All Newspaper editorials in one place – January 15, 2024




January 15, 2024

Prohibitive gains

Rising food prices may affect already weak consumption of goods


Inflation measured by the Consumer Price Index expectedly quickened to a four-month high in December, with the measure of gains in food prices accelerating at a relatively faster pace as inflation in cereals and pulses stayed stubbornly sticky. While headline retail inflation ticked up by 14 basis points from November’s level to 5.69%, price gains measured by the Consumer Food Price Index accelerated by 83 basis points from the preceding month’s reading to 9.53% in December. The upsurge in food prices was largely driven by cereals — the biggest constituent of the ‘food and beverages’ group — that logged 9.93% inflation. Though that pace was marginally slower than the 10.3% posted in November, the key sub-group that includes the staples of rice, wheat and coarser cereals continued to register a month-on-month rate of inflation that offered little comfort to households. Disconcertingly, sequential price gains accelerated the most in the case of jowar and bajra — by 63 and 106 basis points, respectively, from November’s month-on-month inflation rates. These two coarse cereals are consumed more widely in the rural hinterland, particularly by those already facing varying degrees of precarity. Price gains in pulses, a key protein source in vegetarian households, also accelerated to a 43-month high of 20.7%. With the current rabi season’s sowing of pulses as on January 12, almost 8% lower than in the corresponding period of 2023, the outlook for their prices in the coming months is far from reassuring.


Year-on-year inflation in vegetable prices also registered a dizzying almost 10 percentage points upsurge from November’s level, accelerating to a five-month high pace of 27.6%. Tomatoes and onions again led the charge, with their prices rising by over 33% and 74% from December 2022’s levels, respectively. However, reflecting the seasonal volatility that vegetable prices are prone to, prices of both the kitchen staples, as well as the broader sub-group, witnessed sequential deflation. While the month-on-month deflation in overall vegetable prices was 5.3%, the prices of potatoes, onions and tomatoes contracted from November by 5.9%, 16% and 9.4%, respectively. Still, the average retail price of a majority of the 23 food items monitored on a daily basis by the Department of Consumer Affairs continues to remain higher as on January 14 than the year-earlier level, reflecting the challenge policymakers face in containing food-price inflation. With households likely to spend larger shares of their incomes on food as these costs continue to rise, there is a real risk that the knock-on impact on already weak consumption can derail the broader growth momentum in the economy. And with the spiralling crisis in West Asia infusing a new level of uncertainty over global trade and energy costs, policymakers have their task cut out.





January 15, 2024

Closer to closure

Terror networks can be dismantled only by disabling those at their top


The long arm of the law finally caught up with Savad, a fugitive in the notorious case of chopping off the palm of a college professor in Kerala’s Thodupuzha, 13 years after the crime. Sleuths of the National Investigation Agency (NIA) arrested him, the first accused, from a village in northern Kerala’s Kannur where he was living under a fake identity, on January 10. The agency will rightly seek his custody in order to unearth the latent network of the banned Popular Front of India (PFI), which is believed to have planned the barbaric assault on the professor in July 2010 and arranged for Savad’s life in hiding thereafter. Religious extremists targeted Professor T.J. Joseph on his way home from church for drafting a question paper with supposedly a ‘blasphemous’ reference to the Prophet; actually, it was an adaptation of a passage from an essay on a screenplay written by noted Malayalam film-maker P.T. Kunju Muhammad. The State was able to ensure that the incident did not spark communal tensions, but it set off a series of irreversible losses for the professor. With the Catholic church, which managed the college where he was teaching, turning its back on him, he was terminated from service, with a recall on the eve of his retirement made possible, ruefully, by the suicide of his disconsolate wife, as he recalls in his memoirs, ‘A Thousand Cuts’ (2020).


The NIA took over the investigation in 2011. While it was able to get the conviction of 19 of the accused for various offences including those under the Unlawful Activities (Prevention) Act in the two-phase trial, the fact that the key accused remained at large prevented its closure. The agency announced a bounty of ₹10 lakh for information on Savad. His arrest has shifted the focus to the conspirators who masterminded the assault and the underlings who harboured him. Given that it was the outlawed Students Islamic Movement of India that metamorphosed into the National Development Front and subsequently into the PFI, the key to averting its resurgence in another avatar lies in uprooting the entire network of its underground supporters. Prof. Joseph has, as his words suggest, overcome any ill-will or feeling of vengeance towards his assailants, but he rues that action against the foot soldiers of religious terror would not guarantee peace and harmony in society. For that to happen, their handlers should be brought to book. It is vital that the NIA stays the course and prosecutes the key accused. The terror network that plotted the heinous attack must be disabled entirely.





