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PremiumIndian share indices ended lower on Tuesday in choppy trade. Equities have been volatile globally as investors assess the outlook for monetary policy, inflation and the impact of China’s strict covid policies. Most Asian shares declined on Tuesday, as a drop in U.S. stock futures stoked fears about a global economic slowdown.
Benchmark Indian share indices ended lower for the second day in a row on Tuesday in volatile trade. Sensex ended at 54,052.61, down 236 points, after dropping to as low as 53,886.28 points in the day. Nifty ended 89.50 points or 0.55% lower at 16,125.20. Markets are volatile globally as investors assess the outlook for monetary policy, inflation and the impact of China’s strict covid policies. Most Asian shares also declined on Tuesday.
Broad market indices were weak with BSE SmallCap and MidCap ending nearly 1% lower each. Fear gauge, Volatility index, jumped nearly 10% today. Among sectors, IT, metals, pharma, FMCG and realty ended in the red, while banks and financials just managed to stay afloat.
On the 30-share Sensex, Dr Reddy's, HDFC and Power Grid were the best gainers among the 10 stocks that ended in the green, while HCL Tech, HUL and Tech Mahindra were the biggest laggards.
Nominal GDP grew 19.1% in CY21, while real GDP was reported to have grown only 8.3% (still the fastest in the G20, the fourth year India was the world’s fastest-growing large economy in the past 7 and 75 years). The GDP deflator (+10.8%YoY) rose even faster than the reported rise in WPI in CY21 (10.7%); the largest component of GDP (private consumption expenditure, PCE, about 60% of GDP) saw its official deflator rise 7.7% in CY21, improbably faster than the 5.1% rise in CPI. Real GDP was, in our view, under-estimated considerably in CY21 because the deflators were inaccurate.
· The biggest source of under-estimation was in the contribution of net exports of goods and services. According to the Balance of Payments (BoP), the current account deficit was just 1% of GDP in CY21 (after a surplus of 1.5% of GDP in CY20). The BoP merchandise trade balance uses the FOB (free on board) measure for both exports and imports (observable figures). But India uses an “adjustment factor" to measure imports on a CIF (costs, insurance & freight) basis. As a result, nominal net exports of goods & services (which should be near-identical to the BoP current account) showed deficits of 0.24% of GDP for CY20 and 2.35% of GDP for CY21. The inflation-adjusted net exports of goods and services (which go into the calculation of real GDP) showed deficits of 1.8% of GDP in CY20 (versus a BoP current account surplus of 1.5%) and 4.6% of GDP in CY21 (versus a BoP CAD of just 1% of GDP), suggesting that “real" net exports erroneously subtracted over 3% from real GDP in each year.
· Our estimate is that real GDP will be reported to have grown 5% YoY in Q4FY22, implying 9% real GDP growth in FY22. But this headline growth will be despite the large discrepancy between the current account balance and the inflation-adjusted net exports of goods & services (the latter having subtracted 3pp from real GDP growth in FY22). This will provide a large cushion to be adjusted in the subsequent year(s), as real GDP will have been artificially under-estimated in FY21 and FY22. In H1FY23, we expect growth to remain export-led, with domestic demand also benefitting from the low-base of Q1FY22 (when India was hit by serial lockdowns in different states during the second wave of covid). However, we estimate that the fiscal deficit in FY23 will be only 5.6% of GDP (much lower than the official estimate of 6.2% of GDP) as direct tax revenues in FY22 have already exceeded the FY23 projections. The recently-announced cuts in excise duties will not alter that outlook, as corporate and personal income tax revenues stay strong, as do GST revenues. The government’s substantially lower borrowing requirement (especially in H2FY23) will help crowd-in more private investment, delivering 8.2% real GDP growth in FY23. The low, globally-competitive corporate tax rate (25%, and just 17% for new manufacturing units), more flexible labour market (aided by the contract labour law) and the production-linked incentive (PLI) scheme will draw in substantially more fixed investment across a broadening swathe of industry, enabling real GDP to accelerate to 9% in FY24, aided by the cushion of FY22 statistical discrepancies.
