In this edition, we talk about the latest inflation numbers and their likely impact. We also talk about auto sales in India, the slowdown in equity mutual fund inflows and Twitter’s new CEO.
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Former Reserve Bank of India Governor Duvvuri Subbarao once cited his receding hairline and used haircut costs to explain economic issues such as inflation. He recalled how he used to pay Rs 25 for a haircut. “Now when I have virtually no hair left, I pay Rs 150 for a haircut,” he added.
Current RBI Governor Shaktikanta Das has not discussed his hairstyle or cost of his haircut in public so far, but high inflation surely was getting into his hair. However, after fighting inflation for almost a year and lifting the repo rate by 250 basis points, from 4% to 6.5%, since May 2022, he can finally breathe easy.
The consumer price index-based inflation has stayed below the RBI’s upper tolerance limit of 6% for the second straight month in April. This will comfort Das and the RBI’s monetary policy committee, which last month paused its rate hike spree.
Apart from the headline retail inflation print of 4.70% in April, another comforting factor will be that core inflation has also cooled and wholesale price inflation is widely expected to have moved into negative territory. The WPI data will be released on Monday.
How does the cooling in inflation affect us? Well, for one, this will allow the RBI to go for an extended pause on raising interest rates further and probably look at providing lending a hand to focus instead of accelerating economic growth in not so distant future. In fact, some analysts now predict the RBI may even start reducing rates next year.
So, if you are looking to book fixed deposits, do it now and lock in the high rates. And if you have been feeling the pinch of higher interest rates on your EMIs for home, car or personal loans, there are reasons to be hopeful.
Rev it up
While interest rates had been rising for the past year, that doesn’t seem to have dampened demand for automobiles.
The Society of Indian Automobile Manufacturers (SIAM), an industry group, said this week that local sales of passenger vehicles this April was the highest recorded in any April.
Domestic sales of passenger vehicles rose 12.9% to 3,31,278 units in April from 2,93,303 units a year earlier. More significantly, two-wheeler sales increased 15.1% to 13,38,588 units, indicating that economic conditions in rural and semiurban areas is also on the mend.
Growing sales is encouraging automakers to expand production capacities. Maruti Suzuki, for instance, intends to invest Rs 45,000 crore to double its production capacity to 4 million units by 2030, the company’s chairman RC Bhargava told The Economic Times. MG Motor India, the local unit of China’s SAIC Motor, plans to invest Rs 5,000 crore by 2028 and even divest a majority stake to Indian partners. German automaker Volkswagen and its Czech unit Skoda as well as the Netherlands-based Stellantis Group are also bullish on India.
Mutual fund inflows
The month of April may have been good for the economy and the auto sector, but it wasn’t so for the mutual fund industry.
Latest numbers released by the Association of Mutual Funds in India (AMFI) show that net inflows into equity schemes slumped 68% to Rs 6,480 crore in April from Rs 20,534 crore in March. That’s a big drop. Does it mean investors turned cautious as stock markets rose? Well, not necessarily. While it’s true that some investors would have booked profits in April, inflows in March are typically higher because of financial year-end investments.
Also, while net equity inflows fell in April, they have remained in the positive zone for 26 months in a row, starting with March 2021.
Meanwhile, debt funds recorded overall net inflows of Rs 1.07 trillion during April. Liquid funds recorded net inflows of Rs 63,219 crore and money market funds received Rs 13,961 crore.
Debt funds recorded higher inflows because, after meeting the tax liabilities of the last financial year in March, companies would have parked their excess investible money in liquid funds and ultra-short duration funds.
Back in the market
A couple of months after suspending the Rs 20,000 crore follow-on public offering of flagship firm Adani Enterprises following its brush with short-seller Hindenburg, the Adani group is getting ready to test the waters once again.
The boards of Adani Enterprises and Adani Green Energy will meet on May 13 over proposals to raise funds through equity or other mediums.
Hindenburg, in its report, had accused the Adani group of brazen stock manipulation, wiping out more than $150 billion from its market valuation at one point. However, the Adani group has denied all the claims.