January 15, 2024

Bridging capacity

Atal Setu is a significant step in India’s bid to project itself as a key investment destination


LAST WEEK, THE country’s longest sea bridge, the 22-km long six-lane Atal Setu was inaugurated. Formally called the Atal Bihari Vajpayee Sewari-Nhava Sheva Atal Setu or the Mumbai Trans Harbour Link, the bridge has been built at a cost of Rs 17,840 crore. By using it, commuters will be able to cut the travel time between central Mumbai and the fast-growing Navi Mumbai from 2 hours to about 20 minutes. But viewing the Atal Setu merely as a way to decongest the traffic woes in India’s financial capital would be akin to missing the forest for the trees. It is indeed another key step in India’s bid to transform not only its physical infrastructure but also its global image as an investment destination.


While inaugurating the bridge, Prime Minister Narendra Modi said the “Atal Setu is the picture of developed India. This is a glimpse of what a developed India is going to be like.” Over the past decade, the government has carried out structural reforms that will pave the way for India’s economy to realise its full potential. In the wake of the Global Financial Crisis of 2008, India’s growth story faltered as the economy faced the twin-balance sheet problem — private businesses were over-leveraged while most of the banks were weighed down by non-performing assets. These factors threatened to drag down India’s ability to become an international investment destination and compete with the likes of China. As things stand today, Indian banks have been nursed back to health, and they are both ready and capable of financing India’s growth. In the meantime, the government has taken a lead in boosting infrastructure. It has done this both by allocating an increasing amount of resources towards capital expenditure as well as improving the implementation of such projects. Most metrics suggest that be it roads, railways, ports, airports or bridges, the pace and quality of construction has risen sharply from the long-term average. What’s more, this pace of infrastructure creation is set to increase.


Focus on boosting infrastructure — be it physical or digital — is of paramount importance if India wants to truly take advantage of the disenchantment with China that’s setting in several parts of the world. Developed country markets and investors are looking for countries that can replace China in the global supply chain. India can leverage this opportunity to become a developed country in the next quarter of a century if it can find a way to match its existing advantages of a young and ambitious labour force, a free-market economic system and a vibrant democracy with the kind of infrastructure these deserve. However, a bulk of the capacity enhancements are a result of direct government spending. In an emerging economy, there are limits to how long the government can go all by itself. For sustained growth, the private sector needs to step in as well.




January 15, 2024

The moral police again

Attacks on interfaith couples in Karnataka follow disturbing logic of ‘love jihad’. Criminal justice system must respond


ACROSS STATES, INDIVIDUAL rights — including those enshrined in the Constitution — seem to be under constant threat from the mob, acting as a self-styled moral police. Last week, two horrific incidents of assault in Karnataka underlined, once again, the disturbing intolerance for inter-faith relationships among consenting adults — real and imagined — and the casual resort to violence. In these cases, the criminals objected to Muslim women being involved with men from other communities. Their logic is the same as those who raise the bogey of “love jihad” and the prevalence of this disturbing phenomenon across communities and geographies needs a more robust response from the criminal-justice machinery.


On January 13, seven men were arrested after they assaulted two people—mistaking them for an inter-faith couple—at a park in Belagavi city. The young Muslim woman was with her cousin, a Hindu. A day later in Haveri district, five men barged into a hotel room and allegedly assaulted a man and attacked and raped the woman. They recorded and circulated videos of their criminal act. State Home Minister G Parameshwara said the law will take its course. Perhaps it will. But the violence on couples for “love jihad” in UP, Haryana, Rajasthan, or in the case of Karnataka between Muslim women and non-Muslim men, the casual manner in which incidents of violence are recorded and distributed online, call for a broader response. Chief Minister Siddaramiah had promised action against such crimes when he took office. Thus far, it seems his government has fallen short. Instead, his colleague, Parameshwara, is engaging in whataboutery by asking, “Weren’t there crimes against women doing BJP’s rule”.


