Thursday, 12th May 2022

RBI is reportedly planning to raise its inflation projections and also trigger a series of rate hikes, which could be announced in the June 2022 MPC meeting. RBI had already hiked rates by 40 bps in a special MPC meet held in May. In April, RBI had raised its inflation forecast by 120 bps to 5.7%, but even that looks very conservative now. The inflation forecast is likely to be pegged at 6.1% in the 8th June MPC meet. Forex reserves are already down $50 billion and rate hikes are the best way to defend rupee levels.

US consumer inflation for April 2022 came in 20 bps lower at 8.3% but it was still 30 bps above the Reuters consensus estimates. Fuel inflation did taper in April but that was offset by a sharp rise in food inflation, especially in the high protein products like fish, meat, eggs and dairy products. Sequential MOM inflation tapered from 1.2% to 0.3%. Core inflation for April 2022 was lower by 30 bps at 6.20%, but specific items like air fares and transport saw a sharp spike in inflation. Crude inflation rose to over 80% on a yoy basis.

India’s cement giant, Ultratech, has joined the race to bid for the assets of Ambuja Cements and ACC. Earlier, Adani group and JSW were among key contenders in the fray. The plan submitted to Holcim also outlines how to handle CCI concerns on dominance of cement market. Currently, Ultratech has cement capacity of 120 TPA while ACC and Ambuja jointly have 64 TPA. The bidder will need deep pockets. Apart from paying Holcim, they also have to make open offer to minority shareholders as per SEBI regulations. 

PNB reported a 66% drop in standalone net profits for the March 2022 quarter at Rs201 crore. This was largely due to a provision of Rs.325 crore set aside for fraud related losses. FY22 full year profits were 71% higher at Rs3,457 crore. The total provision for frauds comes to Rs1,303 crore, for which PNB has sought deferment from RBI. Total income for the Q4FY22 was marginally lower at Rs21,386 crore. Gross NPAs improved from 14.12% to 11.78% yoy. However, gross and net NPAs are still too high on an absolute basis.

One technology stock that has become the target of the bears is Infosys. The stock recently touched a 10-month low of Rs1,511, falling over 14% in the last 1 month since the Q4FY22 results were announced. Its EBIT margins had contracted by 190 bps to 21.6% and the guidance was 100 bps lower than earlier. Also, the attrition rate at Infosys crossed 26% putting a lot of indirect pressure on the costs and operations of Infosys. The one positive factor for Infosys will be the dollar strength, with dollar index at a 20 year high.

Kansai Nerolac shares hit an yearly low of Rs.403 after disappointing results for Q4FY22. For Q4FY22, the profits fell by 81% due to muted sales and higher raw material cost. Most paint companies in India have felt the pressure of weak rural sales as well as a surge in input costs. EBITDA margins contracted sharply from 15.37% to just 5.4% on a yoy basis. However, paint sector outlook remains robust with strong growth expected from infrastructure sector plus robust demand from automobiles and realty in the current year.

Indian government is likely to set export limits on wheat from June 2022 to avoid too much wheat leaving Indian shores amidst robust global prices. The response to the government procurement this year has been tepid as prices are way above the MSP offered. Food being a sensitive item, the government is likely to prioritize domestic consumption of wheat from June onwards. With the Black Sea blockade, Indian wheat exporters are having a field day. Government targeted export of 10 million tonnes of wheat in FY23. 

Novelis Inc, part of Hindalco, plans to build a $2.5 billion low-carbon aluminium recycling and rolling plant in the US. The idea is to cater to growing demand for beverage cans and automotive market. The facility in Alabama will have a capacity of 600 kilotons of finished goods annually. This will also increase the recycling capacity of Novelis from 74 billion cans to 90 billion cans globally. Hindalco has outlined plans to spend $7.2 billion to expand its aluminium business over the next 5 years across India and North America.