according to the monthly bulletin released by the RBI for January.

In October this year, though the RBI had purchased $15.64 billion from the spot market, it did not sell the US currency.

In November 2019, the RBI had bought $7.458 billion and sold $530 million in the spot market.

In FY20, the central bank had net purchased $45.097 billion.

It had bought $72.205 billion and sold $27.108 billion in the spot market.

In the forward dollar market, the outstanding net purchase at the end of November was $28.344 billion, compared to $13.556 billion in October, the data showed.

Indian insurers’ growth to rebound backed by health, protection business, says Moody’s analyst

20. January 2021 aakash Stock Market Research (0)

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The Indian insurance sector will see growth rebounding in 2021 lead by growth in the health and protection segments, according to a report by Moody’s Investors Service.

Mohammed Ali Riyazuddin Londe, Vice President-Senior Analyst, Financial Institutions, Moody’s Investors Service told Moneycontrol in an interaction that this is not a one-off growth as far as health insurance is concerned.

He added that the health insurance sales saw a spike in 2020 due to a rise in awareness amidst the Coronavirus outbreak. He said that this will see general insurers growth to move to positive territory in 2021.

“We expect health premiums to continue growing strongly into 2021, when we anticipate that India's GDP growth will rebound to 10.8 percent, leading to a gradual normalisation of economic activity,” he added.

The Moody’s report said that India's low rate of insurance penetration (premiums as a percentage of GDP) indicates that there is ample scope for continued premium growth. The overall insurance penetration rate stood at 3.8 percent in 2018, low compared with developed markets such as the UK (10.3 percent) and the US (11.4 percent), and also below large developing markets such as China (4.3 percent).

Economic performance hit affects insurers

Moody’s said that India's economic performance is increasingly weak. The report expects real GDP to contract by 10.6 percent in the fiscal year starting April 2020, compared with our previous forecast of a 4 percent contraction.

Londe explained that the economic slump had an adverse impact on the Indian insurance industry’s premiums.

In the April to December 2020 period, premium growth slowed to 2.5 percent in general insurance, while life insurance new business premiums fell by 1.7 percent. This compares with growth of 11.7 percent and 20.6 percent for general and life insurance premiums respectively in the previous fiscal.

However, he added that the sustained strong demand for health insurance has slowed the decline. Health premiums rose 13.7 percent in the April to December 2020 period. This was in line with the 13.4 percent growth in the previous fiscal.

The Moody’s report said that persistently strong sales of health insurance reflect rising consumer awareness of the product as a result of the coronavirus pandemic, combined with insurers' efforts to develop their digital sales channels.

Moneycontrol had reported how health insurance overtook motor insurance as the largest business segment among non-life insurers.

Solvency pressures may aid M&A, capital infusion

Some Indian insurers’ solvency remains inadequate due to weak profitability, resulting from the intense competition in the market as per the Moody’s report.

Londe explained that the general insurance sector's profitability has been under particular pressure, with a combined ratio of 117.6 percent.

While positive investment results have previously helped compensate for a weak underwriting performance, falling yields have reduced this source of support, he explained.

The government also took steps to ensure that state-run insurers are giving a helping hand to boost their profitability.

On July 8, the Union Cabinet chaired by Prime Minister Narendra Modi called off a 2018 Budget proposal to merge three state-owned general insurers, National Insurance, Oriental Insurance and United India Insurance.

Instead, the government approved a capital infusion for an overall value of Rs 12,450 crore (including Rs. 2,500 crore infused in FY20) in the three insurers.

“We see the capital injection as credit positive as it will allow the insurers to enhance their risk-based pricing and underwriting discipline, helping them generate organic capital growth and attract foreign reinsurance coverage. Given the capital increase is happening for state-run insurers, their focus on underwriting discipline and risk-based pricing will trickle down and benefit the wider market,” he added.

In the private sector, he explained that profitability and solvency concerns are driving M&A.

"Capital raising must be accompanied by an increased focus on writing profitable business to put these companies on a sound financial footing in the long term," he said.