Governments—whether of the Congress, BJP or any other party—need to draw sharp lines. Leaders and parties cannot hint at even tacit support for such acts of violence. Unfortunately, many of those who have sworn their oath on the Constitution have equivocated on the issue of inter-faith and sometimes, even inter-caste relationships. Another disturbing aspect of the attack in Haveri was the culprits using the internet to broadcast their crime. The misuse of technology in this manner requires the police to increase their capabilities in dealing with cybercrime. Campaigns that address the stigma that often gets attached to victims of sexual violence must be launched. As of 2021, the conviction rate in India for crimes against women was an abysmal 26 per cent. That figure represents a shortcoming that must be urgently addressed by investigating and prosecuting agencies. For the broader political class and civil society, the task is simple: The freedom of choice of individuals must be protected, not sacrificed at the altar of thin-skinned prejudice.





January 15, 2024

Space For Growth

Combined government debt level is at a record high. It needs to come down to enable private investment


Indian economy is in a sweet spot. It’s once again the fastest growing major economy in the world, and almost all macroeconomic parameters are sound. The exception is the level of debt GOI and states have accumulated. Unless it’s brought down, we won’t make most of the current opportunity.


Debt level has soared | Debt levels began to worsen just before the pandemic, in 2019-20. Since then, it hasn’t been brought under control. Combined government debt in 2022-23 was 86.5% of GDP, one of the highest in four decades. It was marginally higher than the debt of 85.2% of GDP recorded in the previous year.


Two deficits have diverged | India’s fiscal problems have usually been accompanied by an energy shock. Higher international energy prices usually lead to governments loosening fiscal control. This time it has worked the other way. We are into the 10th year of a relatively favourable energy environment, the annual average crude oil price has been less than $100/barrel. Consequently, the current account deficit as a percentage of GDP has been less than 2%. However, the combined government fiscal deficit of governments has been relatively high at 9.4% of GDP in 2022-23.


Stepping into the breach | One of the reasons for the high debt level of governments has been the effort they have made to compensate for a low level of private investment. Following the clean-up of balance sheets undertaken by banks and private firms, investment levels in the economy declined. It’s public investment that has checked and then reversed the decline.


Investment still not high | Total investment in the economy as a proportion of GDP is around 32%. Around 2011-12, it was around 38-39%. Governments have done much of the heavy lifting in the last decade. To this, add the economic outlook that has now turned more favourable. Typically, it should draw in more private investment. However, if the government debt level doesn’t reduce, additional private borrowing will push up interest rates disproportionately.


Road map for debt reduction | The forthcoming budget needs to highlight a road map to lower combined government debt. This is necessary to create space for sustained private investment. Without this space being created, high interest rates will limit economic potential the current moment offers. Fiscal constraints have earlier derailed economic growth momentum. Both GOI and states need to act early to ensure it doesn’t happen again.





January 15, 2024

RG Walks, Deora Too

Rahul’s “apolitical” yatra has a tough political job. And Milind sends a message


Rahul Gandhi began his second yatra, Bharat Jodo Nyay Yatra, a bus and on-foot journey over 6,700 km from Manipur to Maharashtra, with a moment’s silence remembering those killed in Manipur’s ethnic violence since last May.


Message in Manipur | Congress has often highlighted the crisis in the northeastern state, breakdown of inter-community ties and tolerance, and called for “justice in Manipur”. Sporadic violence still claims lives, and slow go investigations into violence that rendered thousands refugees.


Message from Mumbai | But ex-MP Milind Deora jumping ship to join Eknath Shinde’s Shiv Sena hours before journey’s start flashed its own message from the yatra’s endpoint. Coming as it did a day after party chief Mallikarjun Kharge was made convener of INDIA bloc, Deora painted his politics, plight and flight in acronyms GAIN and PAIN to highlight that Congress’s house was not in order.


Message from BJY | Rahul Gandhi’s 4,000 km Kanyakumari to Srinagar walkathon had a positive impact on his image, bringing him recognition that eluded him for years and brought Congress some electoral dividend – election wins in Karnataka and Telangana at least.


Does Deora’s exit matter? | In letter, perhaps not – the son of late Congress veteran Murli Deora lost both 2014 and 2019 LS contests to a Uddhav Sena nominee. But in terms of optics, the signalling of loss, certainly. A winning party does not lose old-timers. Its recent-most losses in direct fights with BJP in MP, Rajasthan and Chhattisgarh have already made its task to a) lead the opposition front and centre and b) convince voters, that much harder.


