This week - News snippets - 18/04/2022-24/04/2022

1. China GDP: economy grew by 4.8 per cent in first quarter despite ‘complicated, uncertain’ headwinds

Skip to next paragraph for news. Gross domestic product (GDP) is the monetary value of all finished goods and services made within a country during a specific period. Of all the components that make up a country’s GDP, the foreign balance of trade is especially important. The GDP of a country tends to increase when the total value of exports is more than the value of imports, which is called as trade surplus. If opposite situation occur where the country’s imports exceed exports, its called trade deficit and the country’s GDP decreases.

During the fourth quarter of last year, GDP of China was 4%, In the first quarter of 2022 China GDP is 4.8%. Retail sales fell by 3.5 per cent in March last year, while industrial production grew by 5 per cent last month. 

2. China cuts reserve requirement ratio to boost economy, releasing US$83.2 billion into banking system

Skip to next paragraph for news. Central banks use different measures to control supply of money in the economy using monetary policy tools. When the economy is under inflation, Central banks use monetary policy tools to reduce supply of money and fight inflation and vice versa if they want to increase supply of money in the economy they use monetary policies such as low repo rates, lower reserve requirement ratios to increase supply of money and boost economy. The reserve ratio is the portion of reservable liabilities that commercial banks must hold onto, rather than lend out or invest. Increasing reserve requirement ratio will reduce amount of money commercial banks can lend to the public which decreases supply of money in the economy and vice versa.

China’s central bank last week announced a much-anticipated cut of its reserve requirement ratio (RRR), or the amount of cash that banks must hold in reserve, to shore up its slowing economy amid growing headwinds. People’s Bank of China (PBOC) said there will be a 0.25% point reduction, this will improve commercial bank’s liquidity to lend more money to the public in order to help sectors hit by the coronavirus pandemic. The 0.25 percentage point cut was below market expectations and comments by the PBOC imply there is limited room for further reductions in the RRR or interest rates.

3. EU (European Union’s) ban on Russian coal

Coal is seemingly the cheapest and most essential source of energy. The wide variety of uses from generating electricity, to production of Steel, Gasification and Liquefaction and Domestic Use makes coal an inevitable source of energy.

The EU imported 69 million tons of coal from Russia, making up 26.3 percent of the country's total coal exports. The ban came after pressure piled on Europe to ban imports Putin’s hydrocarbons, which Russia receives billions for, after Western counterparts like the US and UK took the lead. The move is designed to hit Russia in the pocket book, as it exports 4 billion euros ($4.4 billion) a year in coal to Europe. And after the European Commission proposed an import ban on Russian coal, coal prices in northwest Europe jumped to their highest level in one month.

By banning import of Russian coal, Europe has to fork out much more for shipping costs by importing coal from countries like South Africa, Colombia, the US or Australia instead. Oil and gas, which represent far bigger imports from Moscow, are still untouched. The ban would take full effect from mid-August, a month later than initially planned, two EU sources told Reuters.

4. HDFC Ltd to sell 10% equity in HDFC Capital to Abu Dhabi Investment Authority

HDFC Capital Advisors Limited, established in 2015, is a 100% subsidiary of HDFC Ltd, which provides investment management services for real estate private equity financing & is one of the largest private equity fund managers in the country.

HDFC ltd. India’s largest private sector bank to sell 10% equity of its subsidiary HDFC Capital. HDFC Ltd has entered into binding agreements to sell 10% of share capital of HDFC Capital Advisors Ltd (HDFC Capital) to a wholly - owned subsidiary of the Abu Dhabi Investment Authority (ADIA) for about ?184 crore. Supported by global investors like ADIA, the funds managed by HDFC Capital have grown to create one of the world’s largest private financing platforms for the development of affordable housing.  HDFC Capital will use ADIA’s global expertise and experience to further propel HDFC Capital towards becoming a leading investment platform for global and local investors.

HDFC capital manages $3 billion funding platform which has recently been rated as one of the world’s largest private finance platforms focused on development of affordable housing. HDFC shares were up 1.3% on Wednesday (20/04/2022) following the announcement.

4. Netflix shares crash 37% in a day!

Netflix, Inc. is an American subscription streaming service and production company. Launched on August 29, 1997. Netflix suffered its first subscriber loss in more than a decade, causing its shares to plunge 25% this week. Netflix’s customer base fell by 200,000 subscribers during the January-March period, according to its quarterly earnings report released Tuesday (19/04/2022).

The tech giant’s market capitalization stands now at about $ 100 billion. By far the smallest among so called FAANG (Facebook, Amazon, Apple, Netflix, Google). The next least valuable FAANG company is Facebook-owned by Meta, which worth about $550 billion as on Wednesday (20-04-2022).

Netflix's poor report and stock selloff impacted other streaming-related stocks: Walt Disney fell 5.8%, Paramount Global dropped 8.1%, Warner Bros Discovery fell 5.2% and Roku lost 5.8%. Netflix’s decision to discontinue it’s operations in Russia to protest the war against Ukraine resulted in a loss of 700000 subscribers, this year.

Rocked by the loss of subscribers the streaming giant has big plans for the future. Netflix has said that it will expand its test that charges members a higher price if they are engaged in account sharing with people outside their household. The company is also planning to extend it’s operation to gaming sector.

5. LIC IPO may get further delayed, affecting 3 other PSU IPOs!

Skip to 3rd paragraph for news. PSUs or Public Sector Undertakings are entities owned wholly or partly by the government. If establishments are wholly or partly owned by the central government of India then it’s called Central Public Sector Undertaking CPSU. While State Level Public Sector Undertakings (SLPSU, SLPSE) are wholly or partly owned by state or territorial government. There are 277 Central Public Sector Undertakings in India. Few examples of PSUs in India are Bharath Petroleum, GAIL, BSNL etc.

Skip to 3rd paragraph for news. An IPO (Initial Public Offering) is when a privately owned company makes it’s shares available to the public. The shares are purchased by both retail investors (individuals) and by institutional investors in the primary market. An IPO may be open for 3 to 10 working days, and post that the shares will be available in the secondary markets, where it can be traded in major stock exchanges.

The much-awaited initial public offer (IPO) of Life Insurance Corporation of India (LIC) is likely to be delayed into the next fiscal year due to high market volatility arising out of Russia's attack on Ukraine. The biggest IPO (Initial Public Offering) was set to be launched in March 2022. Sensex has lost 2,414 points or 4.21 per cent and Nifty has declined 684 points or 4 percent since February 24 when Russia started it’s military operations in Ukraine. The high volatility in the market is the reason behind the delayed IPO of LIC. If the volatility subsides the IPO could be held in April. However, there is no official announcement yet on the postponement of the share sale. The IPO size can be expected to range between 1 lakh to 5 lakh crore making it the largest IPO in India.

Uncertainties of LIC IPO has led to delay of IPOs of few other PSUs. IPOs of Export Credit Guarantee Corp. of India (ECGC), WAPCOS and National Seeds Corp. Ltd are likely to delay according to a senior government official.