Crude Oil at $83/bbl – Who Gains and Who Loses

Crude Oil at $83/bbl – Who Gains and Who Loses
by 5paisa Research Team 07/10/2021

The price of Brent crude has rallied to above $83/bbl and is now at the highest level that oil has since in last 2014. In short, oil is at the highest level in the last 7 years. What is it that has contributed to this sharp rally in oil prices? It is a mix of demand surge and supply constraints that is pushing oil prices higher.

On the demand side, there has been a surge in oil demand in line with the opening up of economies post pandemic and also as industrial capacities get back to normal. On the supply side, OPEC has confirmed in its latest meet that the cartel would only be raising the supply gradually. US supplies are also constrained by the hurricane in Gulf of Mexico.

The sustained drawdowns in the US inventory in the last few weeks indicate that demand continues to far exceed supply. At a macro level, that has negative repercussions for the Indian trade deficit and the value of the rupee. More importantly, higher crude prices means higher inflation since India relies on imports for 80% of its daily crude needs.

Who gains and who loses from the oil prices spike?

The table below captures some of the key gainers from the spike in oil prices:

Company

Gainer / Loser

Reason

ONGC Ltd and Oil India

Gainer

Higher crude prices improves their realization per barrel and boosts profits. Has a positive impact on gas prices also

IOC Ltd

Gainer

IOCL gains from better gross refining margins (GRM) and higher inventory translation gains on higher crude prices

GAIL Ltd

Gainer

A major beneficiary of higher gas prices since the price of gas is indirectly pegged to crude prices


The table below captures some of the Key Losers from the spike in oil prices:
 

Company

Gainer / Loser

Reason

Asian Paints and Berger

Loser

Paint companies passed on most of their cost spikes to end users but that may not be possible beyond a point. Crude is a key input.

MGL, IGL, Gujarat Gas

Loser

City gas distributors or CGD players will be up against higher input costs that are likely to squeeze margins

Fertilizer Plants

Loser

The gas fired fertilizer plants are likely to see a negative impact of the oil price hike as higher gas prices will be a negative


Higher crude eventually impact all industries as the cost of petrol and diesel have strong externalities.

Also Read: 

Sectors dependent on crude Oil

What is Driving the Rally in Oil Stocks in India?

Crude Oil at $75/bbl – Here comes inflation

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Grey Market Premium of Aditya Birla Sun Life AMC Ltd IPO

Grey Market Premium of Aditya Birla Sun Life AMC Ltd
IPO
by 5paisa Research Team 07/10/2021

The Rs.2,768.26 crore offer for sale of Aditya Birla Sun Life AMC Ltd consisted entirely of an offer for sale. The issue had been priced in the band of Rs.695 to Rs.712 per share and the price has been discovered at Rs.712. The issue had closed for subscription on 01-Oct and the basis of allotment had been finalized on 06-Oct.

Shareholders are expected to get their refunds on 07-Oct and their demat credits by 08-Oct and the stock is likely to list on Monday 11th October. Ahead of listing, one of the key parameters for evaluating the potential listing is the GMP or the grey market price.

A word of caution here. The GMP is not an official price point, just a popular informal price point. However, in most cases, it has proved to be a good informal gauge of demand and supply for the IPO. Hence it does give a broad idea of how the listing is likely to be and how the post-listing performance would be.

While the GMP is just an informal approximation, it has been generally seen to be a good mirror of the real story. More than the actual price, it is the GMP trend over time that really gives the insights about the stock being upgraded or downgraded.

One of the key factors that impacts the GMP in most cases, is the extent of oversubscription. Now, Aditya Birla Sun Life AMC Ltd IPO was oversubscribed just about 5.25 times overall. On a granular basis, it was the QIB segment that led the way with 10.36X subscription while HNIs were 4.39X and Retail was 3.24X. That has made the GMP premiums robust, if not outstanding, in the informal trading market.

Check - Aditya Birla Sun Life AMC IPO Subscription Day 3

As per updates coming in on Thursday, 07-Oct, the Aditya Birla Sun Life AMC Ltd IPO is commanding a premium of Rs.35 over the issue price in the grey market. The GMP has spiked sharply in the last few days from Rs.10-20 to Rs.35 levels. The previous issue of Paras Defence had a phenomenal listing and the positive sentiments are expected to boost the sentiments surrounding the Aditya Birla Sun Life AMC IPO

The current GMP of Rs.35 for Aditya Birla Sun Life AMC translates into a 4.91% premium over the discovered price of Rs.712. It also hints at a listing price of approximately Rs.747 when the stock lists on Friday 08-Oct. Of course, subsequent price performance will depend on HNI selling as well as institutional interest in the stock.