The new yatra cuts through India’s belly, covering 15 states – and practically all of India’s tribal belts. The test is again Rahul Gandhi’s to cover as much ground and cover Congress’s losses.





January 15, 2024

India Shows Serious Affluenza Symptoms

Goldman Sachs identifies a rich trajectory


The Goldman has spoken. According to the Goldman Sachs report, ‘Affluent India’, released last week, Indians earning more than $10,000 annually will number 100 million in the next three years, from its current 60 million. In absolute numbers, we are looking at a nation that is rich, if not yet a rich nation. India’s consumption growth at either end of its income spectrum is diverging even after the wealth redistribution effects of the pandemic recede. This follows the underlying divergence in real incomes, which has been opening up. Less than 5% of Indian consumers have incomes approaching upper-middle-income country thresholds. But this cohort is growing at rates much faster than any other segment of the consumption pyramid. This is driving the growth of aspirational brands as well as premium offerings in product portfolios of companies. Producers are using their consistent pricing power in this segment to cross-subsidise and promote consumption lower down the income scale. Thus the eight pick-up stocks by Goldman for being ‘high-quality businesses with strong competitive advantages, proven track records of past performance and market leadership within their segments’. The role of an affluent tip in overall consumption depends both on its critical mass and the intensity of consumerism. On either count, India’s top cohort trails in international comparison. Structural factors driving income divergence will drive up the numbers. But deeper income and wealth effects would be required to attain spending intensity. India’s growth outperformance should be able to sustain the effects of the income effect.


The economy is swivelling to the needs of big spenders, be it for SUVs, condominium living, branded healthcare, high-end holidays or ordering in fine dining. This demand has considerable linkages in manufacturing and services industries, which can offer bridge value offerings like premium economy air travel and crossover automobiles. Pure lifestyle consumption is still some way off. But India is, indeed, stricken by affluenza.





January 15, 2024

Developing the Right Sense of ‘Developed’


As India works to become a developed country by 2047, it must not forget that quality of life, improved living standards and ease of living are parameters as important as, if not more than, per-capita income. This is the context in which the Supreme Court’s stay on the post facto green nod for projects or mandatory implementation of good manufacturing practices ‘Schedule M’ must be understood. Government and businesses alike must assess their efforts to improve gross national income against the cost to quality of life. The increased cost is not a burden but an investment in improving productivity, life expectancy and general quality of life, all markers of a developed economy.


To be considered developed, per-capita GDP will need to increase from around $2,500 to nearly $22,000. In the climate-constrained, sustainability-oriented and well being-focused world, environment, health and education are important considerations. Going ahead with projects, no matter how critical, without environmental safeguards undermines the goal of development. Mining projects, for example, impact quality of air, hydrological systems or fresh water access, and soil health — affecting the air we breathe, the water we drink and the food we eat. It must no longer be ‘better to ask for forgiveness than permission’ because it impoverishes quality of life. GoI’s decision making good manufacturing practices mandatory for all pharma units — implemented in a phased manner keeping capacity in mind — is critical. These have a bearing on quality of life and productivity that have a direct impact on economic growth.


These interventions must be viewed not as bothersome hurdles to growth but as guard rails that keep India on the path towards its goal of Viksit Bharat by 2047.




January 15, 2024

Maldives muddle

Tricky period for Indo-Maldivian relations


India’s relations with Maldives is on the rocks. After President Mohammed Muizzu swept into power in November last riding on an “India Out” campaign, the relationship has steadily been going downhill. The Muizzu government’s diktat to India on Sunday to withdraw troops by March 15 is the latest salvo in what is fast becoming a fractious relationship between the two nations.


It’s worth examining the seriousness of the matter. In order to do that it is necessary to see why Maldives matters to India and the world. After all, it’s such a tiny country, the second smallest country in the world with a population of 600,000. Eighty per cent of the national revenues come from tourism. A whopping 1.8 million tourists went there last year. The 200,000 Indians who went there last year make up the largest group. India is also a source of emergency drinking water supply. In the past, India has been an all-weather friend. Maldives, despite its minuscule size, commands clout because of its 800 km long exclusive economic zone and its strategic location. Its largely uninhabited 35 islands are perfect for setting up different types of military and civilian installations. If required, they can be used as stationary and unsinkable aircraft carriers — unsinkable, until the rising sea level claims them eventually.


