Stock Market Investment Shot, 23rd September 2022

Indian refiners are likely to skip buying Russia ESPO crude this month due to higher freight rates. Instead, India finds African and Middle East oil cheaper. India had recently emerged as Russia’s second largest oil customer after China. The higher freight rates from Russia are now offsetting most of the discount edge that Russia was offering. Also global oil prices have also come down sharply. Now UAE is $5 cheaper than Russian oil after freight costs are factored. Also, Middle East suppliers have cut prices further for October.

Responding to hawkishness of the Fed, the Indian rupee plunged to a record low of Rs80.86/$ in intraday trades. This was the biggest single day fall in the rupee in last 7 months as importers rushed for cover. It is not clear if the RBI had intervened in the spot dollar market to defend the rupee. A hawkish Fed led to the dollar strengthening sharply. Now the Fed rates are being estimated at around 4.5% by the end of the current year itself. Dollar Index (DXY) was trading at a 20 year high of 111.80 on the back of the rate hike.

Japan based Softbank Group slashed valuations of Oyo Hotels on its books by 20%, which could impact its preparations for the IPO as also the IPO pricing. From an earlier valuation of $3.7 billion, Softbank has cut the valuation of Oyo Hotels to $2.7 billion. Oyo had reached a peak valuation of $10 billion in 2019, hence it has been a sharp fall overall. While Softbank has not confirmed, Oyo has called the news speculative. But there is no smoke without fire. Oyo is targeting valuations of $5 billion, which now looks impractical.

The problems for the LIC stock continues as the price touched a new low of Rs648. The stock has now lost over 32% from the IPO price of Rs949 per share. August 2022 saw weak growth of just 5.2% in retail annualized premium equivalent (APE), even as the private insurers saw APE grow 8.9% in August. LIC also underperformed the private insurers in terms of growth in August. LIC now needs to take a long term view on leveraging its network, fine-tuning distribution, product development and technology
improvements.

SEBI is working on a new payment system for secondary market on the lines of ASBA for IPOs. Like ASBA, there will be no pre-funding of trading accounts for secondary market transactions but would only get debited at the time of pay-in. However, a block would be placed on such amounts. This will not make a big difference to bank backed brokers, but will hit independent brokers who will lose the float. Madhabi committed to get system ready in next few months. This would be combined with the new T+1 settlement.

Divgi Torqtransfer Systems Ltd, an auto component company, filed DRHP with SEBI for its proposed IPO. The IPO will comprise of a fresh issue worth Rs200 crore and an offer for sale (OFS) of 31.47 lakh shares by early investors and promoters. Apart from the promoter family, the Oman India Joint Investment Fund will also participate in the OFS. Fresh issue proceeds will be used to fund capex for purchase of equipment for its manufacturing facilities. Its clients include Mahindra & Mahindra, Tata Motors and Toyota Kirloskar.

The Bank of England raised its benchmark interest rate by another 50 basis points taking the rate to 2.25%. This was the 7th successive hike by the BOE and the biggest hike in 27 years. Even as GDP growth in the UK has been slowing, it has been fighting rampant inflation. This comes just a day after the US Fed hiked the rates by 75 bps. Surging inflation remains a worry for the BOE as it depletes purchasing power. UK inflation is running at 9.9%, the kind of levels last seen in 1982. The Pound is at its weakest in 37 years

REC Ltd was accorded the status of Maharatna CPSE, giving greater operational and financial autonomy. REC is the 12th company to attain Maharatna status, the other 11 being PFC, BHEL, BPCL, Coal India,
GAIL, HPCL, IOCL, NTPC, ONGC, Power Grid and SAIL. To qualify as a Maharatna it must be listed with average annual turnover of over Rs25,000 crore for last 3 years. Its net worth must be in excess of Rs15,000 crore and average net profit above Rs5,000 crore. REC, a power financing NBFC, is also likely to get DFI status.