Month: September 2024

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L&T joins semiconductor bandwagon, plans to become fabless chipmaker with $300-mn investment

Larsen & Toubro Ltd. plans to invest more than $300 million to create a chip company, joining other Indian conglomerates in their push to develop a semiconductor industry in the world’s most populous country.

The tech-to-construction company will allocate these funds over the next three years to establish a fabless chipmaker. This venture will focus on designing and selling semiconductors, while outsourcing their production. According to Sandeep Kumar, head of L&T Semiconductor Technologies, the company aims to design 15 products by the end of this year, with sales expected to begin in 2027.

Both global and local companies are trying to capitalize on India’s initiative to build domestic semiconductor capacity and reduce costly imports, by leveraging government subsidies. The ongoing tensions between Beijing and Washington are prompting electronics manufacturers, including chipmakers, to diversify beyond China and Taiwan, positioning India as a potential beneficiary.

L&T’s investment, however, is modest compared to the outlays of leading fabless chipmakers such as Nvidia Corp. and Advanced Micro Devices Inc. The Indian company is focusing on products like power chips, radio-frequency semiconductors, and mixed-signal integrated circuits, rather than AI-driven graphics processing units.

“Automotive, industrial, and energy — these are the sectors we’ve chosen because they are undergoing significant transformation,” said Kumar. “There’s an opportunity to compete, succeed, and potentially capture the market.”

Semiconductors have become an essential resource globally, especially as the US-China trade war threatens to further increase the cost of chip imports. Several countries, including the US, Germany, Japan, and Singapore, are ramping up their domestic chipmaking efforts to secure a steady supply of these components, which are critical for technologies ranging from AI to electric vehicles.

L&T Semiconductor Technologies currently employs about 250 people, most of whom are chip designers. According to Sandeep Kumar, the company plans to double its workforce by the end of 2024.

Kumar also mentioned that the company has urged the Indian government to provide subsidies or incentives specifically aimed at supporting chip design for large companies. However, L&T Semiconductor Technologies will not seek external funding and will remain within the financial support of the L&T group.

Prime Minister Narendra Modi’s administration has introduced a $10 billion program aimed at attracting chipmakers and their suppliers to India. This initiative has already prompted the Tata Group to build the country’s first major chip factory, while US-based memory maker Micron Technology Inc. is establishing a $2.75 billion assembly facility in Gujarat, Modi’s home state. Additionally, the Adani Group is planning to construct a chip plant in partnership with an Israeli company.

India remains open to expanding the $10 billion semiconductor fund. This was confirmed by the head of a state agency responsible for approving funding for chip projects during a public briefing earlier this week.

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GST Council Meet Led by FM Sitharaman Begins: Key Expectations Unveiled

The 54th meeting of the GST Council, chaired by Finance Minister Nirmala Sitharaman and comprising state ministers, began on Monday.


The Council is expected to deliberate on a range of issues, including the taxation of insurance premiums, the Group of Ministers’ (GoM) recommendations on rate rationalisation, and a status report on online gaming, according to PTI sources. The fitment committee, which includes central and state tax officials, is expected to present a report on the GST levied on life, health, and reinsurance premiums, along with the revenue implications.


Key Expectations from the GST Council Meeting:


1. Tax Reduction on Health Insurance: The Council will decide whether to reduce the current 18% GST on health insurance or provide exemptions for certain categories of individuals, such as senior citizens.

   

2. GST Cut on Life Insurance Premium: There will also be discussions on the possibility of reducing GST on life insurance premiums.


In the fiscal year 2023-24, the Centre and states collected Rs 8,262.94 crore through GST on health insurance premiums, while Rs 1,484.36 crore was collected on GST for health reinsurance premiums.


The issue of taxing insurance premiums has been raised in Parliament, with opposition members calling for health and life insurance premiums to be exempt from GST. In response, Finance Minister Nirmala Sitharaman noted that 75% of GST collections go to the states and suggested that opposition members bring their proposals to the GST Council through their state finance ministers.


West Bengal Finance Minister Chandrima Bhattacharya raised this issue in the GoM’s meeting on rate rationalisation last month, and the matter was referred to the fitment committee for further data analysis. The GoM had recommended against changing the current four-tier GST slab structure of 5%, 12%, 18%, and 28%, but asked the fitment committee to explore any potential for rate rationalisation on goods and services.


GST Expectations on Online Gaming:


Regarding online gaming, central and state tax officers will present a “status report” to the GST Council, which will include revenue collection data from the online gaming sector before and after October 1, 2023.