So from an international geostrategic view, Maldives is enormously important. Maldives was an Indian ally for over five decades. But that alliance has been under strain since China started wooing the Maldives 20 years ago. Like Sri Lanka some years ago, Maldives, too, has moved under the Chinese umbrella, becoming a part of the BRI. This is bad news for India whose current political choices make it easy for rivals to exploit dormant anti-Indian sentiments in Islamic countries in the neighbourhood. Their politicians with an eye on the main chance are the beneficiaries.


What we need now is mature diplomacy from India that will see the relationship through without serious damage until the next change of government in Maldives. The tasteless comments from Maldivian ministers and the subsequent outrage in India in the last fortnight after Narendra Modi’s visit to Lakshadweep have only complicated an already troubled relationship after Muizzu moved into power. India is in an unenviable position, reminding one of the relationship with Sri Lanka under Mahinda Rajapaksa when the island nation moved into China’s orbit. The consequences of that disastrous move for Sri Lanka are now evident. It can only be hoped that the Muizzu government will learn from the Sri Lanka experience and tone down the anti-India rhetoric and actions. Geographical realities cannot be wished away even if Muizzu were to funnily believe that the Indian Ocean is not India’s backyard. India is really the “911” help, as one Maldivian Opposition member remarked. It is never smart to antagonise your friendly neighbour who’s the first to help you in a time of need.





January 15, 2024

Turnaround awaited

Demand environment remains challenging for IT


The third-quarter results of the big four information technology (IT) companies, read along with their respective management commentaries, indicate that the industry believes the worst of demand slowdown to be over. However, these companies remain notably cautious in their expectations of short-term demand revival. Tata Consultancy Services (TCS), HCL Tech, Infosys and Wipro all met or exceeded the consensus revenue expectations. They also more or less met profit and margin expectations. Given the surprisingly strong performance of the US economy, which is the key market for Indian IT, investors were also expecting strongly optimistic guidance. However, while management commentaries are positive in stating the worst of demand and margin compression is over, no company seems to believe there will be an immediate surge in demand. Indeed, at least two companies said the trend of clients deferring discretionary spending was still there.


On the plus side of the ledger, they all see steady traction in new lines such as artificial intelligence (AI), and Cloud-based products in HCL Tech’s case. They also appear to be confident about the respective pipelines in terms of new deal wins. TCS, which has the biggest European exposure, says EU spending may be normalising after two bad years. Three of the large companies saw reductions in headcount continuing but the pace of workforce contraction slowed. HCL Tech was the only firm to increase its net headcount. It also had the best results by both revenue growth and margin improvement. However, the company’s management said the demand environment had not seen much visible improvement.


Attrition has dropped perceptibly across the industry, going by the churn rates, which are now in the 12-15 per cent range. But this is also symptomatic of a slow-demand scenario since attrition invariably increases when the industry is seeing high demand. Management commentary from TCS and explicit revenue guidance from the other three companies indicate all four have maintained future revenue expectations. But none of them has claimed any visibility of stronger revenues in the near term. All are witnessing great interest in AI among clients, but that is not necessarily translating into big orders yet. Some clients are also looking at another round of Cloud migrations. In the somewhat longer term, sustained growth in the US, along with low inflation, could lead to demand acceleration. Clients that have deferred discretionary spending may start negotiating deals again.


However, certain changes in the past two or three years could have a long-term structural impact on the IT services market. More and more large organisations have invested resources in developing internal competencies, leading to a proliferation of global capability centres (GCCs). By definition, this will mean less outsourcing demand. Many organisations have also completed their migration to the Cloud, which may impact demand in this segment and reduce the need for future outsourcing. AI has not yet started to make large contributions to revenues and profits, though this is a growth area. The big firms may all be displaying abundant caution in their management commentary and guidance. And they could deliver positive surprises if the long-awaited upcycle arrives. However, they need to review business models in light of the structural changes implied by AI adoption and a move to GCCs.





January 15, 2024

Auditing the auditors

Conflicts of interest must be avoided


The National Financial Regulation Authority (NFRA), which is in charge of supervising accountancy in India and regulates firms providing such services, in late December released a report that shook up the country’s financial establishment. The report looked at the Big Four network of accounting firms: BSR & Company, Deloitte Haskins & Sells, SRBC & Company, and Price Waterhouse Chartered Accountants. It is worth noting that some of these names might be unfamiliar because they are part of, or related to, larger global groups with a far better-known brand name. SRBC is related to EY and BSR to KPMG.


