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Drop in Retail Inflation, IMF Bullish on Indian Markets

Inflation Tapers, Growth Picks Up and IMF Stays Bullish on India
by 5paisa Research Team 13/10/2021

On 12th October, 3 important macro data points were out in the market. The first two were domestic; consisting of September Inflation and August IIP. The third data point pointed to IMF estimates of India’s GDP growth.
 

How did retail inflation and IIP growth pan out?


Let us look at inflation first and then turn to IIP growth.

a) Retail inflation, or headline inflation, for Sep-21 fell to a 5-month low level of 4.35%. It was last at 4.29% in Apr-21. Inflation has fallen nearly 200 bps from 6.40% in May-21.

b) The sharp fall in food inflation from 3.11% in August to 0.68% in September triggered the fall in headline inflation. Most food items dipped lower on record Kharif and good Rabi promise.

c) Core inflation, which is structural inflation excluding food and oil, stayed elevated at 5.77%. The fall in inflation in Sep-21 was largely food driven with non-food items still running high. 

d) With Brent Crude at $84/bbl, fuel inflation is at 13.5% and Transport inflation above 9.5%. These remain the big risks, more so because they have strong spill over effects on other items. 

Check - Crude Oil at $75/bbl – Here comes inflation

e) Industrial of industrial production or IIP growth for Aug-21 came in stable at 11.86% as compared to 11.5% in July. This data is YOY and comes with a one-month lag.

f) The growth in IIP has sustained at 11.86% despite the base effect of low IIP waning. So, this is more of genuine growth in output that is visible this time around. 

g) The 2-year IIP growth (pre-COVID versus post-COVID) is finally positive at 3.88% and is a signal that the IIP has overcome the pressures created by COVID-19 and COVID 2.0.

h) High frequency indicators like GST, e-way bills and freight are robust but manufacturing IIP is yet to catch up with the pace of growth of mining and electricity.

The moral of the story is that the RBI may finally take comfort from the fact that IIP is back to durably normal levels. Hence soft rates and accommodative stance to boost growth may not be the need of the hour any longer. Now the action will purely shift to inflation as a deciding factor in RBI monetary policy.

What IMF said about India’s growth for 2021 and 2022?

According to the latest IMF report, Indian economy was projected to grow at 9.5% in calendar 2021 and at 8.5% in calendar 2022. Interestingly, the IMF has lowered the 2021 growth projections for the world economy from 6% to 5.9%. For China, the growth projections are lowered from 8.1% to 8% while US growth has been cut sharply from 7% to 6.1%.

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TPG Invests $1 Billion in Tata Motors EV Business

TPG Invests $1 Billion in Tata Motors EV Business
by 5paisa Research Team 13/10/2021

In the last one month, the stock of Tata Motors has rallied close to 40%. One of the key drivers of this rally has been the proposed investment by private equity investors in its Electrical Vehicles (EV) business. On 12th October, the announcement finally came that TPG will be investing Rs.7,500 crore or close to $1 billion in the EV business of Tata Motors.

The investment will give TPG a stake of 11-15% of the Tata EV business depending on the final valuation arrived at. If one looks at the upper end of the valuation spectrum, this deal could value the EV business of Tata Motors at close to $9.1 billion. That will be value accretive to the valuation of Tata Motors as a whole, but that is a separate issue.

The whole intent of Tatas Motors, according to N Chandrasekharan, is to improve the EV mix in the overall automobile portfolio of Tata Motors from 3% to 20%. Tata Motors plans to launch at least 7 new EVs by FY26 in different sizes and different price ranges. This deal makes Tata Motors EV the most valuable EV property, at almost twice that of Ola Electric.

For the next 7 Electrical Vehicle products that Tata Motors is planning, it is considering a “Born Electric” model. These are the vehicles that are built as EVs from scratch. Tata Motors is already selling 1000 EVs each month from of its 2 existing EV models of Nexon and Tigor. For FY21, the EV business clocked a total turnover of Rs.600 crore and expected to grow big.

The EV business will see investments of $2.2 billion over the next 5 years and the company will even look to bring in more such PE participation or strategic partners as the need arises. What is important is that the EV business of Tata Motors is expected to turn EBITDA positive by FY23, which is the first important step to profitability.

While the exit route is not yet clear, it is reported that Tata Motors has offered multiple exit options to TPG for the future. These include a buyout by the Tatas or even an IPO of the hived off EV business when the market conditions are appropriate. While TPG will lead this $1 billion investment, ADQ is also expected to participate.

Also Read:-

Best EV Stocks to Buy

Rally in Tata Group Stocks: Tata Motors and Tata Power

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Centrum and BharatPe Get Small Finance Bank License

Centrum and BharatPe Get Small Finance Bank License
by 5paisa Research Team 13/10/2021

Four months after the RBI gave in-principle approval to Centrum Financial Services to float a small finance bank (SFB), the RBI has granted the SFB license to the consortium of Centrum and BharatPe. The SFB promises to be India’s first pure digital small finance bank offering an open architecture experience to customers.