As of October 1, 2023, entry-level bets on online gaming platforms and casinos are subject to 28% GST. Prior to this, many online gaming companies argued that differential tax rates applied to games of skill and games of chance, resulting in non-payment of the full 28% GST. The GST Council clarified in its August 2023 meeting that online gaming platforms are required to pay 28% tax, and Central GST laws were amended to enforce this.


Additionally, offshore gaming platforms are required to register with GST authorities and pay taxes. If they fail to do so, the government has the authority to block their sites. The Council had agreed to review the taxation on the online gaming sector after six months of implementation.


PTI sources suggest that while the Council will discuss the status of taxation on the sector, any changes in tax rates are unlikely at this time.

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Bajaj Housing Finance IPO Kicks Off Today; GMP Hints at 73% Upside

Bajaj Housing Finance is set to launch its initial public offering (IPO) on Monday, September 9. Ahead of the public issue, the grey market premium (GMP) for the company’s shares stands at Rs 51-52, indicating a potential upside of 73% above the issue price.

The price band for the IPO has been fixed at Rs 66-70 per share.

Promoted by Bajaj Finance and Bajaj Finserv, the company aims to raise Rs 6,560 crore through the IPO. This includes Rs 3,560 crore from fresh equity sales and a Rs 3,000 crore offer for sale (OFS).

As of 11 AM on the opening day, the Bajaj Housing Finance IPO had received bids for over 17.18 crore shares against the 72.76 crore shares on offer across both NSE and BSE.

In terms of subscription, the Non-Institutional Investors (NII) category had received 54% subscription, while the portion allocated for Retail Individual Investors (RIIs) was 29% subscribed.

The IPO has a price band set at Rs 66 to Rs 70 per share. It comprises a fresh issue of equity shares worth up to Rs 3,560 crore and an offer-for-sale (OFS) of equity shares amounting to Rs 3,000 crore by parent company Bajaj Finance.

As of September 9, the shares of Bajaj Housing Finance are commanding a grey market premium (GMP) of around Rs 51 in the unlisted market, indicating a potential premium of 73% above the issue price.

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Red Alert! D-Street Investors Lose ₹5 Lakh Crore as Sensex Plunges Over 1,100 Points; Nifty Falls Below 24,900

Indian markets traded in the deep red on Friday, with Sensex and Nifty seeing significant declines. Investors remained cautious ahead of a crucial US jobs report that could shape the pace and size of the Federal Reserve’s interest rate cuts. Selling pressure was witnessed across all sectors.

The BSE Sensex slipped below 81,200, trading over 1,100 points lower. Meanwhile, Nifty50 dropped below the 24,900 mark. The market capitalisation of all listed companies on the BSE declined by ₹5.3 lakh crore to ₹460.35 lakh crore.

Among the Sensex stocks, Reliance Industries, SBI, ICICI Bank, L&T, Infosys, ITC, HCL Tech, and HDFC Bank were the primary contributors to the index’s decline.

Sector-wise, the Nifty PSU Bank and Oil & Gas indices dropped by over 2%, while the Auto, Bank, Media, Metal, and Consumer Durables sectors declined by over 1%. Domestically-focused small-caps fell 0.9%, and mid-caps slid 1.3%.

In contrast, Ashoka Buildcon surged 6% after its subsidiary Viva Highways monetised Pune land for ₹453 crore.

1) Nervousness builds ahead of key US jobs data

Investors grew increasingly nervous ahead of the US non-farm payrolls report, due later today, which led to a decline in Indian equity markets. Federal Reserve Chair Jerome Powell recently emphasized that policymakers do not welcome further weakening in the labor market, signaling the possibility of a rate cut in September.

Analysts are predicting an increase of 165,000 new jobs and a slight dip in the unemployment rate to 4.2%. However, concerns have been growing after softer job openings and weaker gains in the private sector, which have raised the likelihood of a half-point rate cut to 42%.

“If the August jobs data, due later today, falls short of expectations and unemployment rises higher than forecast, the Fed may cut by 50 basis points,” said Dr. V K Vijayakumar, Chief Investment Strategist at Geojit Financial Services.

“However, this may not be well-received by the market, as serious growth concerns and fears of a hard landing for the US economy could weigh heavily,” he added.

2) Decline in bank stocks ahead of loan and deposit growth data

Indian equity indices also fell as heavyweight financial stocks declined, driven by concerns over upcoming data on bank loan and deposit growth, due later today.

Meanwhile, the latest Reserve Bank of India (RBI) data revealed that deposits grew by 11.7% in the June 2024 quarter, while bank credit surged by 15%. This widening gap between deposit and credit growth has raised concerns about potential liquidity issues, heightening investor anxiety and contributing to the decline in bank stocks.

