Morning Scan: All the big stories to get you started for the day

The rates for overnight indexed swaps, a key indicator of how the Reserve Bank of India may act on policy rates, have climbed over the past eight days, reversing earlier optimism that rates were likely to head lower in the last quarter of 2023. The reset in domestic interest rate expectations have been
driven are policy statements by the Indian central bank and the US Federal Reserve on June 8 and 14, in which both flagged concerns over persistent inflation.

Why it’s important: The important market gauge is now penciling in a reduction in the cost of borrowing funds only in April next year. Inflation is simply not cooling fast enough to warrant an immediate easing of monetary policy in the near term.

#3. Exports decline for fourth straight month; trade deficit widens to five-month high

India’s merchandise exports in May contracted for a fourth straight month as external demand remained slack on a slowdown in its key markets, commerce ministry data showed. Outbound shipments declined 10.31 percent on year to $34.98 billion, and imports fell 6.59 per cent to $57.10 billion. External trade contracted for a fifth consecutive month amid cooling commodity prices and India’s policy to substitute inbound shipments. It led to the trade deficit widening to a five-month high
of $22.12 billion in May.

Why it’s important: The headwind to India’s external trade is expected to continue due to an economic slowdown in the key markets in the West and elsewhere.

#4. Singapore Airlines may gradually raise its stake in Air India to 40 percent

Singapore Airlines may gradually raise its stake in Air India from the current 25.1 percent to about 40percent. The carrier and the Tata group have held initial talks regarding the potential increase in stake in response to a request from the Singapore-based airline. The proposal is still at an early
stage.

Why it’s important: Air India would welcome such a move as it seeks to take on domestic market leader IndiGo and compete with other global carriers popular with Indians for overseas travel.

#5. iPhone maker Foxconn may build an electric vehicle factory in Indian in 2023

Foxconn is looking to enter the electric vehicle manufacturing sector in India. The Taiwanese contract manufacturer has been in talks with some state governments to further its plans. Foxconn has said in its annual report that India will assist with the establishment of a production line this year to provide two-wheeled electric vehicle manufacturing services that will cater to the market in Southeast Asia.

Why it’s important: It is the first time Foxconn has articulated its ambitions of manufacturing electric two-wheelers in India on the back of a rapidly growing market in the country and southeast Asia.

#6. Transamerica cancels $2 billion contract with TCS to focus on insourcing IT services

Tata Consultancy Services’ $2 billion, 10-year deal with US arm of Dutch insurer Aegon has been scrapped five-and-a-half years after Transamerica Life Insurance company selected India’s largest IT services company. Transamerica plans to cut its dependence on third-party IT services firms such as TCS, choosing to do much of the IT work on its own.

Why it’s important: Losing a marquee client would be seen as a setback although the financial impact will be minimal as TCS will have concluded about eight years of the contract period before its ends prematurely.

#7. Reliance Industries to raise $2 billion in dollar loans to fund business expansion

Reliance Industries is in talks with lenders for a foreign currency loan of up to $2 billion to fund the ongoing expansion of its oil to telecom business. The firm controlled by Mukesh Ambani intends to use India’s dedicated external commercial borrowing route to secure the loan. The facility may have a maturity period ranging between three to five years and the proceeds will be used for capital expenditure and to refinance a loan that matures in September.

Why it’s important: Reliance’s recent activity towards expansion of its various businesses has been driven by huge borrowings after the conglomerate achieved net debt zero status in 2020. It is in a
strong position to secure loans at favorable terms.

#8. Two-wheeler demand in rural market sees resurgence after a few years

Demand for motorcycles and scooters has remained weak in the Past few years amid a rise in acquisition costs and the economic impact of the pandemic. It has now started picking up, propelled by a turnaround in consumer sentiment in rural markets, industry executives said. The sector expect sales to grow in double digits in the current financial year, largely driven by pent-up demand in rural areas that account for about 55 percent of two-wheeler sales in the country.

Why it’s important: Better farm output, an increase in the minimum support price for the autumn harvest announced last week and state spending on rural development are expected will help increase disposable incomes in rural areas, leading to a spurt in demand.

#9. Willful defaulters in India to get loans only after five years of settlement

India’s banks will be allowed to provide loans to willful borrowers and defaulters after five years of a compromise settlement. Debt restructuring will be allowed only if there is a change in promoters. The Reserve Bank of India had issued circular on compromise settlement with borrowers, including willful defaulters and accounts.

Why it’s important: The move by the central bank will make defaulting on loans ore expensive in terms of opportunity cost for borrowing firms, compelling them to work harder to service loans regularly.

#10. Market leader IndiGo improves share after Go First halted operations

IndiGo has registered its highest ever domestic market share of 61.4 percent in May, capitalising on Go First suspending flights. Domestic airlines flew a record 13.2 million passengers in May, improving on the December 2019 figure of 13.01 million. IndiGo flew more than 8.1 million passengers and registered a 61.4 per cent share, official data showed.

Why it’s important: Despite persistent complaints of poor service quality, IndiGo’s on time performance and multiple flight options has made it a passenger favorite for domestic air travel.