Wednesday, 15th June 2022

For the month of May 2022, WPI inflation came in at a 31-year high of 15.88%. This is 80 bps higher than the 15.08% WPI inflation reported in the month of April 2022. This marks the 14th month that the WPI inflation has been in double digits. This also comes on a very high base of 13.11% in May 2021. Food WPI was up 12.34% led by vegetable inflation at 56.4%. Core inflation eased by 70 bps but was still elevated at 10.4%. Fuel inflation was up 40.62% with manufacturing inflation being hit by a relatively weaker rupee.

CCI approved Air India’s proposed acquisition of Tata group’s 83.67% stake in AirAsia India. This will be the first step to merging the aviation interests of Tata group and for greater synergies in aviation business. Among Tata aviation interests, Air India and Vistara operate on domestic and international routes while Air Asia India is a pure domestic airline. However, bringing Vistara under a single entity may still have to wait since Singapore Airlines has a stake in Vistara. Air Asia Berhard holds the remaining 16.33% shares.

Adani Enterprises rallied by 4% after it entered into a deal with Total Energies of France to jointly create the world’s largest green hydrogen ecosystem. Under the deal, Total Energies will buy 25% stake in Adani New Industries from AEL. The Adani group already has aggressive ambitions to invest over $50 billion over next 10 years in green hydrogen. Adani New Industries will develop green hydrogen capacity of 1 MTPA by 2030. The partnership is expected to completely transform the energy landscape, in India and globally. 

IPOs are hitting the float in the market and mutual funds bore the brunt of it in May 2022. Mutual funds saw their ability to invest in listed stocks constrained by large IPOs. Two mega IPOs in May 2022 viz. LIC and Delhivery mopped up over Rs26,000 crore and mutual funds were investing aggressively in these IPOs, especially in LIC. Mutual Funds invested Rs4,065 crore in LIC and Rs2,418 crore in LIC and Delhivery. In May 2022, MFs bought HDFC Bank, Reliance Industries and ICICI Bank but sold Kotak Bank, SAIL and UPL.

The board of Bajaj Auto, in its meeting on 14th June, has decided to defer the share buyback plan. Earlier, Bajaj had hinted at a buyback in a filing to the stock exchanges. The company has just stated that it would like to debate the matter further. Bajaj Auto is already trading at a 19-month low and the news further dampened sentiments on the stock. The last share buyback was done by Bajaj Auto in the year 2000. For May 2022, Bajaj Auto had reported a fall of 11.86% in total sales to 2.75 lakh units. Exports were tepid.

For May 2022, Russia was the second largest supplier of oil to India, after Iraq. Saudi Arabia was pushed to the third position. In May 2022, India received a total of 819,000 bpd of Russian oil compared to just 277,000 bps in April 2022. India’s plan to buy more of Russian oil amidst the sanctions has attracted a lot of negative reactions from the US and UK. For the refiners, it was a blessing in disguise as it helped them to keep the cost of crude in check. OPEC share in the Indian oil import basket fell to the lowest level ever.

Fitch Ratings is of the view that there was room for another 1% rate hike by the Fed taking the repo rates all the way to 5.9%. This estimate was put out by Fitch in the light of the worsening inflation outlook. It expects the rates to go up further to 6.15% by the end of 2023. Indian economy was highly vulnerable to global commodity inflation and monetary policy triggers. RBI has already hiked the repo rates by 90 bps in the last two monetary policies, amplified by a CRR hike of 50 bps. FY23 inflation forecast stands at 6.7%.

While steel prices have fallen, auto industry needs more. Steel is a big part of the raw material basket for automobiles. Domestic HRC prices fell by 8.95% to Rs63,100/ tonne. From the highs of April, steel prices have fallen by more than 20%. For auto companies, every 1% fall in steel price, improves gross margins by 15-20 bps.  Most auto companies have seen sharp fall in operating margins on account of a surge in key input prices of steel, aluminium etc. The Q1FY23 margins of the auto companies are likely to improve.