3) Tepid Global Market Mood

MSCI’s broadest index of Asia-Pacific shares outside Japan edged 0.2% higher, despite having fallen 2.3% so far this week. Meanwhile, Japan’s Nikkei slipped 0.1%, bringing its total weekly decline to 3.9%.

China’s share markets opened with mixed performances, while Hong Kong’s Hang Seng remained flat. The nervous sentiment in the markets also impacted US futures, with Nasdaq futures down 0.6% and S&P futures slipping 0.3%.

4) FIIs turn net sellers

Foreign institutional investors (FIIs) turned net sellers on September 5, offloading equities worth ₹688 crore. In contrast, domestic institutional investors (DIIs) were net buyers on the same day, purchasing equities valued at ₹2,970 crore.

Crude Oil

Oil prices remained flat in early trading on Friday as investors balanced a significant withdrawal from U.S. crude inventories and a delay in production hikes by OPEC+ producers against mixed U.S. employment data.

Brent crude futures rose by 1 cent, or 0.01%, to $72.70, while U.S. West Texas Intermediate (WTI) crude futures inched up 2 cents, or 0.02%, to $69.16.

Rupee vs Dollar

The Indian rupee strengthened on Friday, buoyed by disappointing U.S. private payrolls data, which fueled expectations of a weaker overall jobs report. This prompted traders to avoid the U.S. dollar.

At 9:30 a.m. IST, the rupee was trading at 83.9350 to the U.S. dollar, up from 83.9825 in the previous session.

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Singapore and India sign agreements for cooperation in semiconductors.

In an effort to further their bilateral collaboration, Prime Minister Narendra Modi and Singaporean counterpart Lawrence Wong signed four memorandums of understanding on Thursday. Development of semiconductor clusters and talent development in semiconductor design and manufacture are among the main areas of concentration of the agreements.

 

Modi was greeted with a red carpet reception at Singapore Parliament House prior to his meeting with Wong. There, he also signed the guest book. Days after Wong assumed office and Modi started his third term as prime minister, the two leaders will meet. After the meetings, the two leaders also observed the exchange of four memorandums of understanding. Modi’s visit, which began on Wednesday, is a significant step towards strengthening India and Singapore’s strategic cooperation. Following Modi’s recent visit to Brunei, Singapore’s Prime Minister, Lawrence Wong, has extended an invitation for this visit.

 

Prominent individuals in Modi’s delegation include National Security Advisor Ajit Doval and Minister of External Affairs S. Jaishankar. Given that Modi last visited Singapore in 2018, the visit is noteworthy. Modi will also visit with a number of businesspeople and leaders in Singapore as part of his tour, with the goal of fostering new opportunities for collaboration and fortifying the two countries’ relationship.

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Nvidia Faces Historic $279 Billion Market Value Drop Amid Wall Street Decline

Shares of AI heavyweight Nvidia (NVDA.O) tumbled 9.5% on Tuesday, marking the deepest single-day decline in market value for a U.S. company. This massive drop came as investors tempered their optimism about artificial intelligence in the face of a broad market selloff, following tepid economic data.

Nvidia’s market capitalization fell by $279 billion, signaling growing caution among investors regarding emerging AI technology, which had driven much of this year’s stock market gains. This decline also affected the broader chip industry, with the PHLX chip index (.SOX) plummeting 7.75%, marking its largest one-day drop since 2020.

The latest concerns about AI follow Nvidia’s quarterly forecast last Wednesday, which failed to meet the lofty expectations of investors who had fueled a dizzying rally in the stock. “Such a massive amount of money has gone to tech and semiconductors in the last 12 months that the trade is completely skewed,” said Todd Sohn, an ETF strategist at Strategas Securities.

Intel (INTC.O) also experienced a sharp decline, dropping nearly 9%. This came after Reuters reported that CEO Pat Gelsinger and key executives are expected to present a plan to the company’s board of directors, aiming to streamline operations by cutting unnecessary businesses and revamping capital spending at the struggling chipmaker.

Concerns over slow returns from substantial AI investments have recently weighed on Wall Street’s most valuable companies. Shares of Microsoft (MSFT.O) and Alphabet (GOOGL.O) have both traded lower following their quarterly reports in July, reflecting investor unease about the long-term profitability of AI ventures.

BlackRock strategists highlighted these concerns in a client note on Tuesday, stating, “Some recent research has questioned if the revenues from AI alone will eventually justify this wave of capital spending on it. When assessing AI capex by individual companies, investors must consider if they are making the best use of their balance sheets and capital.”

At its July record high, Nvidia had nearly tripled in 2024. Despite its recent losses, the company remains up 118% year-to-date.