Effective May 2, 2022, SEBI’s circular on segregation and monitoring of collateral at the client level has been implemented. This regulation is another important step to fortify the interests of investors, especially the retail participants, thereby helping strengthen the capital markets. Earlier, brokers were required to collect margins from clients and deposit the collateral with exchanges on an aggregate basis, i.e. at the trading member/broker level, without segregation at the client level, wherein at least 50% of the total collateral was required to be in the form of cash or cash equivalents. From May 02, 2022, under the new regulation on segregation of clients’ funds, brokers are now required to segregate cash & noncash margins at the client level and report to the same to exchanges.
Under the extant regulation if a client provides margins in the form of securities, which is in excess of the maximum allowed proportion of 50% of the total margins, then the differential cash component to the extent of 50% can be funded by the broker from its own funds. This means that clients can still trade in the markers with a more proportionate share of securities as margin collateral, however, the cash component of at least up to 50% has then to be funded by the broker.
If the stock brokers allow the differential funding of cash to their clients in lieu of securities as margin collaterals, there will be an increase in working capital requirements for such brokers, with only those well capitalized and better-rated brokers having access to such incremental capital.
However, at Angel One, nothing changes, as not only are we well capitalized but also have a good rating for our funding requirements. Therefore, we will continue to allow our clients to trade even if they do not have the mandatory 50% cash margins. Our robust risk management systems and adequate internal accruals / working capital facilities will enable us to fund the extra non-cash margin collateral provided by clients through our own / borrowed funds. Whilst this ensures seamless trading for our clients without an immediate requirement for them to bridge the cash collateral shortfall, it also is a USP amongst our peer group.
Koel Ghosh, head–South Asia, S&P Dow Jones Indices says market participants in India have signalled interest in factor-based indices, by moving away from plain vanilla market beta strategies and investing in multi-asset or thematic strategies such as environmental social and governance (ESG), metaverse and crypto. In an interview with Mint, she added that diversification will never go out of style. (Read here)
Most Asian shares declined on Tuesday, as a drop in U.S. stock futures stoked fears about a global economic slowdown, while the Indonesian market rose after the central bank stood pat on interest rates.
Nikkei 225:closed 0.9% lower, Hang seng fell 1.8%. Shanghai - Composite: Down 2.4 %.
Oil fell by almost $1 on Tuesday as concerns over a possible recession and China's Covid-19 curbs outweighed tight global supply and expectations of a pick-up in fuel demand with the U.S. summer driving season.
Brent crude fell 56 cents, or 0.5%, to $112.86 a barrel. U.S. West Texas Intermediate (WTI) crude dropped 72 cents, or 0.7%, to $109.57.
The consolidated net revenue of NIIT increased by 35% to ₹375 crore during the reported quarter from ₹278.8 crore in the corresponding quarter of 2020-21.
Ujjivan Small Finance Bank has raised interest rates on its term deposits, effective 19 May. Rates on deposits of tenure of 15 months 1 day to 18 months have been raised by 75 basis points (bps) to 6.75%, and those for a 990-days tenure have been increased 35 bps to 7.1%.
The Enforcement Directorate has recently recorded the statement of former NSE managing director and chief executive officer Chitra Ramkrishna, lodged inside Delhi's Tihar jail, as part of a money laundering investigation against her and others, officials said Tuesday.
The proceedings for recording the statement were conducted on two occasions inside the jail. The statement has been recorded under the criminal sections of the Prevention of Money Laundering Act (PMLA), they said.
