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

Ministry of Civil Aviation
by 5paisa Research Team 19/09/2021

On Saturday, 18th September, the Ministry of Civil Aviation allowed domestic carriers to operate flights at 85% of pre-COVID levels. This was 50% in June, 65% in July, 72.5% in August and has now been increased to 85%. In a way, this is almost a reversal back to the December 2020 levels.

Last year, in the face of COVID-19, the Civil Aviation Ministry had cut down flying ratio substantially but had gradually raised it to 80% by December 2020. It stayed at 80% till May-21 but was subsequently dropped to 50% in Jun-21 due to the onset of COVID 2.0. This increase in flying capacity to 85% will help flights to inch back to normalcy.

For airline companies, this comes as a major boost to their operating performance. In the airline industry, every empty seat and every idle aircraft entails a huge cost. That is because, huge fixed costs in the form of lease rentals, airport charges, maintenance costs and manpower costs continue as usual. Hence, the trick lies in improved capacity utilization.

The passenger load factor (PLF) had touched 70% in Aug-21 with 34% yoy increase in flyers. That PLF is now likely to increase further with the capacity allowed at 85%. The PLF is a key factor that impacts the RASK-CASK spread. The revenue per average seat kilometre (RASK) is currently below the cost per average seat kilometre (CASK) for all the major airlines in India, which explains the huge losses. Higher PLF will reduce that burden.

Both the listed airlines; Interglobe (Indigo) and SpiceJet stand to gain from this move. Of course, Indigo is a decisive leader with 58% market share, so it is an obvious beneficiary. SpiceJet will be able to gain market share, as it benefits from its fleet of Boeing 737-Max back in the skies.

In a related announcement, the Civil Aviation Ministry also revised the timelines for fare bands on airline ticket prices to 15 days from 30 days currently.

Read more:- DGCA lifts ban on Boeing 737 Max Aircraft

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Why did FIIs Invest Rs.16,300 crore in September?

FII invest
19/09/2021

During the month up to 17-September, the foreign institutional investors (FIIs) infused Rs.16,305 crore into Indian markets. Out of this, the FIIs infused Rs.11,287 crore into equities and Rs.5,018 crore into debt. This is almost equal to the total infusion by the FIIs in the entire month of August. What has driven the surge in FII flows into India? After all, the IPO scene in September is hardly as aggressive as it was in August.

FII inflows into debt were driven by 3 reasons. Firstly, there is the stable to strong rupee, which ensures that returns are protected or enhanced in dollar terms. Secondly, the yield spread between Indian bonds and US bonds widened by more than 480 basis points due to a sharp fall in US bond yields. Thirdly, FIIs are also being attracted to Indian bonds on hopes that they will be included in the JP Morgan Bond Index, encouraging passive flows.

In the last few days, a series of far-reaching reforms pushed up FII appetite for Indian equities. The government announced an aggressive Rs.26,000 crore automobile & drone PLI scheme and set in motion the creation of a bad bank to take over stressed banking assets. In addition, the Telecom Relief Policy was a pleasant surprise while the recent aviation capacity boost also enthused FII investors.

Also Read: Which auto stocks gain from Rs.26,058 crore PLI scheme?

However, flows are not restricted to India alone as most Asian emerging markets saw robust flows in September. For instance, FIIs infused $2.60 billion into Taiwan, $535 million into South Korea and $290 billion into Thailand. Even Indonesia got $162 billion of FII inflows in September. Even as valuation risks are still prominent for EMs, FIIs see these EMs as compelling alpha stories.

There are two events to watch out for. The FOMC meets on 21st and 22nd September and is expected to give a timeline for taper. The likely Evergrande implosion in China is also an event that could have negative implications for Asian EMs, including India. That may set the tone for the coming weeks.

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Is the pressure on metal stocks likely to continue?

Pressure on metal stocks
19/09/2021

On Friday, 17th September, the metal stocks came under pressure across the board. The NSE Metals Index was down 6.43% on Friday. There were 8 stocks that lost more than 5% in a single day, as shown in the table below.

Stock Name

CMP Fall on 17-Sep

NMDC

-9.6%

Vedanta

-9.0%

Tata Steel

-8.3%

Jindal Steel & Power

-7.6%

SAIL

-7.3%

JSW Steel

-7.2%

National Aluminium

-6.8%

Hindalco Ltd

-5.5%

 

The fall in the metal stocks began on Friday after the iron ore futures fell sharply in the global markets from overbought territory. This was exaggerated by indications of sharply lower steel demand from China. The lower expected output was also likely to impact iron ore demand. In addition, the Evergrande fiasco in China threatens almost the entire Chinese financial ecosystem, if the company crumbles under its $305 billion pile of debt.


On Monday, metal stocks like Tata Steel, Hindalco and JSW Steel continue to be among the major losers. This has been triggered by a number of factors. There are expectations that the tapering of liquidity by the Fed could start later this year and would be followed by interest rate hikes. That is not great news for metal stocks. In addition, China has clamped down heavily on  several industries to reduce its carbon footprint. All these played a role.


