Sensex ends shy of 58K, Nifty holds 17,300 as banks weigh; pharma, realty gain

Indian equities had a volatile session on Wednesday as investors continued assess geopolitical risks. Western officials remained cautious, saying they have yet to verify Moscow’s claims that it started to pull back tens of thousands of soldiers massed along Ukraine’s borders.

The Sensex fell 145.37 points or 0.25% to end the day at 57,996.68, while Nifty was down 30.30 points at 17,322.20. About 1958 shares advanced, 1309 declined, and 99 were unchanged.

Power Grid Corporation, UltraTech Cement, NTPC, ICICI Bank and SBI were the worst hit on Nifty, while Divis Labs, Adani Ports, ONGC, IOC and HDFC Life rose.

Banks, financials, auto, metal stocks fell, while pharma and realty shares advanced. BSE MidCap index ended flat while SmallCap index rose 0.42%.

The Income Tax Department conducted searches at multiple premises of Chinese telecom company Huawei in the country as part of a tax evasion investigation, official sources said on Wednesday.

The raids were launched at the company's premises in Delhi, Gurugram (Haryana) and Bengaluru in Karnataka on Tuesday.

Sources said the officials looked at financial documents, account books and company records as part of a tax evasion investigation against the company, its Indian businesses and overseas transactions.

Some records have been seized too, they said.

The company said its operations in the country were "firmly compliant" with the law.

The European Union on Wednesday urged Russia to take "concrete" steps to ease tensions around Ukraine, as Moscow said it was pulling back more forces from the border.

"Russia has signalled that it may be open to diplomacy and we urge Russia to take concrete and tangible steps towards de-escalation because this is the condition for sincere political dialogue," European Council head Charles Michel told EU lawmakers.

"We cannot eternally attempt diplomacy on one side, while the other side is amassing troops."

European Commission chief Ursula von der Leyen said "NATO has not yet seen signs of any Russian troop reduction" despite announcements from the Kremlin that it was withdrawing forces.

"We saw signs of hope yesterday, but now deeds have to follow those words," she said.

She accused Moscow of sending "conflicting signals" by announcing pullbacks the same day the Russian parliament voted to have President Vladimir Putin recognise two separatist regions in Ukraine as independent.

Covid-19 Update: India witnesses a decline in the caseload – The Covid-19 cases in India have been declining for the last one week after a pick-up seen in mid-Jan’22, thanks to the large-scale vaccination.High-frequency indicators: Economic activities lose momentum, albeit marginally – COVID 3.0 restricted further expansion of the PMI data for Jan’22 and with moderation in manufacturing activities, the PMI manufacturing hit a 4-month low of 54. The PMI services, too, recorded a six-month low of 51.5 due to re-imposed restrictions and the inflationary pressure..

Equities: Positive structure emerging, Sector rotation is the key! – Jan'22 was a volatile month marked by a weakness in the global market due to rising concerns over inflation, faster tapering, and the new Covid-19 variant. Moreover, the strengthening dollar further dampened the investor’s sentiments.

Fixed Income: The slope of the yield curve has been flattening since Oct’21 against the steepest curve seen in the earlier months led by the policy support. In the Feb’22 MPC, the RBI maintained a status-quo, kept the repo rate unchanged, and has continued with the accommodative stance as long as necessary to revive and sustain growth while continuing to mitigate the adverse impact of the COVID-19 on the economy.

Axis Securities recommend a Quality approach in bonds with some non-AAA exposure based on individual risk appetite.

Gold: Investors’ overall sentiment improved in 2021, which was manifested in higher allocation to riskier assets such as Equity. Optimism, driven by the vaccine drive and faster-than-expected economic recovery, further stoked positive sentiment, keeping the gold prices under pressure. With this backdrop, Gold stood the biggest underperformer in the last one year and declined by 1.5% over the same period. uncertainties over the economic recovery completely fade off and it will continue to attract investments as a proven hedge against other asset classes. Moreover, it will continue to find support from the geopolitical risk and the inflation pressure in a global environment. We continue our Neutral stance on Gold and recommend a ‘Buy-on-Dips’ strategy.

