Major news for the week are reasonable growth in IIP, declining automobile sales, reasonable bids received by IL&FS for its road assets and sale of stake by ADAG group company. In the international news, ECB re-starts its bond buying in a sign of anticipated slowdown.<\/p>\n
Index of Industrial Production (IIP) for the month of July\u201919 showed a reasonable growth of 4.5% as per the data released by MOSPI. This is in contrast with dismal June\u201919 figures when it grew by just 0.2%. While the monthly figures are prone to higher fluctuations, growth is even better than 4.2% growth for the quarter ending June\u201919. The performance of manufacturing segment with growth of 4.2% is even more important as it grew by barely 0.6% during the entire June\u201919 quarter. User based classification show some interesting data for consumer\u2019s goods segment. While consumer durables recorded decline of 2.7%, consumer non-durables have grown at a sharp 8.3%. This contrasts with their last years\u2019 performance when the growth rate was 14.1% and 5.3% respectively. This probably lends credence to the hypothesis that over-production and unsustainable growth in earlier period has led to current slowdown in these segments.<\/p>\n
Automobile sector continues to witness a slump as per August\u201919 sales data released by Society of Indian Automobile Manufacturers (SIAM). Total automobile sales for the month stood at close to 23 lakh units, sharp decline of 18% over previous year. For April-Aug period, the decline stands at 12%. While the industry continues to blame GST for the slump, this could be more a result of stock clearance and correction of high growth witnessed in the past. It may be noted that automobile sector is required to move to production of vehicle meeting BS VI norms from 1st<\/sup> April\u201920. Since it records dispatch to the dealer and not the retail purchase as sales, it has to clear the entire inventory lying with dealers before this date. This could be the reason for its lower dispatch and hence lower sales. (More on this, in a separate article)<\/p>\n In an important development, IL&FS received offers worth Rs 13,000 crore for its road assets as per the bids opened this week. The bids should come as a relief as total debt against these assets stand at Rs 17,700 crore and implies not so steep hair cut of 27% for the lenders. This marks second bunch of assets sale by IL&FS with the first being wind energy assets being sold to its partner Orix, where lenders are expected to receive the entire amount. The proposal is pending with NCLT for approval. IL&FS came to limelight exactly a year ago when the group failed to honor its debt commitment, plunging the entire NBFC segment is a serious crisis of confidence. The swift move by the government to take charge and hand over control to a professional management has helped salvage significant value. These two assets group account for about Rs 21,000 crore of debt out of total debt of over Rs 95,000 crore. However, these two asset groups are among the most prized ones and how much the management would be able to save from the rest is still very uncertain. For one, IFIN, with total debt of close to Rs 19,000 is reported to have gross NPA of 90%.<\/p>\n Reliance Capital has moved closer to its plan to exit Reliance Nippon Life Asset management Ltd, more popularly known as Reliance Mutual fund. This is among the few financially healthy entities ADAG had stake in and is generating some funds to meet group\u2019s debt obligations. R-Cap sold nearly 7% stake in the subsidiary in the market this week garnering nearly Rs 1,000 crore. It would be selling rest of the stake at about 25% to the partner, Nippon. Total funds mobilized by the company would be close to Rs 6,000 crore, still a small part of what the group companies owe to lenders. The flagship, Reliance Communications, is already in the insolvency court, having failed to meet its debt obligation estimated at over Rs 50,000 crore. The decline of the fortune of the group where almost all the group companies have lost huge value is possibly the story of gross mismanagement, diffused focus, inability to react to market signals and failed negotiations.<\/p>\n In international news, in a rather surprising move, European Central Bank (ECB) has re-started its bond purchase program, less than a year after stopping it. The bank further reduced the deposit rate to -0.5% from -0.4%. The move aims at injecting liquidity to spur the economy amidst fear of a recession. European economy, specially the manufacturing sector, is facing continued stress more so, with uncertainties surrounding Brexit. In a globalized world, however, the degree of freedom enjoyed by any central bank is even more limited. A fall-out of the easy money policy is that euro may depreciate further against dollar and other currencies. The move, therefore, prompted US president to hit out at ECB as it would reduce the competitiveness of US exports.<\/p>\n