Markets round-up: foreign firms still rule in power substation orders
Stiff competition is likely to exert pricing pressure and affect the profitability of Indian companies still battling for orders
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Power Grid Corp. of India’s efforts to increase indigenization to encourage domestic suppliers has met with limited success so far.
A report by Jefferies says that in the first five months of fiscal year 2017, foreign entities’ share in PowerGrid’s substation contracts was 42% versus 49% in FY16.
But Chinese and South Korean firms that have given domestic companies a run for their money collectively bit off 36% of the pie. They found a way to beat the system by forging joint ventures or through their Indian entities.
Such stiff competition is likely to exert pricing pressure and affect the profitability of Indian companies still battling for orders.
The Indian arms of some multinationals such as Siemens AG and ABB Ltd may see a lower impact, as their products are used for exports by their parent.
Tighter norms for banks in physical commodity trade
Buyers of commodities have long held a grouse against US banks with physical operations in commodities, claiming that these banks distort the supply side of the market. There have been calls from these users and even US lawmakers to take action.
Now, the US Federal Reserve has proposed to tighten the screws on these banks by tighter provisioning norms. The main reason given for the proposed change is to protect banks from the legal, reputational and financial risks in physical commodity trading, such as dealing with environmental calamities seen in the oil sector.
These norms could require the 14 banks that will be affected by this rule to provide up to $4 billion (Rs26,680 crore) in additional capital requirements, according to the Financial Times.
The proposals include deleting copper from the list of precious metals that banks can own and store, higher risk-based capital requirements, tighter limits on commodity trading and new reporting requirements to improve transparency.
Growth momentum remains weak
India’s economic growth momentum is skewed towards consumption, and investment demand is yet to revive, according to Nomura Securities.
Five proprietary indices on economic growth by the firm underscore the persistent industrial weakness and that this is feeding into the transportation sector. Nomura’s economic heat map of high frequency data shows that services continue to perform while manufacturing is struggling to grow.
The monthly activity index of the firm slipped to 5.7% in July from 6.8% in the June quarter, indicating slowing growth momentum.
Nomura expects the Reserve Bank of India’s monetary policy committee to vote for a 25 basis points cut in policy rates when it meets next week, given the weak growth momentum and receding inflation pressures.