Also Read:-

1) Aditya Birla Sun Life AMC IPO : 7 Things to Know About

2) Upcoming IPOs in 2021

3) List of Upcoming IPOs in October 2021

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Highlights of RBI Monetary Policy - October 2021

Highlights of the October 2021 Monetary Policy
by 5paisa Research Team 08/10/2021

On 08-Oct, the monetary policy maintained status quo on repo rates and reverse repo rates. It looked like the RBI and the Monetary Policy Committed (MPC) did not want to upset the applecart at a time when Evergrande and US inflation were posing huge global systemic risks.

Highlights of the Monetary Policy Announcement

1) RBI has maintained the repo rate at 4% and the reverse repo rate at 3.35%. This reiterates RBI’s commitment to keep rates low till there is sustainable growth visible in the economy. This also keeps the bank rate / MSF rate at 4.25%.

2) Investment banks like Citi had suggested that RBI may look to hike reverse repo rate by 15-20 bps as a signal of liquidity tightening. However, in the light of the uncertainty caused by Evergrande and US inflation, the MPC has desisted from any changes.

3) The MPC was unanimous about holding rates but not unanimous about the accommodative monetary stance. Jayanth Varma, an MPC member, objected to giving guarantees on accommodation, but as a majority vote, it stays for now.

4) For full year FY22, the RBI has consistently maintained its GDP estimate at 9.5%. It expects front ending of growth since the much-feared lag effect of COVID 2.0 did not happen. 

5) For the full year FY22, the estimate for CPI inflation has bene cut by 40 bps from 5.7% to 5.3%. However, this is still 20 bps above the Jun-21 levels. This is on the back of better than expected Kharif output this year and improving capacity utilization in industry.

Important policy measures announced by the RBI

The development policy measures are normally an adjunct to the main policy, but are increasingly seeing a lot of important announcements.

a) Small Finance banks or SFBs are playing an important role in last mile credit delivery. Hence, the on-tap LTRO scheme of Rs10,000cr for SFBs has been extended from Oct-21 to Dec-21. This could be extended further to boost last-mile delivery.

b) In a country like India with a lot of bandwidth disparities, RBI has allowed digital transaction in offline mode. In addition, the RBI also enhanced IMPS (Immediate Money Payment) limit per transaction from Rs2 lakhs to Rs5 lakhs.

c) Banks are currently allowed to on-lend priority sector credit via NBFCs. However, that was time-bound till 30 September this year. Now, RBI has decided to extend the facility till 31-Mar-2022.

d) With the rising credit clout and the systemic risk posed by NBFCs, RBI proposed Internal Ombudsman Service for NBFCs. This already exists for banks. This will empower NBFCs to handle and control customer grievances more efficiently.

The policy has largely been about status quo. While we await the minutes on 22-Oct, action points are expected only in the December policy.

Also Read:-

Highlights of RBI Monetary Policy and Market Performance

Next Article

Piramal to Hive Off Pharma and Focus on Financial Services

Piramal to Hive Off Pharma and Focus on Financial Services
by 5paisa Research Team 08/10/2021

The board of Piramal Enterprises approved a composite scheme of arrangement under which the pharma business of the Piramal group would be hived off into a separate company and would also be listed. The core Piramal Enterprises will only house the financial services business of Piramal Group.

According to Piramal, this is likely to simplify the corporate structure of the business and also create demarcated pockets of value. The risks, investments and ROI of the pharma and the financial business are totally different and hence keeping them under the same roof created distorted perceptions of risk and returns.

Under the scheme of arrangement, the pharma business of the Piramal group would get vertically demerged from PEL. The existing shareholders of Piramal Enterprises will get 4 shares of Piramal Pharma for every 1 share of Piramal Enterprises held by them. They will also continue to hold the PEL shares, albeit it would pertain to the downsized business.

Post the deal, Piramal Pharma will become one of the largest listed pharma companies in India and would compete with the larger names in India like Sun Pharma, Reddy Labs, Cipla and Divi’s Laboratories. Piramal Enterprises will be one of the largest fund-based NBFCs in India with substantial presence in retail and wholesale financing.

Perhaps, the DHFL deal was the trigger

Less than a fortnight earlier, PEL had completed formalities under the NCLT formula and taken full control of Dewan Housing and Finance Ltd. PEL had paid a total consideration of Rs.38,000 crore for controlling stake in DHFL. Here is how DHFL will position PEL in the top league of NBFC companies in India.

Firstly, the DFHL acquisition will take the retail wholesale mix to 50:50. The next step will be to take it to 75:25 in favour of retail and in this journey, the DHFL acquisition will be critical. DHFL gives tremendous reach to PEL with the addition of 301 branches, in addition to its existing 14 branches. 

