Tuesday, 14th June 2022

Retail CPI inflation for the month of May 2022 came in lower at 7.04%. There was some softening of food and fuel prices after the RBI had hiked repo rates. Core inflation is also tapered. However, this marked the fifth month when the retail inflation stayed above the RBI upper tolerance limit of 6% and the 32nd month when the inflation was above the median level of 4%. Food inflation was down from 8.31% to 7.97% but the high weightage vegetable inflation remained elevated. Even the fuel and transport inflation softened.

It was the third straight day of weakness in the Indian rupee as it crossed beyond Rs78/$ for the first time on a closing basis. Apart from the prospects of a higher trade and current account deficit, the dollar index also strengthened to above 104 and that also contributed to the weakness in the rupee. FPI outflows have been consistent in the last 8 months with the year 2022 seeing more than Rs1.85 trillion of equities being sold by FPIs. Forex dealers also reported heavy buying of dollars by banks and downstream oil companies.

The NCLAT has rejected Amazon’s plea challenging the decision of the Competition Commission of India (CCI) to suspend approval granted to Amazon for the acquisition of Future Coupons. NCLAT noted that Amazon had not made full, forthright and frank disclosures of relevant materials. Hence, the NCLAT upheld the decision of CCI to impose a penalty of Rs202 crore on Amazon. Amazon has been asked to pay up this amount within a period of 45 days. The Future Coupons deal had been a major bone of contention.

In the last few days, several blue chips have touched new 52-week lows. On Monday, several Nifty stocks like Bajaj Finance, Tata Steel, UltraTech Cement and Shree Cement touched their yearly lows. The Nifty had shed over 2% on Monday. In addition, there are other stocks that are trading close to their 52-week lows, including Bajaj Finserv, Grasim, Wipro, Axis Bank, Infosys, Asian Paints, Hindalco, HDFC, HDFC Bank and BPCL. Financials and IT were under maximum pressure in the markets on rates and spending concerns.

It looks like the problems for SREI group are not ending in a hurry. As per the latest report given by the transaction auditor to the administrator, there were some fraudulent transactions to the tune of Rs3,025 crore in FY20 and FY21. It may be recollected that in October 2021, the RBI had already superseded the boards of the SREI group companies. During the pandemic, non-payment by customers resulted in major asset liability mismatches resulting to corporate insolvency. BDO India is the transaction auditor to SREI.

The problems for LIC continue as the price slipped another 5.8% on Monday to Rs668. It was also the day the anchor lock-in period ended. Now, LIC is down a full 29.6% from its issue price of Rs949 and has seen investor wealth to the tune of $17 billion wiped out post the IPO. Only LG Energy Solutions of Korea, which lost $22 billion since its IPO, has seen more wealth destruction than LIC.  The stock had seen intensified pressure in last few days as it had raised Rs5,627 crore from anchors and lock-in of 1 month was ending.

In our fancy for FPI flows, we have forgotten that domestic institutions pumped in a record Rs2 trillion into Indian stock markets in 2022. That is more than the FPI outflow during this period. Most domestic investors took advantage of the correction in the market to restructure their equity portfolios. Domestic flows are largely driven by mutual funds, which saw record SIPs and equity fund flows as people shifted from physical assets to financial assets. Equities still get just 4.8% of the household savings of Rs53 trillion.

With the fall in the US markets on Monday, it is almost confirmed that bear market has set in. That was largely expected amidst rising interest rates. The S&P 500 is down over 20% from its peaks while the NASDAQ is down nearly 30% from the peaks. Normally, a 20% correction in the diversified index of the market is reflective of a bear market. There is pressure on markets ahead of the FOMC statement to be announced by Powell on 15th June. US consumer inflation came in at a 40-year high of 8.6% for May 2022.