JK Cement reported satisfactory volume and revenue growth in Q4FY22, supported by better demand and higher realization in its key markets. On a consolidated basis, the company’s Volume/Revenue grew at 10%/1% YoY. The volume growth was in line with expectations. However, it recorded an EBITDA margin of 16.3%, lower than our expectation of 18.4%, owing to the higher costs it faced during the quarter. The volume for the quarter stood at 4.04 million tonnes per annum (mntpa), up 1% YoY. Blended EBITDA per tonne of ₹951 ( ₹1,109/tonne in Q4FY21) was lower by 14%. On the other hand, blended realization/tonne was posted at ₹5,823 against ₹5,327 in Q4FY21, up 9% on a YoY basis. The company’s cost/tonne increased by 15% from ₹4,218 to ₹4,871 YoY due to higher Power & Fuel costs and RM and Freight cost. On a per tonne basis, Power/fuel and RM costs were higher by 39%/21% YoY. With the increase in cement demand along with superior pricing, the company’s strong foothold in demand-accretive North and Central regions of India, and cost optimization measures undertaken, we expect JK Cement to register a Revenue/EBITDA/PAT CAGR of 17%/9%8/% over FY21-FY24E. This will be driven by volume/realization improvement of 13%/4% CAGR over the same period.
We value JKCL at 13x FY24E EV/EBITDA to arrive at a Target Price of ₹2,800/share (3,100 earlier), implying an upside of 15% from the CMP.
Export-Import Bank of India (Exim Bank) on Monday said it has signed a $100 million loan agreement with Japan Bank for International Cooperation (JBIC), along with three Japanese private financial institutions -- MUFG Bank Ltd, Bank of Kyoto Ltd and Hachijuni Bank Ltd -- aimed at supporting the Indian healthcare sector for combating Covid-19.
The agreement was signed on Monday on the sidelines of the Quad Leaders' Summit.
Alembic Pharmaceuticals on Tuesday said it has received approval from the US health regulator to market Pirfenidone tablets used to treat lung disease in the American market.
The company said it has received final approval from the US Food and Drug Administration (USFDA) for its abbreviated new drug application (ANDA) for Pirfenidone Tablets, 267 mg and 801 mg.
Life Insurance Corporation of India (LIC) on Tuesday said its board will meet on Monday to consider and approve the audited annual financial results (standalone and consolidated) for the quarter/year ended on March, and also payment of dividend, if any.
The Initial Public Offer (IPO) received bids for 1,09,00,752 shares against 1,13,64,784 shares on offer, according to NSE data.
The category for Retail Individual Investors (RIIs) received 1.69 times subscription, while the portion for Qualified Institutional Buyers (QIBs) got subscribed 25% and non-institutional investors 16%
Fashion retailer Aditya Birla Fashion and Retail Limited (ABFRL) on Tuesday said its board has approved raising up to ₹2,195 crore from an affiliate of GIC, Singapore’s sovereign wealth fund.
GIC will invest ₹770 crore now towards subscription of equity and warrants, followed by up to ₹1,425 crore in one or more tranches within 18 months. Post the entire investment, GIC will own 7.5% equity stake in ABFRL. Aditya Birla Group will hold 51.9% stake in the company post the completion of this transaction, the company informed the exchanges.
Zomato Ltd’s shares surged to a high of Rs67.60 apiece in Tuesday’s morning trade on NSE. This represents an 18.5% gain from previous closing. This comes on the back of the company announcing March quarter (Q4FY22) results after market hours on Monday. (Full report)
Shares of SoftBank Group-backed Delhivery Ltd made stock listing at ₹495 on the NSE, a premium of nearly 2% over its IPO issue price of ₹487 per share. On BSE, Delhivery shares started trading at ₹493 apiece, and later surged to ₹540 in early deals.
Prime Minister Narendra Modi met US President Joe Biden in Tokyo on Tuesday shortly after holding the Quad Leaders' Summit.
The meeting marks a continuation of their regular dialogue having interacted most recently in virtual mode on April 11.
The two leaders are expected to review the India-US Strategic Partnership and follow up on discussions held during PM's bilateral meeting with President Biden in September 2021.