This could also set the tone for the long-term bank license plans. Ajay Piramal had planned an entry into banking via the deal between IDFC bank and Shriram Group, which did not materialize. The decision to hive off pharma allows PEL to sharpen its focus on financial services.

Also Read:-

Will DHFL Shares Be Delisted After Being Acquired by the Piramal Group?

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Zee Gets Reprieve as NCLAT Offers More Time

Zee Gets Reprieve as NCLAT Offers More Time
by 5paisa Research Team 08/10/2021

On Thursday, the NCLT Appellate Tribunal (NCLAT) gave a reprieve to Zee by giving them more time to respond to the EGM demand raised by Invesco Fund and OFI Global China Fund.

Here is a quick time line of key events in the Zee-Invesco case and how it panned out since 11-September.

1) On 11-Sep Invesco Fund and OFI Global China Fund call for the removal of Punit Goenka from the post of MD & CEO. They also called for the removal of two directors of Zee; Ashok Kurien and Manish Chokhani. Ashok and Manish have resigned from the board.

2) Not only did Punit Goenka (son of Subhash Chandra) continue at the helm, he also stitched a deal with Sony Pictures for a merged entity in which Sony Pictures will have 53% and Zee Entertainment will have 47%. Punit was to continue for 5-year term.

Check - What does the Zee merger with Sony mean

3) Invesco was unhappy with the deal as it would dilute their stake. Post-merger, Invesco Fund will see its holding fall from 17.88% to 8.40%. During the same period, the ownership of Zee promoters will go up from 3.44% to 4% due to non-compete clause.

4) Invesco asked the Zee board to summon an EGM immediately so that the issue of Punit Goenka continuing at the helm could be discussed as well as taking a fresh view on the merger. Invesco also wanted to induct 6 of its nominees as directors in Zee.

Check - Invesco Approaches NCLT to Call EGM for Change of Zee Board

5) Zee refused to call the EGM and underlined that any changes in the management of Zee will require prior approval of the I&B Ministry.

6) With the NCLT asking Zee to file a response to Invesco’s EGM request in 36 hours, Zee approached the NCLAT under the pretext that such a short time was against the principles of natural justice.

7) After hearing the submissions, NCLAT did come to the conclusion that the NCLT had erred in not giving enough time to Zee for filing a response. That comes as a major reprieve for Zee Entertainment.

Zee is also a case of how promoters need a new strategy in such conflicts with large institutional shareholders. The entire chronology of events above happened in less than 4 weeks indicating how busy a week it has been for Zee and for Invesco too.

Also Read:-

NCLT Instructs Zee Entertainment Board to Call for EGM

Next Article

Paytm Taps Sovereign Wealth Funds as Anchor ahead of IPO

Paytm Taps Sovereign Wealth Funds as Anchor ahead of IPO
IPO
by 5paisa Research Team 08/10/2021

Paytm may be a household name in India across urban and rural centres. But they have a huge challenge on hand and that is to get their Rs.16,600 crore IPO oversubscribed. The size of the issue is too large and the stakes are too high, so obviously Paytm is plugging all the missing links to ensure a smooth IPO process.

While Paytm has filed for its Rs.16,600 crore IPO, the SEBI approval is yet to come in. The Paytm IPO will consist of Rs.8,300 crore of fresh issue and another Rs.8,300 crore by way of offer for sale or OFS. At Rs.16,600 crore, Paytm will be the largest IPO in Indian history, beating the Rs.15,000 crore raised by Coal India in 2010. The IPO would be smaller than LIC.

Check - LIC to File for its IPO in November 2021

Currently, Paytm is in talks with marquee SWF investors like the Abu Dhabi Investment Authority (ADIA), GIC of Singapore, Canadian Pension Fund etc. Even before the anchor placement, Paytm may look at a sizable pre-IPO placement of around Rs.2,000 crore. The eventual IPO size will be reduced to the extent of pre-IPO placement.

In addition, Paytm has also been tapping into some large institutional investors like Nomura of Japan and Blackrock of the US for participating in the Paytm pre-IPO placement as well as the anchor placement. Considering the size of the issue, Paytm may look at institutional participation to a much larger extent to see the issue through comfortably.

The big difference between a pre-IPO placement and an anchor investment is that the anchor investment has a lock-in period of just 30 days. Also, in the case of the anchor investor, there is no price discount and it is at the same rate as the IPO. As per extant rules, the anchor investor can be offered up to 60% of the institutional quote for the IPO.

The eventual pricing would depend on the valuation arrived at, although informal estimates peg the valuation of Paytm at between $22 billion and $25 billion at the time of the IPO. Paytm is owned by One-97 Communications.

Read More:-

8 Interesting facts about Paytm that you must know ahead of the IPO