Currency: The Indian currency remained volatile in Jan’22 primarily due to the stronger dollar and higher crude prices for the month. For the first half of the month, some weakness was seen on the USD front as risk conditions improved with the Omicron wave resulting in fewer fatalities. However, the reverse move was seen after the release of Hawkish FOMC minutes.

Key events that would decide the currency market direction moving forward are: 1) Spread of the new Covid-19 variant and its economic impact; 2) Bond yield direction as the FED signals first rate hike as soon as Mar’22; 3) Trend in the US inflation; 4) Direction of the Oil prices, and 5) Direction of Indian long-term bond yields.

Gold prices ticked higher as the dollar slid on Wednesday, after safe-haven bullion retreated from an eight-month high in the previous session on easing fears of a Russian invasion of Ukraine.

Spot gold gained 0.2% to $1,856.83 per ounce. U.S. gold futures were nearly steady at $1,857.80.

Gold prices touched their highest level since June last year on Tuesday, before reversing course to close almost 1% lower.

Asian shares rallied after Moscow indicated it was returning some troops to base from exercises.

Moody's Investors Service has affirmed Vedanta Resources Limited's (VRL) B2 corporate family rating (CFR) and the B3 rating on the senior unsecured notes issued by VRL and those issued by its wholly-owned subsidiary Vedanta Resources Finance II Plc, and guaranteed by VRL.

But it has changed the outlook to negative from stable.

"The change in outlook to negative reflects holding company VRL's large near-term refinancing requirements amid tightening liquidity in the capital markets," says Kaustubh Chaubal, a Moody's vice president and senior credit officer. "The continued delay in refinancing its upcoming debt maturities with long-term funding raises concerns over the company's liquidity management, even as supportive commodity prices have improved its key financial metrics."

Moody's considers the holdco's persistently weak liquidity and high refinancing needs as signs of an aggressive risk appetite, with implications for the company's financial strategy and risk management, a key component of the rating agency's governance risk assessment framework. Today's rating action considers the impact of VRL's aggressive liquidity management and refinancing practices on its credit profile, which Moody's regards as credit negative.

The affirmation of the CFR reflects the rating agency's view that VRL's operations are solidly positioned with favorable underlying demand and commodity prices that support continued positive free cash flow generation.

RATINGS RATIONALE

Holdco VRL is about to enter its peak years of long-term debt maturities in fiscal years ending March 2023 (fiscal 2023) and March 2024, when about 60% of its total $9.4 billion debt or $5.7 billion, falls due. Moreover, $4.2 billion -- 45% of the total $9.4 billion debt -- will mature by June 2023. These debt maturities include senior unsecured notes of $1 billion in July 2022, $400 million in April 2023 and another $500 million in May 2023. Further exacerbating liquidity risk at the holdco is an annual interest bill that has climbed to around $800 million, from $500 million in previous years.

"We estimate the holdco's current cash sources -- management fee and dividends from operating subsidiaries -- will fall short of its cash needs over the 18 months until June 2023. While the company is obtaining financing for a part of its upcoming debt maturities, the absence of an executed refinancing plan keeps liquidity risk elevated, especially amid tight liquidity in capital markets and widening yields on its existing USD bonds," adds Chaubal, who is also Moody's Lead Analyst for VRL.

Salary hikes this year will be an average of 9% as companies trudge back to the pre-pandemic levels and business outlook improves. HR firms like Aon expect a 9.9% increment rolled out by India Inc, the highest since 2016 while Mercer says it will be about 9%, compared to 7.7% in 2020.

Talent assessment firm Mercer|Mettl on Wednesday said that as business landscapes change with more technology penetration, demand for niche skill sets are at an all-time high. Java, JavaScript and SQL developers will be the coveted roles in 2022 and DevOps has become one of the prominent roles to hire across industries because of India Inc's increased emphasis on network security, cloud adoption.

The increments that come in after a pandemic induced two-year lull also reflect the need to retain talent as attention touches an all time high.

Even as the Union government expects the rate of inflation to decline in FY23, global factors such as energy prices would influence the trajectory, the finance ministry suggested in its latest monthly economic review report. 