To understand a bit of background, the consortium of Centrum Financial Services and BharatPe had expressed their interest in acquiring PMC Bank. The cooperative bank board had been superseded by the RBI after PMC bank had teetered on the verge of default. However, RBI insisted that Centrum should first seek an SFB license to take over PMC Bank.

Check - Centrum Group to Takeover PMC Bank

The SFB floated by Centrum and BharatPe will be called the Unity Small Finance Bank. It will start operations with a small loan book of Rs.1,500 crore and will take over the assets and liabilities of the beleaguered PMC Bank. Centrum Financial is listed on the BSE and is headed by former Standard Chartered India head, Jaspal Bindra. He will also drive the SFB.

The Unity SFB plans to become operational before the end of 2021 as a pure digital only bank. To begin with, Centrum will merge its SME lending portfolio and its micro credit portfolio into the portfolio of Unity SFB for a consideration of Rs.426 crore. These businesses are currently being run by two subsidiaries of Centrum.

Apart from Centrum Financial, BharatPe will also move its loan assets and integrate them into the overall loan book of Unity SFB. In addition, Centrum Financial Services and BharatPe have also jointly decided to infuse capital to the tune of Rs.1,800 crore into Unity SFB to ensure that the small finance bank is adequately capitalized. 

To begin with, the big challenge for Unity SFB will be to integrate the operations of PMC Bank. The cooperative bank has total deposits of Rs.10,727 crore, total advances of Rs.4,473 crore and gross NPAs of Rs.3,519 crore. Withdrawal of deposits from the bank have been under RBI restrictions since September 2019.

The Unity SFB is likely to have a strong board with former SBI Chief, Rajneesh Kumar taking over at the helm of BharatPe. However, the real battle for Unity SFB may have just about begun.

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Airlines Finally Allowed to Operate at 100% of Capacity

Airlines Finally Allowed to Operate at 100% of Capacity
by 5paisa Research Team 13/10/2021

After a gap of almost 17 months, airlines were allowed to operate flights at 100% of pre-COVID capacity. That effectively means all restrictions on flying have been lifted. The Ministry of Civil Aviation has not yet removed the caps on fares that it had announced. The 100% capacity flying will be effective from 18th October.

In May 2020, due to the airlines being a contact-intensive business, the flying capacity was cut to 33%. Between May 2020 and December 2020, the capacity was gradually increased to 80%, where it stayed till June 2021. In Jun-21, due to COVID 2.0, the capacity was again cut to 50% and had been scaling up gradually. Last month it was raised from 72.5% to 85%.

Check - Ministry of Civil Aviation allows Airline Companies to Fly with 85% Capacity

There were two reasons for the restoration of 100% flying capacity in India. Firstly, the vaccinations had crossed 95 crore and the incidence of COVID or its variants had substantially come down. Secondly, the government wanted to ensure enough flying capacity available to travellers during the prolonged festival season in India.

The results of higher capacity permission is already visible in the numbers. For the first seven days of October, a total of 17 lakh passengers took domestic flights in India. That is 10% higher compared to the first 7 days of September. Currently, airlines are operating at 70-75% capacity while passengers are at 60-70% of pre-pandemic levels.

India’s largest airline, Indigo Airlines with domestic market share of 55%, as it operates nearly 1200 flights a day and can restore peak capacity. Its average PLF (passenger load factor) is in the range of 75-80% and the restoration of capacity will give a further boost to the numbers and to the PLF of Indigo. This will apply to other airlines too.

Indian airline companies have been stuck between the devil and the deep sea for some time now. ATF prices are rising and low PLF has meant that the gap between the CASK and the RASK has been dipping deeper into negative zone. While ATF prices are not in their control, flying at full capacity will enable better absorption of fixed costs.

Apart from the market leader, Indigo Airways, this announcement is also likely to be positive for the Tatas who have just acquired Air India. It also may be good tidings for Rakesh Jhunjhunwala, whose Akasa Air will take off next year.

Read - Rakesh Jhunjhunwala's Akasa Air Gets Approval to Launch Operations

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Reliance and Stiesdal to Manufacture Hydrogen Electrolyzers

Reliance and Stiesdal to Manufacture Hydrogen Electrolyzers
by 5paisa Research Team 13/10/2021

Reliance New Energy has been in the news this week. After the acquisition of Norwegian Green firm, REC, and a 40% stake in Sterling & Wilson Solar, the latest deal pertains to manufacturing Hydrogen Electrolyzers. Reliance New Energy has partnered with Stiesdal A/S of Denmark and the former will be the licensee for the technology.

