Monday, 13th June 2022

In the coming week, 2 data points are going to be extremely important for markets. The CPI and WPI inflation in India will largely determine the direction that the RBI will take on the monetary policy front. At the same time, the US will be announcing its policy statement as part of the June meeting on 15th June. The US Fed action assumes a lot of importance after the consumer inflation in the US for May 2022 came in sharply higher at 8.6%. Trade data will be announced giving cues of the Q1 current account deficit.

In an interesting move, Fitch Ratings raised its outlook for India’s long-term foreign currency ratings from negative to stable. S&P and Moody’s had already pegged India ratings at stable, while only Fitch had held on to its negative outlook for the Indian economy. However, Fitch maintained its rating of BBB- on India. The outlook upgrade by Fitch was on the back of a robust recovery from the COVID-19 pandemic shock. If you leave aside inflation for the time being, real driver of growth has  been high nominal GDP growth.

Tencent invested $264 million or Rs2,060 crore in Flipkart from its co-founder Binny Bansal. Incidentally, the transaction had been consummated in October 2021 but had been just reported to the government of India. Post the sale, Binny Bansal holds just about 1.84% in Flipkart. Tencent has been an early investor in Flipkart. Now Tencent holds about 0.72% in Flipkart. The Tencent deal does not fall under the purview of “Press Note 3”, since Tencent’s stake is less than 1% in Flipkart. Flipkart was last valued at $37.6 billion. 

For the week ended 10th June, the market cap of the ten most valuable companies in India by market cap lost nearly Rs2.29 trillion. LIC led the fall in the Big-10. Nifty had fallen 2.63% last week. Among big losers were Reliance Industries Rs44,311 crore while TCS and Infosys lost Rs45,746 crore between them. The 3 big banks lost Rs34,970.26 crore between them. Another big loser in the week was Hindustan Unilever at Rs21,675 crore. But the biggest loser in the weak was LIC which gave up Rs57,273 crore in market value.

For the month of June 2022 till date, FPIs have sold Rs14,000 crore taking the total outflows from Indian equities in the year so far to Rs1.81 trillion. With global uncertainty over the war situation, rate hikes and commodity inflation, the FPIs have been sustained sellers in the year so far. The hawkishness of the Fed and the RBI have also contributed to the bearishness of the FPIs. Also, with the rates rising in the US, it creates negative interest arbitrage for Indian markets. FPIs sold in Taiwan and South Korea among EMs.

Even as the markets are trying to recover from the losses in LIC, post the IPO, there is another insurance company lining up for an IPO. India First Life Insurance, which has the backing of BOB, Union Bank as well as Warburg Pincus, has also initiated talks with investment banks for the proposed IPO. While BOB and Union Bank own 74% between them, Warburg Pincus owns 26%. ICICI Securities, Axis Capital and JM Financial are expected to be among the BRLMs. The IPO is expected to be predominantly an offer for sale.

The start may have been slow, but the southwest monsoon reached Mumbai over the weekend. It is now expected to gather momentum in the coming week. Timely and adequate rains are essential to boost the Kharif sowing season and ensure that food inflation is kept in check. However, as of the 11th of June, the rains were nearly 43% short of the median. IMD has pegged the monsoons this year at 92% to 108% of the long period average (LPA). The government has already announced the MSP for Kharif crops for 2022.

The Indian Steel Association (ISA) has sought the intervention of the government to check the prices of coking coal, a key input for steel manufacture. The price of coking coal has surged nearly 3-fold to $450/tonne. Just a year back, the prices were hovering around $120-$130 per tonne. In March this year, the price of coking had peaked at $670/tonne amidst tremendous shortages. Currently, India meets 85% of its coking coal via imports, predominantly from Australia. Steel is one of the core infrastructure sectors.