Stock Market Investment Shot, 15th September 2022

In a move that was largely on expected lines, Goldman Sachs downgraded top Indian IT companies like TCS and Infosys from “Buy” to “Sell”. Goldman had cited the slowdown in dollar revenue amidst a likely slowdown as the main reason. This was likely to hurt tech spending. It however, expects the pressure on the operating margins to recede, but the big pressure would be on the top line. However, Goldman did upgrade Wipro to Buy on the back of attractive valuations. In 2022, the IT index is already down by 27%.

Even as the consumer inflation disappointed in India, there was some relief in the WPI inflation dipping to an 11-month low of 12.41% for August 2022. This was on the back of easing pressure in manufactures and fuel items. However, WPI food inflation hardened to 12.37%. There was a spike in the prices of wheat and vegetables, apart from protein rich foods. Fuel inflation stood at 33.67% while manufacturing, with the highest weightage, stood at 7.51%. This also marks the 17th consecutive month of double digit WPI.

For the month of August, India’s merchandise exports were up 1.62% yoy at $33.92 billion. At the same time, the trade deficit also doubled yoy to $27.98 billion. However, trade deficit was lower than the $30 billion figure in July 2022. For the first 5 months of FY23, exports were up 17.68% at $193.51 billion, while imports stood at $318 billion and the trade deficit at $124.52 billion. This pegs the annualized deficit for FY23 at closer to $210 billion. In August crude oil imports jumped 87.44% yoy while gold imports fell 47%.

After dilly dallying for a long time, Byju’s finally announced its FY21 results. It reported top line revenues of Rs2,428 crore and net losses at a whopping Rs4,500 crore. This is in contrast to a net profit of Rs51 crore earned in FY20. These numbers are likely to exert further pressure on Edtech valuations and make funding rounds all the more difficult. Revenues could have been higher but for the changes in the method of revenue recognition. Byju’s had been pulled up by the MCA for delaying results for nearly 18
months.

Adani Wilmar is currently scouting for local and overseas acquisition targets as the group plans a big bet on boosting food operations. Recently, Reliance Retail had also announced mega FMCG plans. It has earmarked about Rs500 crore from the IPO and internal resources of Rs300 crore for acquisitions. The IPO of Adani Wilmar was one of the top performers in the market in the last 1 year. Indian food industry is pegged at $400 billion currently. Adani group has made nearly 32 acquisition in last 1 year for $17
billion.

Housing finance companies or HFCs are likely to lose home-loan market share to banks, according to a CRISIL report. According to the CRISIL report, HFCs have already ceded 400 basis points market share to banks, giving the banks a market share of 62% of the home loans market as of FY22. HFCs are likely to see their AUM rise by 12% this year, but that may not make a substantive difference. While HFCs have slowly reduced their exposure to developers due to higher risk, they are losing the salaried customers to
banks.

On Wednesday, the Nifty and Sensex showed a lot of strength despite weak signals from the US. In fact, on a tough day, the Bank Nifty was up 1.2% and is now just about 500 points away from record highs. ICICI Bank and SBI hit record highs with SBI crossing Rs5 trillion market cap for the first time. Most banks have seen an improvement in fundamentals with NIMs broadening and gross NPAs coming down. Also, the up cycle in the economy is likely to be positive for credit offtake. FIIs have been pouring money into
banks.

The European Union has just outlined plans to raise over $140 billion from energy companies to help shield households and businesses from soaring prices. Energy has been the real risk to Europe and with Russia cutting supplies, a dark winter almost looks a possibility now. Recently, ECB had hiked rates by 75 bps to combat energy inflation. Most governments are proposing price caps on energy, but that will cost a lot of money and the EU wants energy companies to pay for it. The message; no profiteering from war.