The Reserve Bank Must Address Food Inflation
The RBI had said that "The recent spike in tomato prices on account of crop damage due to inclement weather and pest attacks in the major production belts has received widespread attention as it has taken a toll on households' budgets."
Our Top Reports For Today
- <01:05> It’s now T+3 for IPOs, means your stock will list in 3 days or money back!
- <03:24> After finance, Adanis may sell stake in another consumer facing business.
- <05:14> The Reserve Bank has to address food inflation even if it can do little to fight it.
- <14:21> And a view on if-and-where the dust has settled on the edtech frenzy with Pramath Raj Sinha, founder dean of the ISB.
- <21:28> WeWork Raises Doubt About Its Survival after the The co-working company issued a going-concern warning because its co-working clients are canceling their memberships at a faster clip
- <22:42> And hmm..India’s ministry of finance puts out a warning on matrimonial dating scams.
TRANSCRIPT
NOTE: This transcript contains only the host's monologue and does not include any interviews or discussions that might be within the podcast. Please refer to the episode audio if you wish to quote the people interviewed. Email [email protected] for any queries.
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Don’t expect too much, remember we are somewhere in a consolidation mode in the stock markets.
Stock Markets rallied towards the second half of Wednesday, thanks to metal and other stocks. The BSE Sensex ended Wednesday’s trading session with a gain of 149 points at 65,996 and the NSE Nifty 50 finally settled 62 points higher at 19,633.
Speaking of markets, trigger happy initial public offer subscribers have good news coming their way. The Securities & Exchange Board of India announced that it has reduced the timeline for listing of IPOs from existing T+6 days to T+3 days which means in 3 days from close of the offer.
This also means that if you put money in an IPO and don’t get allotment, it will come back to you faster and of course if you get some shares, they will come into your stocks account or demat account right away.
The new rules shall be applicable on a voluntary basis for public issues opening on or after September 1, 2023, and will become mandatory for public issues opening on or after December 1, 2023.
This is not a sudden decision, discussions have been on for a while with various stakeholders and much feedback has been collected as well.
On a general note, of course, this does demonstrate the continued and evolving sophistication of India’s capital market system, something we tend to take for granted. Though there is nothing wrong in that either !
Some company news. Engineering and construction company Larsen & Toubro is the latest to announce a major clean energy thrust.
Bloomberg is reporting that Larsen & Toubro plans to invest as much as $12 billion over the next five years, a third of which will go toward expanding its clean energy business.
The company says it will build 2-3 million tonnes of green hydrogen and ammonia capacity with an investment of close to $4 billion.
The hydrogen foray will kick off with the manufacture of electrolyzers in December that will be powered using renewable energy from ReNew Power Private Ltd. to produce green hydrogen at the Indian Oil Corp. refinery in Panipat. The project will expand to more IOC refineries and other L&T customers, Bloomberg news said. L&T will join the Ambanis and Adanis in announcing major green energy forays.
Adani's reports say they are considering selling their 44% stake in consumer products and trading major Adani Wilmar, best known as the owner of the Fortune brand of cooking oils.
Gautam Adani and his family may retain a minority stake in a personal capacity following a sale, Bloomberg reported citing people.
The company declined to comment. Shares of Adani Wilmar fell somewhat on the news.
Adani Wilmar reported a loss in the first quarter of the current year, hit by a fall in edible oil prices. Which was bad news for Adani Wilmar but good news for all of us because it kept food inflation from shooting up further.
Adani Wilmar is into several kitchen commodities including edible oils, wheat flour, rice, pulses and sugar and was started in 1999 and has 23 manufacturing plants across India.
Last year, it bought the well known Kohinoor brand of rice: basic wheat flour, wheat, basmati and non basmati rice and even packaged sugar.
The question of course is why would Adani Wilmar which is on a fairly strong wicket, despite the recent results set back and which was on an acquisition spree to shore up its presence in the foods and consumer products segment want to pull out ?
The answer of course is that Adani is now seeing this as non core and focussing more on infrastructure, infrastructure-linked and energy businesses, which in turn could well be an outcome of the Hindenburg Research report saga which saw the stocks of all group companies being hammered leading to a $150 billion dive in value of the group's stocks.
Last month, the Adani’s also sold 90% of Adani Capital and Adani Housing to Bain Capital, a US based investor, thus exiting the finance and non banking finance business.
"I am very happy that a credible investor like Bain is stepping in now and this will help the business grow manifold from here," Reuters quoted Gautam Adani, chairman of the Adani group, as saying.
Tomatoes And Credit Policy
Today is credit policy day, where we all expectedly wait for the Reserve Bank of India to pronounce judgement on interest rates and of course our very lives.
Top of the list of the RBI and everyone in Government, I would imagine and hope, is obviously inflation, particularly of food.