Also Read : Reliance to Acquire Stakes in Sterling & Wilson Solar

Stiesdal has developed its own proprietary technology for Hydrogen Electrolyzers that can reduce the cost of production of these Electrolyzers. This will help to substantially bring down the price of green hydrogen. This is an important technique in climate change mitigation, one of the big focus areas of Reliance New Energy. 

In the last Reliance AGM, Mukesh Ambani had set a hydrogen target of 1-1-1. That is an ambitious target for green hydrogen production which entails producing 1 KG of hydrogen for $1 within the time frame of 1 decade or 10 years. The global benchmark that companies are moving towards is 2 KG of hydrogen.

In addition, the collaboration of Reliance and Stiesdal will also cover other areas like offshore wind energy installations, next generation fuel cells for conversion of hydrogen to electricity for mobile and static electric generation, for long duration storage of energy and the generation of carbon negative fuels.

One of the big endeavours of the Reliance group is to make its energy mix greener and eventually  become carbon neutral by 2030. Reliance is investing up to $10 billion or Rs.75,000 crore over the next 3 years in renewable energies including the setting up of giga-factories in the Jamnagar complex.

Stiesdal, in a statement to the press, expressed its excitement about working with one of the largest countries and also the fastest growing economies in the world. Stiesdal operates through four of its subsidiaries, wherein each of these subsidiaries focusses on a separate renewable energy production methods.

Among its various clean energy products, Stiesdal has been involved in offshore floating wind turbines, storage technologies through crushed stone technologies, Clean technology for making CO2 negative fuel for aircraft and an electrolysis system that can easily convert water into hydrogen.

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Infosys Ltd and Wipro Ltd Q2 Results for September 2021

Infosys Ltd and Wipro Ltd Q2 Results
by 5paisa Research Team 13/10/2021

Infosys Ltd – Q2 Results (Sep-21)

For the Sep-21 quarter, Infosys reported 20.48% growth in total revenues Rs.29,602 crore. Revenues were sequentially higher by just about 6.12%. Net profits for the quarter were up 11.9% YoY at Rs.5,421 crore while sequentially the profits were up by a moderate 4.35%.
 

 

Infosys Ltd

 

 

 

 

Rs in Crore

Sep-21

Sep-20

YOY

Jun-21

QOQ

Total Income (Rs cr)

29,602

24,570

20.48%

27,896

6.12%

Operating Profit (Rs cr)

6,972

6,228

11.95%

6,603

5.59%

Net Profit (Rs cr)

5,421

4,845

11.89%

5,195

4.35%

 

 

 

 

 

 

Diluted EPS (Rs)

12.85

11.40

 

12.21

 

OPM

23.55%

25.35%

 

23.67%

 

Net Margins

18.31%

19.72%

 

18.62%

 


The big story was that the heavyweight regions also grew the fastest. North America makes up 62% of revenues and grew at 23.1% while Europe makes up 24% of revenues and grew 22.8%. The big story was the focus on digital revenues. Total digital revenues for the quarter grew by 42.4% YoY in constant currency terms while the share of digital in total revenues went up from 47% to 56.1% on a YoY basis. Manufacturing, Life Sciences and BFSI were the top growth verticals for Infosys.

Finally, on the guidance front, Infosys raised its revenue growth guidance from the range of 14-16% to a higher range of 16.5-17.5%. Operating margin guidance has been maintained at 22-24% range. For the quarter, Infosys reported OPM of 23.6% and new deals of $2.15 bn.

Check - Infosys AGM 2021

Wipro Ltd – Q2 Results (Sep-21)

For the Sep-21 quarter, Wipro reported 30.29% growth in revenues at Rs.19,669 crore. Revenues were sequentially up by just about 6.51%. For Sep-21 quarter, net profits were up 18.9% YoY at Rs.2,931 crore but profits fell -9.77% on sequential basis.

Among major growth areas, the North American region which accounts for over 60% of revenues grew by 25% YoY. The European operation accounting for 30% revenues grew by a whopping 50% YoY. The growth in the APMEA region was more subdued at around 10%, but it is much smaller in relative size.
 

 

Wipro Ltd

 

 

 

 

Rs in Crore

Sep-21

Sep-20

YOY

Jun-21

QOQ

Total Income (Rs cr)

19,669

15,097

30.29%

18,467

6.51%

Operating Profit (Rs cr)

3,398

2,779

22.25%

3,370

0.82%

Net Profit (Rs cr)

2,931

2,466

18.86%

3,248

-9.77%

 

 

 

 

 

 

Diluted EPS (Rs)

5.35

4.32

 

5.92

 

OPM

17.27%

18.41%

 

18.25%

 

Net Margins

14.90%

16.33%

 

17.59%

 


Guidance for Wipro is more subdued. Wipro is expecting revenue growth of just about 2-4% and operating margins to hover around 17-18%. The only area of concern, apart from the sequential fall in profits for Wipro will be the sharp spike in the attrition rate to above 20.5%.

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