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Photo: Bloomberg
Photo: Bloomberg

GDP surprise, Tata-Docomo settlement and Flipkart’s markdown

India posts 7.1% GDP growth in Dec quarter; Tata Sons, NTT Docomo bury the hatchet; Morgan Stanley marks down Flipkart valuation

1. GDP growth defies demonetization

GDP data released by the Central Statistics Office (CSO) showed that the Indian economy grew at a healthy 7% in the third quarter of the fiscal year. The CSO also retained its projection of 7.1% growth for 2016-17. The GDP numbers have surprised economists and analysts who expected the economy to take a hit from demonetization. A poll of analysts by Reuters found they expected the economy to expand by 6.4% in the third quarter. Nonetheless, the pace of growth is less than the second quarter’s of 7.4%.

2. US economy slows

US economic growth slowed down in the fourth quarter of 2016 and rose only 1.9% year-on-year. Business and government investment did not match up to strong consumer spending. On the whole, the US economy grew 1.6% for all of 2016, down from 2.6% in 2015, and recorded its worst performance since 2011. Private domestic demand rose 3% in the fourth quarter, while government spending rose 0.4%. A Reuters poll of economists projected that GDP growth in the December quarter would be revised to 2.1%.

3. Morgan Stanley fund cuts Flipkart valuation

Even as Flipkart is seeking to raise funds, a mutual fund managed by Morgan Stanley has marked down the value of its holdings in the company for the fifth consecutive quarter. Morgan Stanley Institutional Fund Trust has valued each share of the company at around $50.51, down from $52.13 a share in the September quarter. The fund presently holds 566,827 shares in the company. That indicates a valuation of about $5.37 billion—a marginal cut compared with the previous markdown from Morgan Stanley, when it slashed Flipkart’s valuation by about 38% to $5.54 billion. Though Flipkart has not commented on the latest markdown, in previous interviews, founders Sachin Bansal and Binny Bansal have dismissed markdowns from mutual fund investors as “theoretical exercises".

4. World trade sees a small uptick

World export volumes rose 3% in December 2016, year on year, according to data from CPB World Trade Monitor. On a monthly basis, exports rose 0.7%. Export volumes rose 2.8% on an annual basis for emerging Asian countries. The uptick in trade is likely down to economic growth in the US, the euro zone and China. Nonetheless, emerging Asian countries had seen higher export volumes in January and February 2015. Also, Donald Trump’s protectionist moves may throttle any potential rise in world trade.

5. PMI signals recovery in manufacturing

The Nikkei India Manufacturing Purchasing Managers’ Index (PMI) for February stood at 50.7, a slight improvement from January’s reading of 50.4. A reading above 50 stands for economic expansion, while the reverse shows a contraction. The uptick shows that manufacturing companies are recovering from demonetization-related setbacks. Previously, December PMI had fallen to 49.6 on the back of demonetization. February’s reading was marked by a sharp rise in the output price index, which reached a 40-month high. Output prices rose on the back of higher input prices, for instance, commodity prices.

6. Thiruvananthapuram ranks first in country-wide comparison

Kerala’s capital, Thiruvananthapuram, remained at the top of the Annual Survey of India’s City-Systems (ASICS), conducted by Janaagraha Centre for Citizenship and Democracy, a non-profit organization. The survey ranks 21 cities across 18 states based on 83 governance patterns. Pune rose two ranks to come in at second position. Bengaluru, on the other hand, dropped four places to rank 16, while Chandigarh was ranked the lowest for the third year in a row. The survey noted that Indian cities performed poorly across parameters such as planning, resource utilization, transparency, accountability and participation.

7. Internet expansion continues

A recent report from industry lobby Internet and Mobile Association of India and market research firm IMRB International has projected the number of Internet users in India to reach 450-465 million by June this year, a rise of 4-8% from the figure of 432 million in December 2016. This is likely to be a conservative estimate as the forecast does not take into account the process of demonetization which gave a push to digital and mobile transactions. The report put overall Internet penetration in India at around 31%. It noted that 60% of residents in urban India are connected to the internet, compared to 17% of rural Indians.

8. Tata Sons, Docomo settle legal dispute

Tata Sons and NTT Docomo Inc. told the Delhi high court this week that they had reached a settlement on the Japanese firm’s exiting their joint telecom venture Tata Docomo, with the former withdrawing its objections to the enforcement of an arbitration award in favour of the latter. Both parties have also challenged the Reserve Bank of India (RBI)’s statement before the court which termed the agreement as illegal. RBI rejected Docomo’s exit proposal on the grounds of its 2014 norms specifying that specified that foreign companies can only exit investments at a valuation based on the return on equity.

9. Strong car sales recorded in February

Most auto makers recorded strong sales of passenger vehicles in February due to higher dispatches to dealers before the end of the fiscal year. Maruti Suzuki India Ltd saw volumes rise almost 12% annually to 120,735 units. Hyundai Motor India Ltd saw sales rise 4% to 42,327 units. Analysts have noted that passenger vehicle sales did not buckle under the impact of demonetization, unlike two-wheeler sales. Other auto makers, such as Tata Motors Ltd, Toyota Kirloskar Motor India Ltd, Honda Cars Ltd, Renault India Pvt Ltd, Ford India Pvt Ltd and Nissan Motor India Pvt Ltd, also saw sales expand. The only exception was Mahindra and Mahindra Ltd.

10. DLF sells stake in rental unit to pare debt

The promoters of DLF Ltd, India’s largest property developer, have agreed to sell their entire 40% stake in DLF CyberCity Developers Ltd to Singapore’s sovereign fund, GIC Pte. The stake sale is expected to bring down DLF"s debt levels by raising around Rs12,000-13,000 crore. DLF’s debt had shot up by Rs1,257 crore to Rs24,397 crore in the three months ended 31 December. Revenue had also fallen 30% to Rs2,057.92 crore during the quarter and GIC entered into quarter. Previously, GIC had partnered with DLF Home Developers Ltd, a unit of DLF, for a joint venture to invest in two projects in Delhi in September 2015.

Graphics by Prajakta Patil/Mint.

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