Teji Mandi: Three things investors should know on December 10, 2020
Teji Mandi

Will 2020 be the best year ever for the tractor industry?

Tractor sales in the calendar year (CY) 2020 is likely to touch an all-time high. The optimism has jumped after the robust 51% sales growth in November.

CY 2018 was the best-ever for the tractor industry with domestic sales of 7.97 lakh tractors. In 2020, total tractor sales between January and November stands at 7.41 lakh units.

The data of 2020 is significant considering the washout first quarter under the impact of lockdown. The sales contribution from April and May is just 9% this year, down by almost 50% from the historical average of 17%.

The calendar year 2020 has a good chance to break the previous record of 2018. It requires sales of 56 lakh units to be the best year ever for the tractor industry. But, the ongoing farmers' protest is going to have a big impact on December month.

The trend in December could swing either way. Tractor sales could drop drastically due to reduced farm-related activities amid the protests.

On the other hand, tractors are the primary vehicles used for reaching the protest sites. If more farmers decide to participate in the protest, there could be a need for more tractors.

The impact could be on either side and it can be judged only post end of the month.

Cargo traffic remains subdued:

India's top 12 ports continue to remain under the adverse impact of the Covid-19 pandemic. The sector witnessed a considerable decline in cargo traffic for the eighth straight month in November.

According to the industry body IPA, the traffic at 12 major ports dropped by 10.53% YoY during the April-November period. Total volume came down to 414.30 million tonnes (MT) compared to 463.05 (MT).

The muted traffic volume at these ports is directly related to reduced international trade. It signifies that import-exports have not peaked yet and economic recovery is largely driven by domestic markets.

RBI proposes dividend caps on NBFCs:

RBI has released a draft circular on dividend payout ratio caps for NBFCs.

The central bank has proposed to cap the dividend payout ratio for NBFCs at a maximum of 50%. The dividend payout ratio will be based on capital adequacy ratio (CAR) and net NPLs (Non-performing loans).

The proposal bars NBFCs with CAR below 15% or net NPLs above 6% from paying the dividend. NBFCs will have to comply with these requirements for three consecutive years to be eligible for dividend payouts.

RBI's latest proposal is in line with its attempts to tighten the regulations for NBFCs. Post-IL&FS crisis, the regulator has introduced several guidelines to strengthen the NBFCs. It introduced the liquidity coverage ratio (LCR) guidelines, capped HFC leverage, and now prescribed dividend caps.

Such amendments are being required given the systemic risk that the NBFCs possess. They will bring NBFCs closer to the banking regulatory guidelines. And, help the industry to develop more resilience towards financial risks arising in the future.

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