Now, the fresh fundraise will determine if the billionaire Gautam Adani-led group has been able to put the row behind. In the short term though, the group will keep feeling the ripples as Adani Transmission Ltd and Adani Total Gas Ltd are being dropped from the MSCI India index.
Twitter’s new CEO
Maverick billionaire Elon Musk seems to be on a firmer footing as far as his acquisition of Twitter goes.
Musk said Friday he had found a new CEO for the US-based microblogging site, saying she will begin work in six weeks. Although Musk did not reveal the new appointee’s identity, media reports said that Linda Yaccarino, the head of advertising at NBCUniversal was in talks to become the new CEO of Twitter.
Yaccarino has been with NBCUniversal for more than ten years. As head of NBCU’s advertising sales, she was key in the launch of the company’s ad-supported Peacock streaming service.
Musk acquired Twitter in October last year and soon after fired most of the top leadership, including its then Indian-origin CEO Parag Aggarwal.
Interestingly, Yaccarino’s exit would be a second big blow to the company after Comcast said last month that NBCUniversal CEO Jeff Shell was leaving after acknowledging an inappropriate relationship with a woman.
America’s debt problem
Staying with the US, the world’s biggest economy is staring at a debt default.
The International Monetary Fund (IMF) warned this week that if the US defaults on its debt obligations, it could have serious consequences for the global economy. This dire warning from the IMF comes ahead of a rapidly approaching deadline for the US to raise or suspend its borrowing limit.
The IMF’s warning comes even as Democrats and Republicans remain divided on the issue of debt ceiling. Lawmakers say the Joe Biden administration should agree to significant budget cuts in exchange for support to lift the limit before the country runs out of money to pay its existing bills.
The IMF said that a US default could trigger broader instability in the world economy as it could potentially lead to higher borrowing costs.
Despite the dire situation though US President Joe Biden has sought to strike a defiant tone saying default was “not an option.”
What will it mean for India, if such a default were indeed to come to pass? Well, they say that if the US sneezes, the world catches a cold. So, if the US sees economic instability, Indian capital and debt markets too will be significantly impacted and there could potentially be a flight of foreign hot money from the country, at least in the short term.
As a retail investor, we can only advise caution. Remain vigilant and careful with your investments, and you should be fine even if markets turn choppy.
Market Wrap
Both the benchmark indices—Sensex and Nifty—ended the week firmly in the green. While the 30-stock Sensex rose 1.6%, the 50-stock Nifty was up 1.4% during the last five trading sessions.
The last month has been good for the two broader market indices that have both gained around 2.5% over the period.
Among the top Nifty stocks that gained the most during the week were two auto companies—Eicher Motors and Tata Motors. Maruti Suzuki, too, gained handsomely as did Asian Paints, Bajaj Finance and its twin Bajaj Finserv.
Other scripts that ended the week in the green were lenders Axis Bank and IndusInd Bank as well as FMCG major Hindustan Unilever, Titan and Ultratech Cement.
Stocks that lost ground this week were led by Dr Reddy’s Labs, whose rise in profits for the fourth quarter did not meet analysts’ expectations. Other stocks that ended the week in the red included Hindalco, UPL, Larsen & Toubro, JSW Steel, Tata Steel and the HDFC twins—HDFC Ltd and HDFC Bank.
Other headlines
- Eicher Motors Q4 net profit up 48% at Rs 906 crore
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Asian Paints Q4 net profit up 45% at Rs 1,234 crore
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Dr. Reddy’s consolidated Q4 profit at Rs 959 crore, up 10x on quarter-on-quarter basis, but misses estimates
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NCLT admits Go First’s plea for insolvency, puts moratorium on aircraft leases
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NCLAT to hear SMBC Aviation Capital’s plea challenging Go First insolvency
- Japan’s SoftBank sells 2% stake worth about $120 million in Paytm
- Nexus Malls’ Rs 3,200 crore IPO covered more than five times
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Blackstone’s delisting offer for R Systems fails, makes open offer to buy 26%
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Tax department conducts searches at Mankind Pharma a day after listing
- JSW Infrastructure files draft red herring prospectus for Rs 2,800-crore IPO
That’s all for this week. Until next week, happy investing!
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