Divi’s Laboratories (DIVI) registered a strong performance in FY22 aided by higher sales from Molnupiravir. We believe efforts on backward integration, debottlenecking and utility upgradation will continue to yield better margins. Divi’s remains preferred play on Indian CRAMS and API given its strong execution track record. However, in near term growth is likely to remain muted given high base. At CMP, stock is trading at 34x P/E on FY24E. Our FY23 and FY24E stands marginally reduced by 1-2%. We recommend our ‘Accumulate’ rating with revised TP of ₹4,300/share (Rs4,750 earlier).
§ Higher revenues aided by CS segment: Divi’s Q4FY22 sales increased 41% YoY (flat QoQ) to Rs25.2bn, higher than our estimates of Rs22.4bn largely driven by strong growth in custom synthesis (CS) (+140% YoY) largely on account of Molnupiravir sales. We believe company has booked +$100mn of sales from Molnupiravir in Q4. During FY22 EU and US contributed 77% of revenue. Product mix for generics and custom synthesis in FY22 were at 41% and 59% of revenue, respectively. Nutraceutical business for the quarter was at ₹1.57bn with flat YoY. Generic segment declined 30% YoY.
§ Better product mix and higher revs aided EBITDA: GM came in at 66.7%, down 80bp YoY and flat QoQ, largely on account of increase in the RM prices and product mix. Employee expenses grew 19% YoY while other expenses increased by 16% YoY on higher frieght cost. EBITDA up by 54% YoY (flat QoQ) at Rs11bn with OPM at 44% (flat QoQ) vs 40% in Q3FY21 mainly aided by higher CS revenues. Tax came in lower at 17%. PAT came in higher at Rs9bn; up 78% YoY (flat QoQ) vs our est of ₹6bn.
§ Key concall takeaways: (1) Company registered strong growth during the quarter and its core investments on debottlenecking, capacity expansion and backward integration has started yielding positively in de-risk of external supply dependent and fastest deliveries (2) On the Kakinada plant, capex is likely to be in the tune of Rs10-20bn. Still awaiting for government clearance. (3) The company is operating at 80-85% of capacity utilization (1700 reactors) and have additional 200 reactors for any additional opportunity. (4) Company has ability to pass on any raw material volatility. (5) Multiple validations are going on across Sartans, CS and new generic segments. (6) Constant currency growth for Q4 was 39% while FY22 was 34%. (7) Tax rate was lower at 20% in FY22 due to incremental sales for SEZ which enjoys tax benefits (8) Increase in receivable days on account of higher sales towards end of Q4 (9) CWIP as of Mar’22 was at ₹4.7bn with net cash of ₹28bn.
The March quarter earnings for FY22 of The Ramco Cement Ltd, released post market hours on Monday, were disappointing, to say the least. Volume growth on a year-on-year (y-o-y) basis was flat at 3.19 million tonnes. Operating margin at 17.3%, was higher than consensus estimate of 16.6%, but declined around 1,040 basis points, y-o-y, impacted by continued input cost inflation. One basis point is 0.01%.
Consequently, shares of the company hit a new 52-week low of Rs656.35 on the NSE in Tuesday's opening trade. (Full report)
Specialty chemicals company Aether Industries' initial public offering (IPO) opened for public subscription today and concludes on May 26. The firm has fixed a price band of ₹610-642 per share for its issue. Ahead of IPO, Aether Industries garnered ₹240 cr from anchor investors.
The company has cut the size of the fresh issue of equity shares to ₹627 crore from ₹757 crore planned earlier following the pre-IPO placement. Apart from fresh issue, there will be an offer-for-sale (OFS) of up to 28.2 lakh equity shares by the promoter.
