On this week’s wrapup, we have stories about corporate tax cuts, the government’s plan to run a fire sale, PMC Bank fiasco and a review of the IRCTC IPO.
The problem with waking Animal Spirits
On Monday we began by discussing the downsides of a corporate tax cut. Now it’s no secret that the government has been touting this as a potential game-changer. And to be honest with you, it probably is. In fact, even we covered this last week and talked about how the move could potentially revive demand and maybe spur corporates to invest more.
But here’s the thing. It also means that the government will have to take a serious hit on its coffers. They are currently foregoing 1.45 Lakh crore in revenues while explicitly stating that they have no intention to cut down on spending. This is a rather risky bet. How risky exactly? Well, for that you’ll have to read the full story here.
The Great Purge
On Tuesday, the focus was privatisation. There were news reports indicating that the government was going big this time, with plans to sell Air India, Bharat Petroleum Corp. and other government-owned entities by March 2020. It's obvious now. The government’s plan is to get out of these companies as soon as possible while making as much money in the process.
The question, however, is this — How do you sell an Air India, especially when it’s saddled with so much debt and bleeding money all the time?
Well, we hate to break it to you but there is no clear cut answer here. What we can do however is consider a few possibilities that could play out and that's exactly what we did with Tuesday's newsletter.
The Rs. 1,000 Panic Attack
On Wednesday, we had to cover the heart-wrenching story of PMC Bank and its many depositors who were caught stranded in the middle of nowhere. After the RBI stumbled upon discrepancies in the banks' finances, it forced the company to cease all operations and imposed a Rs. 1000 withdrawal limit (for 6 months) on the bank’s customers.
The story was hard to assess at first because it seemed like the RBI was punishing customers for what was clearly the bank's fault. But our focus was to try and understand what could have led RBI to impose these restrictions in the first place.
We figured it’s because the bank is running out of money. And until it finds a way to fix its finances we don’t think they’ll be able to service all the withdrawal requests. And that means the withdrawal limit is likely to stay until something miraculous transpires, like a bailout maybe? Anyway, you can read more here.
Note: The RBI has since raised the withdrawal limit from Rs. 1000 to Rs. 10,000.
The Economic Implications of Climate Change
Thursday’s story was a bit different. There’s been a lot of chatter about climate change of late and the main contention here is that people aren’t acting now because it’s too costly to change. So we wanted to find out how costly it would be if we did not change. And that formed the basis of Thursday’s newsletter-The Economic Implications of Climate change.
The IRCTC IPO
Friday we had a special story. India’s favourite railway company IRCTC was trying to raise money from the public and we had to cover this story. Now some people were miffed that we made no recommendations and that this beats the purpose of an IPO review.
And they’re right. We didn’t tell you what to do and we probably never will.
Because that is our mandate. We don’t make stock recommendations. It’s why people read us and keep coming back to us. I mean it’s not like you can’t cover companies without the whole buy/sell charade. There’s a 300-page offer document IRCTC has put out and it looks like it’s written in Old Latin. Our job is to take that vile looking thing and make it more accessible i.e. condense it into a 1000 word crisp lucid note.
That is it — we simplify. Nothing more, nothing less. Hopefully, we can stick to it without having to betray everything we stand for.
If you want to know more about why we think this way, here’s a story we wrote on Finception aeons ago. It offers a glimpse into our world.
Also, if you are one of those people who’s keen to understand what IRCTC is up to, you should definitely check out our special edition story right here.
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Alright then. That’s it from us this week. We hope you stay chirpy :)
Until Monday….
