In a big move, the government managed to push through two long-awaited reforms during the week. One – the Insolvency and Bankruptcy Code 2016 (which was ratified by the upper house of the parliament after passage by the lower house); two – it signed a modified tax treaty with Mauritius.
The much-awaited bankruptcy code will be able to provide a credible and orderly solution to the mountain of bad debts and help in tackling corporate indebtedness and under-recoveries.
However, the government did not introduce amendments to the Debt Recovery Tribunal (DRT) Act and the Sarfaesi (Securitisation and Reconstruction of Financial Assets and Enforcement of Security Interest) Act in the budget session. Unless the proposed amendments to these two related legislations become an act, quick recovery and write-down of debt will have to wait despite the bankruptcy code.
The Double Tax Avoidance Agreement (DTAA) has been structured in a way that will create minimal disruption, with tax rate in first two years being only half of normal rate; the full tax rate will be applicable from only FY19. The focus will gradually shift to other low-tax jurisdictions with which India has similar agreements, including Singapore, providing robustness and contemporariness to India’s tax system.
However, negative surprises towards the end of the week – higher retail inflation (up 5.4% YoY for April 2016) and tepid industrial output (barely 0.1% YoY up in March 2016) – took some sheen off the markets. Any further rise in inflation against the backdrop of hardening crude could make RBI cagey in its next monetary policy review despite tepid and volatile industrial output numbers.
Q4FY16 earnings result: Results of 69 companies (ex Oil) from our universe have largely been in line with expectations. Revenue and EBITDA growth of the sample has been a tad better at 12% (vs. 10% expected) and 15% (vs. 12% expected), respectively. Earnings growth remained sluggish at 4% YoY (vs. 5% expected).