Tuesday’s weakness in chip stocks mirrored broader declines across Wall Street. The Nasdaq (.IXIC) fell 3.3%, while the S&P 500 (.SPX) dropped 2.1%.

Most investors anticipate the Federal Reserve will cut interest rates by 25 basis points in its September 18 policy announcement, according to CME’s FedWatch Tool. However, expectations for a larger 50 basis point cut increased to 37% from 30% after Tuesday’s data suggested continued softness in the manufacturing sector.

This week, investors will also focus on labor market data, culminating in Friday’s key government payrolls report. “There’s concern about what the job numbers are going to show, about seasonality,” warned Steve Sosnick, a market strategist at Interactive Brokers.

The chip index is now up 14% in 2024, just under the S&P 500’s 16% gain.

Nvidia’s record one-day loss in market value of $279 billion surpasses the $232 billion drop suffered by Facebook-owner Meta Platforms (META.O) on February 3, 2022, when the social media giant issued a grim forecast, according to LSEG data.

Following Nvidia’s quarterly report last week, the mean analyst estimate for its annual net income through January 2025 has increased to $70.35 billion, up from approximately $68 billion before the report. Despite the increase in earnings estimates, Nvidia is now trading at 34 times expected earnings, down from over 40 in June, aligning with its two-year average.

Broadcom (AVGO.O), another chipmaker benefiting from the AI computing boom, fell 6.2% ahead of its quarterly report on Thursday.

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Indian Army and Navy to Receive Rs 1.2 Lakh Crore Boost for High-Tech Warships and Next-Gen Tanks to Counter China

The government is poised to approve several major defense projects worth a total of Rs 1.2 lakh crore. The Defence Acquisition Council (DAC) is set to meet on Tuesday to review and potentially authorize these significant initiatives.

According to defense sources, the Defence Acquisition Council (DAC) is expected to approve the issuance of a tender worth approximately Rs 70,000 crore to Indian shipyards, including private sector shipyards, under the ‘Make in India’ initiative.

Indian Navy’s Project 17 Bravo

One of the key projects under consideration is the Indian Navy’s Project 17 Bravo, which focuses on the construction of seven advanced stealth frigates. Valued at approximately Rs 70,000 crore, this initiative aims to significantly enhance the Navy’s capabilities by introducing the most modern warships ever built in India.

Mazagon Dockyards Limited (MDL) and Garden Reach Shipbuilders and Engineers (GRSE) are the leading contenders for the Indian Navy’s Project 17 Bravo. MDL is currently constructing four frigates under Project 17A, while GRSE is building three. According to a source quoted in an India Today report, “There is a possibility that the mega project could be split between the two shipyards, with the lowest bidder receiving four ships, while the other could be awarded three.”

Project Details and Tender Process

The tender for the Navy’s Project 17 Bravo will likely be directed at Category A shipyards, including Mazagon Dockyards Limited (MDL), Garden Reach Shipbuilders and Engineers (GRSE), Goa Shipyard Limited, and Larsen & Toubro. To expedite the project, there is a possibility of splitting the order between two shipyards. Currently, MDL and GRSE are involved in constructing frigates under Project 17A, with MDL building four and GRSE constructing three.

Indian Army’s Plan for New Tanks

China’s “string of pearls” strategy around India has intensified, transitioning from economic maneuvers to direct military initiatives. Beijing has been enhancing regional infrastructure like airports, ports, and electronic surveillance systems, which serve dual civilian and military purposes. These upgrades include underwater terrain mapping in the Maldives and electronic surveillance in the Bay of Bengal, specifically targeting Indian defense facilities.
 
China has also expanded its naval presence in Sri Lanka and is building an airstrip on the Great Coco Island in Myanmar, near India’s Andaman and Nicobar Islands. This island is reportedly being used as a listening post against India, with plans for permanent research vessel deployment. Additionally, China and Pakistan will conduct a joint naval exercise in the Arabian Sea in January 2025.
 
Furthermore, China has upgraded its naval base in Djibouti from a simple refueling stop to a facility capable of repair and refurbishment. This expansion poses significant challenges to India’s strategic and technological capabilities.

High-Level DAC Meeting

The upcoming Defence Acquisition Council (DAC) meeting, chaired by Defence Minister Rajnath Singh, will involve key defense leaders, including the Chief of Defence Staff and service chiefs. The meeting will focus on approving critical acquisitions, such as infantry combat vehicles, aligning with India’s ‘Make in India’ vision and self-reliance in defense manufacturing. These initiatives aim to modernize the Indian military and strengthen national security by upgrading the capabilities of both the Army and Navy.