The report said that the monetary policy committee’s (MPC) decision of keeping interest rates unchanged in its latest policy meet, prioritises growth during uncertain times and reinforces the investment orientation of the budget.

“Global inflation and energy prices are likely to be influential in determining India’s rate of inflation and the government expects it to decline to eventually obtain a GDP deflator of 3.0-3.5 per cent assumed in the Budget 2022-13,” the MER said in a report. With that the government has estimated a nominal GDP of 11.1% for FY23 in the Union budget, which translated into a real GDP growth rate ranging between 7.6 and 8.1%. GDP deflator is a measure of inflation and is the difference between nominal GDP and real GDP.

India's gasoil and gasoline sales rebounded in the first fortnight of February from the previous month, indicating a recovery in industrial and consumer demand as states lifted most of the COVID-19 induced restrictions.

States in India have opened schools and colleges, and eased night-curfews among other curbs, after a sharp decline in infections.

Gasoil sales by the country's state fuel retailers amounted to 2.65 million tonnes during Feb. 1-15, data compiled by state-owned refiners showed, up 6.7% from the same period last month, the data showed.

Gasoil sales were however down by 6.95% from a year ago and by 14.7% from the same period in 2020.

Mankind Pharma on Wednesday said it has inked a pact with Dr Reddy's Laboratories to acquire two brands - Combihale and Daffy.

While Combihale is used for the treatment of asthma and chronic obstructive pulmonary disease, Daffy is a soap-free moisturising bar for infants.

Mankind Pharma said the market for Combihale is valued at ₹900 crore, and growing at 14%.

The acquisition of the product is expected to strengthen the company's presence in the inhalation respiratory market segment, Mankind Pharma said in a statement.

The total market for Daffy is valued at ₹1,000 crore, growing at 18%.

Russia's defence ministry published video on Wednesday that it said showed a column of tanks and military vehicles leaving annexed Crimea across a railway bridge after drills, adding that some troops would also return to their permanent bases.

U.S. President Joe Biden said on Tuesday that more than 150,000 Russian troops were still amassed near Ukraine's borders after Moscow's announcement of a partial pullback was met with scepticism.

Moscow annexed Crimea in 2014.

The December quarter (Q3FY22) results of Mrs. Bectors Food Specialties Ltd had both hits and misses. While price hikes backed the growth in revenue, the decline in earnings before interest, tax, depreciation and amortization (Ebitda) margins year-on-year (y-o-y) was a dampener.

Consolidated revenue increased by 17% y-o-y to Rs263 crore aided by growth across its biscuit and bakery segment. The festive season in India also helped sentiments. Despite a high base in Q3FY21, revenue in the biscuit segment grew by 11% y-o-y. The company, through its biscuits brand, Cremica, has a strong footing in North India and aspires to strengthen its presence in other regions. Further, it exports to more than 64 countries and revenue from export markets rose by double-digits y-o-y in Q3. (Read here)

India-focused offshore funds and exchange-traded funds (ETFs) logged net outflows of $435 million in the December quarter, which was significantly higher than $95 million worth of outflows during October-September, according to a report by Morningstar India.

Offshore India funds and ETFs are not domiciled in India but invest primarily in Indian equity markets. The coverage universe is 258 primary funds and ETFs. The category continued to experience outflows during the quarter ended December 2021, which was the 15th consecutive quarter of selling.

Through calendar year 2021, India-focused offshore fund and ETF category experienced outflows to the tune of $2.45 billion, which was sharply lower than net sell-off of $9.26 billion recorded in 2020.

Individually, India-focused offshore fund segment experienced net outflows of $638 million during the December quarter compared with net inflows of $14 million through the quarter ended 30 September 2021. During the full calendar year 2021, the segment had net outflows of $3.47 billion, which was significantly lower than the net outflow of $7.72 billion in 2020.

ETFs, meanwhile, experienced net inflows of $203 million during the December quarter compared to net outflows of $108 million in the previous three-month period. Through 2021, the segment received inflows of $1.01 billion compared to $1.55 billion outflows in 2020.