SAIL reported a 32% YoY and 22% QoQ increase in revenues, which stood at ₹307bn during the quarter, as against our estimate of Rs321bn
Sales volume increased 8.4% YoY and 23% QoQ to 4.71mn tonnes; 2% below our estimate of 4.8mn tonnes
Realisation increased 22% YoY, but surprisingly fell 1% QoQ to Rs65,359/tonne, lower than our estimate of ₹66,950/tonne
SAIL’s EBITDA was aided by lower employee expenses, while volumes and realisation being marginally lower than our estimate. Going forward, we believe that the company is well positioned to continue benefiting from stable spreads over the next few years. Capacity expansion is nearing completion, resulting in volume growth. Also, we expect balance sheet deleveraging to continue, with net debt slated to reduce from Rs348bn in FY21 to Rs182bn in FY24E. We currently have a BUY rating on the stock.
Shares of Venus Pipes and Tubes made a positive debut on BSE today with the stock rising to ₹351 against issue price of ₹326. The IPO or initial public offer of Venus Pipes and Tubes was subscribed 16.31 times. The retail portion saw good demand and was subscribed 19.04 times. The portion for non-institutional investors received 15.69 times subscription and qualified institutional buyers 12.02 times.
At the interbank foreign exchange, the rupee opened weak at 77.56 against the US dollar, then turned volatile to trade in a tight range of 77.56 to 77.51. The domestic unit was trading at 77.56 against the greenback, registering a fall of just 1 paisa over the last close.
Shree cement’s (SRCM) reported Q4FY22 EBITDA tad below our estimates. While, it missed consensus estimates (CE) by 10%. EBITDA fell 23% YoY to Rs9.1bn.
SRCM commanded meaningful differential in EBITDA margins over its peers on back of higher share of cheaper renewable power, indirect tax incentives and logistics advantage. However, the gap has contracted significantly over last one year due to optimisation of realisations and extensive work on rationalisation of freight cost done by the peers. We believe that gap would further narrow down with multi-fold increase in share of renewable power and further reduction in lead distance coupled with commissioning of new plants. Given the expensive valuations (EV/EBITDA at 14.2x FY24e) and high expectations on both margins (Rs1,350/t) and volume growth (CAGR of 12% over FY22-FY24e), we expect stock to extend its underperformance to peers and broader indices. We trim our assigned EV/EBITDA by 10% to 15x FY24e due to performance in-line with industry. Maintain Hold rating with revised TP of Rs23,150 (earlier Rs25,687).
§ Weak demand in East region impacted the volumes: Volumes declined 2.3% YoY to 8.0mnt (PLe:8.1mnt), in line with industry.
§ EBITDA/t declined 21% YoY/10% QoQ to Rs1,135: Blended realisations fell 1% QoQ (+5% YoY/260) at Rs5,077, in line with our estimate. Due to 73% YoY increase in energy cost, Cost increased sharply by 17% YoY to Rs3,943 (PLe:Rs3,932). This led to contraction in EBITDA/t by 21% QoQ/10% YoY to Rs1,134 (PLe:Rs1,144). Adjusted for write-back of prior year tax or Rs1bn, PAT fell 29% YoY to Rs5.5bn (PLe:Rs5.6bn, CE:Rs6.0bn).
§ Target to become 80mtpa player by 2030: Company guided to increase its capacity to 80mtpa (current 46.4mtpa) by 2030. It already announced greenfield plant of 3.5mnt in Rajasthan for commissioning by FY24 end. The work on 3mtpa greenfield grinding unit in West Bengal is on track for commissioning in FY23. We expect addition of greenfield plant of 3.0mtpa in Andhra Pradesh in FY25. We believe that majority of growth would come through greenfield expansions.
Shares of Zomato Ltd surged over 17% to ₹66 apiece on the BSE in Tuesday's opening deals after the online food delivery platform's earnings. Revenue from operations rose 75% to ₹1,212 crore from ₹692 crore year-on-year (YoY). Consolidated net loss widened to ₹359.7 crore in the fourth quarter ended March 2022, impacted by higher expenses.
