Stock Market Investment Shot, 1st July 2022

For the period to March 2022, India’s external debt rose by $47.1 billion to $620.7 billion. However, if you compare in terms of external debt as a percentage of GDP, then on a yoy basis it has fallen from 21.2% to 19.9%. The actual accretion to net debt was to the tune of $58.8 billion but there was a valuation gain of $11.7 billion on account of the appreciation of the US dollar versus the Indian rupee and other major global currencies. Nearly $500 billion was debt of above 1 year maturity and 53.2%, dollar denominated.

Core sector growth for the month of May 2022 came in at a healthy 18.1% on a yoy basis. The growth in the core sector was largely driven by healthy growth in coal, crude oil, fertilisers, cement and electricity. This is despite a very strong base of 16.4% in May 2021. Among star sectors were coal growing at 25.1%, refinery products at 16.7%, fertilizers at 22.8%, cement at 23.6% and electricity at 22%. For FY23 so far, core sector growth was 13.6% on cumulative basis. The core sector was also higher on a sequential basis.

Bharti Airtel, one of India’s top telecom companies, opted for a 4-year moratorium on the repayment of around Rs3,000 crore of adjusted gross revenue (AGR) dues to the government, due to the tight monetary situation. Bharti will, however, not to opt for conversion of interest on deferred dues into equity. This gives Airtel a 4-year time frame for the payment. Vodafone Idea had also decided to allow the deferred interest portion to be converted into equity to government. This was part of the Telecom Relief Package.

US stocks slipped on Thursday, setting the Dow index for its worst first 6 months since 1962. This was on the back of concerns that the hawkish stance of the central banks would eventually push the US economy into recession. Also, there has been a sharp spike in the borrowing costs amidst the sharp spike in the rates. All the three principal indices viz. Dow Jones, NASDAQ 100 and S&P 500, are on track to post their second straight quarterly decline for the first time since 2015. Fed hinted at another 75 bps hike in July.

Maruti Suzuki plans to launch 4 new brands to increase its share in the SUV segment, which is currently the fastest growing in the Indian car market. Maruti recently launched a refurbished version of its popular compact SUV model, Brezza, which competes with the Hyundai Venue, Kia Sonet and Tata Nexon. The 4 new launches will give customers options at every price point. Maruti is also planning a mid-sized SUV to rival the Hyundai Creta. While Maruti has over 65% market share in all other PVs, it is just 12% in SUVs.

The latest issue of the RBI Financial Stability Report (FSR), places the Indian economy firmly on the path of recovery. However, high inflationary pressures and geopolitical risks remain key risks; according to the FSR. The FSR added that banks and NBFCs had sufficient capital buffers to withstand sudden shocks. The retail inflation has now been above the upper tolerance level of 6% for more than a year. However, the FSR also pointed that India appeared to have weathered the third wave quite well. Volatility is the key.

The Competition Commission of India (CCI) has approved Google’s investment of $1 billion in exchange for a 1.28% stake in Bharti Airtel.  This arrangement would be for a period spanning 5 years. This comes on top of a $4.5 billion investment that Google has already made in Reliance Jio back in July 2020. Both the investments were made as part of the India digitization fund. Google and Reliance also partnered to launch a low cost smartphone, JioNext. It may be recollected that Facebook had invested in Jio Platforms. 

RBI will be fighting to defend the rupee on several fronts. The traditional route remains the spot forex market where it typically sells dollars to defend the rupee. However, this has depleted the forex resources by almost $50 billion in recent months. RBI is also entering into buy/sell swaps in the onshore forwards market by dipping into its long dollar book. Now RBI also is active in the NDF market to narrow the gap in the rupee values in two markets. Lastly, OI build up shows RBI extremely active also in currency futures.