Most of the steel companies have been passing on the pressure of higher input costs to the end clients. However, that would become increasingly difficult as global prices start falling. What is more important is that most of the metal stocks ranging from Hindalco to Vedanta to Tata Steel and JSW Steel have all rallied 150-200% since the beginning of 2021. With that kind of rally, some correction was inevitable.


Not much has changed structurally for the metals industry as demand remains robust and order books are full. Unless there are a series of rate hikes in the near future, any sustained correction in these metal stocks looks unlikely.

Also Read: Why did the metal index rally 5%

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Will the Indian Rupee be Under Pressure this Week?

ndian Rupee be Under Pressure
by 5paisa Research Team 19/09/2021

In the first week of September, the USDINR exchange rate stood at Rs.72.99/$. The rupee has now weakened to Rs.73.63/$. That is sharp weakening in a short span of time. What exactly has triggered this weakness and what is the likely outlook for the rupee? Will it weaken further?

I. The biggest risk is crude oil. India relies on imported crude to meet 80% of its daily crude needs. There was some hope last month when Brent Crude prices tapered to $67/bbl. However, by mid-September, Brent is back at $74/bbl and the spurt in demand and supply restrictions will keep oil prices elevated. That is likely to put pressure on the rupee, especially if you consider that trade deficit was $13.81 billion in Aug-21.

II. The FOMC meet will be a key factor that could put pressure on the Indian rupee. The US Federal Reserve has already hinted, through Jerome Powell’s speech at Jackson Hole, that the taper would commence by end of 2021. If the Fed gives a clear timetable for taper and rate hikes, it could strengthen the dollar index and weaken the rupee.

III. The Evergrande crisis could be a rupee dampener. If China hard lands due to the crisis, then PBOC is likely to let the Yuan weaken. The impact will be felt across Asia and India would be no exception. We saw in September 2015, how broadening of the Yuan range led to a sharp fall in the INR. That is a key risk in the next few days.

IV. Foreign portfolio flows are the cause and the outcome of weak rupee. Hence it normally acts as a vicious cycle. If the Fed hints at an aggressive taper, there could be a surge in FPI outflows, putting pressure on the rupee.

The redeeming features it that the RBI sits on a currency chest of $641 billion, giving enough ammunition to support the rupee in a range. As ICRA has outlined, it could be a worst-case scenario of Rs.75.50/$ by next year; not beyond that.

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How China’s Evergrande Could Create a Major Crisis?

Evergrande of China
by 5paisa Research Team 20/09/2021

Evergrande of China is in the news for all the wrong reasons. It is no ordinary company. It is the second largest Chinese real estate company and has been a big beneficiary of the real estate boom across China. With over 1,300 projects spread across 280 Chinese cities, Evergrande borrowed heavily to finance its growth. Today, Evergrande stands with insufficient cash to repay $305 billion in debt.

The problems for Evergrande came as it borrowed more aggressively to finance its projects. It sold properties with lower margins to raise enough cash to fund its next project. The problems just aggravated when the Chinese government tightened debt limits on companies. The first indications of trouble were visible when the stock price of Evergrande fell 80% and its bonds crashed 30% in a day before trading was frozen.

Obviously, a company as large as Evergrande is likely to have a ripple effect. A whole range of stakeholders including banks, suppliers, home buyers, investors, trusts and mutual funds are going to feel the heat if Evergrande files for bankruptcy. It is estimated that 128 banks and 121 shadow banks are exposed to Evergrande in some form. The impact could surely be far reaching; and experts are calling it China’s Lehman moment.

The good news is that Evergrande may not be as bad as Lehman. Firstly, Evergrande is a real estate company and not a bank, hence systemic risks are limited. Secondly, the Chinese government has already committed a $14 billion bailout package for Evergrande and has the muscle to bankroll a bigger bailout. Also, the international implications of Evergrande are not as serious as Lehman.

There are 2 key risks for India. Firstly, if this leads to a hard landing for China, the demand for a whole lot of commodities could suddenly evaporate. That is not great news for commodity stocks in India. Secondly, if China hard lands, the Yuan could weaken, pulling the rupee down to remain competitive. That is a worry for FPI flows into India.

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BTST/STBT Trading Tips for Today: 20th September, 2021

BTST Trading Tips for Today: 20th September, 2021
20/09/2021

5paisa analysts bring the best intraday ideas, short-term ideas and long-term ideas for you. In the morning we provide best momentum stocks to buy today, while in the last trading hour we provide buy today sell tomorrow (BTST) and sell today buy today (STBT) ideas.

BTST/STBT Trading Ideas for Today

1. STBT: HAVELL'S SEP FUT

- Current Market Price: Rs.1,418

- Stop Loss: Rs.1,433

- Target: Rs.1,387

 

2. STBT: HDFC SEP FUT

- Current Market Price: Rs.2,753

- Stop Loss: Rs.2,770

- Target: Rs.2,720

 

3. STBT: CUMMINSIND SEP FUT

- Current Market Price: Rs.989

- Stop Loss: Rs.997

- Target: Rs.971

 

4. STBT: TATACHEM SEP FUT

- Current Market Price: Rs.805

- Stop Loss: Rs.815

- Target: Rs.785

 

5. BTST: HINDUNILVR SEP FUT

- Current Market Price: Rs.2,800

- Stop Loss: Rs.2,785

- Target: Rs.2,845

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