The fact that these companies have names different from how they are generally known is not completely irrelevant to the point that the regulator wished to make. The broad point behind accounting firms is that they must provide independent and unbiased auditing services. They are, like credit-rating agencies, a vital component of a well-functioning market. If such companies do not maintain a proper distance from the companies they are auditing or rating, problems can build up, leaving investors and shareholders unaware of them. When major corporate scandals break out, at the heart of the difficulty is often the failure of an accounting firm to identify the problem early on. The NFRA, for example, pulled up the auditors of Infrastructure Leasing & Financial Services (IL&FS) when the big non-banking financial company collapsed a few years ago. On that occasion the regulator had said the auditor did not have adequate justification for saying its audit report on IL&FS had followed the usual standards. In the present market system, auditors are the first line of defence for stakeholders.


The NFRA, when examining these big accountancy firms, their portfolio of businesses, and their relations with a larger group of businesses, noted this principle of independence might have been violated. The regulator’s concern is that if an accounting firm or a company in the accountant’s network earns income from consulting with a firm in other capacities, then its incentives for independence as an auditor are misaligned. A conflict of interest evolves, and that must be addressed through regulatory intervention. No specific and drastic intervention has been prescribed. But a warning shot has certainly been fired at the big firms, particularly in the context of Section 144 of the Companies Act, which specifically bans accountancy firms from offering non-audit services to their audit clients. The grey area is what happens immediately before and after an accountancy firm becomes an official auditor to some client, and whether other companies in their network group can offer such non-audit services instead.


Even if efforts are made to keep the audit and non-audit offers in a network separate, the history of such “Chinese walls” is not encouraging. In the case of BSR, for example, the NFRA has specifically said that its claims to being an entity separate from those parts of the KPMG India network do not stand up to scrutiny. The regulator’s observations and some of the auditors’ reactions suggest there is scope for improving regulatory and legal clarity. Some of the companies have been given time to clean up their act. There is, however, no doubt about requirements for a complete separation of the audit business and other functions.





January 15, 2024

Ease of listing

The suggestions of an expert committee set up by Sebi should help the start-up universe


WITH MANY MORE start-ups now listing on the country’s exchanges, the capital markets regulator has been revisiting the rules at regular intervals. An expert committee set up by the Securities and Exchange Board of India (Sebi) has now recommended that the rules relating to the minimum promoter contribution of companies at the time of an initial public offer be relaxed. It has been suggested that any non-individual public shareholder, which would hold 5% or more of the post-offer equity share capital, should be permitted to contribute towards the shortfall in minimum promoters’ contribution without being identified as a promoter. This would be subject to the existing cap of 10%. Such equity shares that would be contributed towards the shortfall in minimum promoters’ contribution should be eligible under Regulation 15.


The discussion paper floated on Friday has explained the rationale for the suggestion, saying that companies often have several rounds of fund-raises prior to listing, and as such the promoters’ holding may fall short of the minimum promoter contribution. This is true, and a lower contribution than the required level of 20% of the post-offer equity share capital should not come in the way of a listing on the bourses. The rules of the ICDR— Issue of Capital and Disclosure Requirements—do allow for some categories of investors, such as alternative investment funds, venture capital firms, commercial banks and insurers to contribute to the shortfall. However, broad-basing the shareholding would be welcome; ultimately, any category of public investors should be permitted to contribute to the equity. The fact is that investors are now mature enough to judge for themselves whether the promoter has enough skin in the game. Abroad-based shareholding doesn’t necessarily mean promoters are not committed. Moreover, shareholders with a bigger stake tend to trade less frequently, so the stock would be protected from volatility.


Another of the panel’s recommendations to the effect that equity shares, received on conversion or exchange of fully paid-up compulsory convertible securities and depository receipts held for more than one year, be counted as equity shares for the purpose of minimum promoters’ contribution is also welcome. Again, this could help broad-base the ownership of the entity and also enable serious investors to participate in the issue. The panel has also attempted to ease the process of filing offer documents for fund-raises.