As we discussed yesterday, wheat prices have swung up now to a six month high, rice prices are high and are not going down despite a clampdown on exports. On the contrary, the clampdown seems to have had the opposite effect, going by a conversation I had last week with Vinod Kaul, head of India’s Rice Exporters Association.
Incidentally, Bloomberg is reporting that rice prices have soared to the highest in almost 15 years in Asia on mounting concerns over global supplies as dry weather threatens production in Thailand and after India banned exports of non-basmati rice.
That leaves tomatoes and the like whose prices shot up so much that they sent the overall price of an average Indian thali by 28% just between June and July.
And the prognosis is not very good either. And I will come to that momentarily.
The RBI incidentally had said that "The recent spike in tomato prices on account of crop damage due to inclement weather and pest attacks in the major production belts has received widespread attention as it has taken a toll on households' budgets.”
"Tomato, being a highly perishable item with a very short crop duration, exhibits considerable seasonal variation in prices but these episodes are short lived.''
So of course the question is whether it will be short lived. So far it does not appear so.
In general, food items constitute 40% of the consumer price inflation index and everything including olive oil prices are skyrocketing.
Inflation data for July will come next week, on August 14. Right now, we are at 4.8%.
Now the question is will the RBI raise interest rates because food prices are going up. Well, it should not because there is little or no connection between the two. And that would be an admittance that the Government’s other moves, like clamping down on exports of rice are not working, which of course they don’t seem to be.
To come back to prices of food items. One thing that is pretty clear is that we have little control over it and that control too using existing tools will only diminish in coming months and years.
One reason is climate change which we touched upon the day before as well.
For example, higher rains almost inevitably now lead to higher prices and not the other way around which you might be intuitively tempted to believe.
And as things stand, tomatoes are only a part of the problem, maybe the most visible part. Onions are already joining the race.
I reached out to Pushan Sharma, Director, Research at Crisil whose team recently authored the report that talked of how the price of a thali had shot up 28% in a month.
I began by asking him to break up the thali for us and also where we were going next ?
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Meanwhile our website TheCore.in and our Consulting Editor Anjuli Bhargava is profiling Pramath Raj Sinha, now founder and chairman of Harappa Education in this morning’s edition.
Sinha, a former McKinsey & Co partner, is also founding dean of the Indian School of Business and a founder of the Ashoka University and generally seen as a force of nature in the higher education business in India.
I also used the opportunity to reach out to him to get a broader sense on the education landscape and particularly after all the implosions that were happening in India in the K-12 or kindergarten to 12th grade space.
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Speaking of implosions, WeWork on Tuesday raised doubt about its ability to stay in business as the co-working space provider faces losses and a dwindling cash pile, the WSJ is reporting.
It said that “as a result of our losses…which have been impacted by the recent increases in member churn…substantial doubt exists about the company’s ability to continue as a going concern.”
The company’s stock is down more than 95% since its public listing, with an estimated market capitalization of around $450 million as of Tuesday. Softbank, an investor that once painted a future where machines would take over human beings, has likely lost billions of dollars on its investment.
WeWork was also one of the world’s most valuable startups worth $47 billion. Tuesday, excess supply of commercial real estate, greater competition for flexible space and uncertain economic conditions resulted in losses in the second quarter, the WSJ said.
Meanwhile, WeWork India, the local arm, told CNBC Tv18 that there was no impact on its business in the country. WeWork India is backed by the Embassy Group, which holds a majority stake of around 71 percent in the firm.
And hmm..India’s Finance Ministry Warns About Dating Scams
India’s Ministry of Finance on Wednesday cautioned people against fraudsters extorting money "in the name of Indian customs".
Sharing a post on "matrimonial dating scam" on X (formerly known as Twitter), the ministry stated that Indian customs would never call or send a text message asking people to pay customs duty through a personal bank account, the Business Standard is reporting.
The ministry stated that all communication from the Indian customs contains a document identification number (DIN) which can be verified on the official site of the Central Board of Indirect Taxes and Customs (CBIC).
"Beware of fraudsters extorting money in the name of Indian Customs! Indian Customs never calls or sends SMS to pay Customs Duty in a personal bank account. All communication from Indian Customs contains a DIN, which can be verified on the CBIC website," The ministry posted on X.
Several cases of such scams have been reported in the last year.
In May, a police-sub-inspector's wife was cheated out of Rs 3.6 lakh in Mumbai by a fraud posing as a customs officer who promised her gold at a cheaper rate, The Hindustan Times (HT) reported.
This of course does not mean that you can dump or delete notices from the Income Tax department, also under the Ministry of Finance, seeking information from you.
They will most likely be real though. Of course you should verify but don’t wait too long.
That’s it from me for today. Have a great day ahead and see you tomorrow..