The Indian equity market started with high volatility at the opening bell on Monday, led by mixed global cues and domestic macro developments over the weekend. .. the benchmark index pared down all the initial gains to conclude the day a tad above 16200 levels with a mere cut of 0.32%.
We allude to our previous commentary of not being complacent with single-day momentum until the sturdy hurdle of the unfilled gap at the 16480-16650 zone is not taken out by the bulls, that certainly is seen in the market. The undertone is expected to remain upbeat till the index holds over the 16000 psychological mark. And looking at the technical setup, the market is likely to trade in the mentioned slender range till a decisive breakout is not seen on either side in the near period. Meanwhile, broad-based traction has been observed across the bourses on the sectoral front, wherein the significant benefactors that boosted the positive sentiments were the Auto and IT space. At the same time, the crackdown in the metal sector has dampened the overall sentiments in the market.
Going forward, where the index is likely to remain in the slender range, many stock-specific adjustments are likely to continue. Hence, traders are advised to have a stock-centric approach and stay abreast with the global and domestic developments on a regular basis.
Indian officials advised wealthy nations to stop wasting food and pointed out New Delhi makes up less than 1% of global wheat exports after the Group of Seven developed economies criticized India’s ban on wheat shipments amid the Russia-Ukraine war.
Commerce ministry officials told Mint that at least eight countries, including Egypt, Turkey and Kuwait have exercised export restrictions amid wheat shortages triggered by the war. G7 nations, they said, have no “locus standi" to ask India to keep grain exports open. India exported over $600 million worth of wheat in March and April to offset shortages, they added.
We are expecting another soft listing of the new IPO, as Delhivery may open near its offer price of ₹462- ₹487. We have given a neutral rating to Delhivery IPO on the back of expensive valuations, if we look at a valuation based on annualized FY22 numbers, the IPO is priced at EV/Sales of 4.8x and Price to Book value of 5.2x at the upper price band of the IPO. For 9MFY22 the company has reported an EBITDA loss of ₹232 crores and a Net loss of ₹891 crores. If we look at the grey market premium, as per different market news GMP of Delhivery IPO is trading at ₹5. So looking at expensive valuation and some correction in the market in the last 2 weeks we are expecting a soft listing of Delhivery IPO.
Companies that will announce their March quarter earnings today --Grasim Industries, Adani Ports, Balkrishna, Balrampur Chini, Bank of India, JM Financial, Ipca Labs, Minda Industries, Strides Pharma and Zee Media among others-- will also be in focus today.
While the world economy faces headwinds, current growth forecasts offer a buffer against a potential global recession, the International Monetary Fund’s No. 2 official said on Monday.
Among the major threats to economic growth, IMF First Deputy Managing Director Gita Gopinath said the conflict in Ukraine could escalate, adding: “You could have sanctions and counter-sanctions". (Full report)
The four Indo-Pacific leaders of the "Quad" grouping vowed on Tuesday to stand together for a free and open region at the start of talks, and also pledged to work on fighting climate change.
Highlighting that the Quad's scope has become extensive despite Covid-19 challenges, Prime Minister Narendra Modi on Tuesday said the mutual trust, and determination of the members countries including the US, Australia and Japan is giving new energy and enthusiasm to democratic powers.
The plan to rationalize goods and services tax (GST) rates to boost revenue collection for central and state governments may get delayed because of the sudden deterioration in macroeconomic conditions, including slowing economic growth and surging inflation.
A ministerial panel led by Karnataka chief minister Basavaraj Bommai looking into GST rate rationalization will weigh the evolving economic conditions while making recommendations, said a person familiar with discussions among its members.
Oil fell on signs the European Union is struggling to agree on an embargo on Russian imports, and as gasoline sank from last week’s record. Brent crude futures for July slid 35 cents, or 0.3%, to $113.07 a barrel. U.S. West Texas Intermediate (WTI) crude futures for July delivery dropped 36 cents, or 0.3%, to $109.93 a barrel. Both benchmarks declined by more than $1 earlier in the session.
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