Currently, a draft offer document needs to be filed afresh if, for a fresh issue of shares, there is any increase or decrease in the estimated size by more than 20%. In the event of an offer for sale (OFS), any increase or decrease in either the number of shares offered for sale or the estimated issue size, by more than 50% calls for the documents to be re-submitted. The panel has said that for an OFS, the size can be based either on the estimated issue size (in rupees) or the number of shares, as disclosed in the draft red herring prospectus, and not on both criteria. However, it has also rightly pointed out that since the purposes for which the money is being raised, might get impacted, further consultation would be needed on this subject. Market experts had suggested the limit for changing an issue of fresh shares should be raised to 3 5%. While companies need to be circumspect while deciding the quantum of the issuance, more flexibility is warranted as the secondary markets can be volatile, thereby impacting IPOs.




January 15, 2024

Citigroup’s goal is clearer, but getting started is hard


For all the talk of soft landings, things still look pretty bumpy for Citigroup Inc. It stood out among four big US banks Friday by reporting a surprise loss in the final quarter of 2023 and missing expectations on several other fronts.


There were wrinkles in the earnings at all four lenders, including the nearly $ 9 billion they collectively had to pony up in special funding for the Federal Deposit Insurance Corp. Even pack-leader JPMorgan Chase & Co. came in below forecasts for fourth-quarter profits, although it still recorded the greatest full-year profit in US banking history at $49.6 billion.


Citigroup’s performance underlined the struggles it faces in Chief Executive Officer Jane Fraser’s radical restructuring that targets double-digit returns on equity by the end of2026. If there was a positive in the bank’s results, it was the medium-term cost targets that light a clearer path to how it might meet Fraser’s ambitions.


The new details involve cutting 20,000 jobs after several thousand layoffs were announced last year and reducing its expenses to between $ 51 billion and $ 5 3 billion by 2026. Costs in 2023 were $54.7 billion excluding its $1.7 billion payment to the FDIC. The job cuts are expected to save about $2 billion per year, which gets Citigroup most of the way to its target However, it will have to battle ongoing inflationary pressures in staff costs, too.


If Citigroup fixes its costs, it will still need to grow revenue by about 4% per year— matching what it managed in 202 3—to make the 11% return on tangible equity Fraser has pledged. This also assumes that total costs for bad credit remain at about $ 9 billion annually, which was the level for 2023 and is similar to consensus analyst forecasts for loan-loss provisions in each of the next two years. But if revenue comes up short, or debt losses are worse, it’ll miss the mark.


Citigroup’s first hurdle to growing revenue is the peak in US interest rates, which will end the strong growth in net interest income that the biggest banks have enjoyed for the past 18 months or so.


JPMorgan CEO Jamie Dimon has been saying for months that big banks are over-earning on interest as yields on lending have risen faster than their costs of funding. He repeated that message as JPMorgan recorded its seventh-straight quarter of setting new records for this kind of revenue. The bank now expects net interest income to fall in each quarter in 2024 as deposit costs continue to rise, although it still forecasts $88 billion for the full year, only slightly behind 2023’stotal.


Citigroup also continued to grow interest income in the fourth quarter, in contrast to Bank of America Corp. and Wells Fargo &. Co., which both saw declines versus the same period in 2022. All these banks are likely to lose ground in 2024 if the Federal Reserve cuts interest rates as expected.


Where Citigroup most disappointed investors in the fourth quarter was in financial markets and wealth management. Its revenue from trading bonds and currencies was down 25% in the final three months of 202 3 compared with the previous year, which Chief Financial Officer Mark Mason put down to a surprising drop off in activity among clients. Its performance was much worse than peers, however, suggesting the shortfall was specific to Citigroup. Mason insisted on a call with reporters that uncertainty created by the bank’s restructuring wasn’t to blame.


Still the differences in the fourth quarter were notable: Fixed-income trading revenue at Bank of America was down only 4%, while JPMorgan reported a jump of nearly 8% to set a new record for the final quarter of a year.


Another big disappointment was the wealth business, which Fraser has held up as one of her main hopes for boosting growth and returns. Revenue fell, costs rose and profits in the division for 2023 dropped by more than half versus 2022. Andy Sieg, hired last year from Merrill Lynch Wealth Management to run that division, has his work cut out. Fraser and Citigroup have a narrow path to reach the 11% returns target—which would still only just about beat the 10% cost of equity that investors typically assume for banks. For shareholders, at least that path is now more clearly defined.