In this edition, we talk about the RBI’s latest repo rate hike and what it means for you. We also talk about Paytm and Zomato and why their fortunes may be taking divergent paths. And finally, we talk about the latest bad news to hit the Adani group.
Welcome to Kuvera’s weekly digest on the most critical developments related to business, finance, and the markets.
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“Inflation is as violent as a mugger, as frightening as an armed robber and as deadly as a hit man,” former US President Ronald Reagan once remarked.
Reagan ought to have known, for he spent a better part of his presidency fighting inflation. In the India of 2023, Reserve Bank of India Governor Shaktikanta Das is attempting something similar.
Das is a bureaucrat who clearly doesn’t exude Reagan’s charisma or charm, but that hasn’t stopped him from raising the central bank’s primary lending rate—also known as the repo rate—for the sixth time in a row over the last year, by 25 basis points. The repo rate now stands at 6.5%, the highest in almost five years.
The central bank, however, did indicate that the latest increase gives it some elbow room to hit the pause button, watch the data and take a call on any further rate hike. So, does it mean the repo rate could be raised further still? It could, but perhaps not in the next two months when the RBI’s six-member monetary policy committee again meets. The next hike could come but later in the year, and only if the RBI is convinced that the data warrants it.
To be sure, while headline inflation has eased to below 6%, core inflation—keeping food and fuel prices out—remains high. And this is worrying the central bank. “The policy rate at 6.5% still trails the pre-pandemic level,” Das said, adding that core inflation will remain sticky. Core inflation generally refers to inflation in manufactured goods.
And what does it mean for your loan EMIs? Well, they go up. Banks and non-banking finance companies will be quick to pass the burden on to their customers. So, prepare to pay a higher EMI on that floating home, car or bike loan.
On the other hand, if you were looking to book a fixed deposit, go right ahead. While transmission on this end of the spectrum is often not as fast, smaller banks and NBFCs do offer higher interest rates. But hey, be sure of where you are investing your money. As we always say, remain very cautious with your hard-earned wealth!
Eat, Pay, Party
Two tech companies—payments app Paytm and food ordering app Zomato—have been facing turbulent times ever since they got listed on the Indian stock markets over the last couple of years. Incidentally, both counters have lost more than half of their value since their respective listings, leaving their IPO investors bleeding and very distraught.
But this week, things changed, and the fortunes of the two companies seem to be taking divergent turns. Paytm saw its stock rally and hit the upper circuit at 20% after it posted its first ever quarterly operating profit, three quarters ahead of guidance. This, even as the company’s consolidated net losses narrowed down to Rs 392 crore for the third quarter of the financial year, as against Rs 779 crore in the same quarter last year. In short, Paytm has told its investors that the company is seeing a clear path to profitability.
For Zomato, the net loss for the third quarter widened to Rs 347 crore, from just Rs 63.2 crore during the corresponding quarter last year. This, even as its revenue rose 75% to Rs 1,948 crore from Rs 1,112 crore in Q3 FY22.
Zomato’s adjusted EBITDA loss increased to Rs 265 crore in the December quarter from Rs 192 crore in the previous quarter. Excluding Blinkit, the operating loss was Rs 38 crore compared with Rs 272 crore a year ago.
Overall, it remains a mixed bag for Zomato. Not including the Blinkit business, Zomato turned positive at the operating level in January even as the food delivery business witnessed a slowdown.
But none of this means that there was any heartburn among the bosses of the two companies. As Paytm shares rallied, Zomato chief Deepinder Goyal extended his congratulations to the company and Paytm founder Vijay Shekhar Sharma. “Congratulations, @vijayshekhar and @Paytm on becoming profitable. Sorry, a bit late to the party – was so busy working on our own profitability,” Goyal tweeted.
Adani’s travails
The bad news just doesn’t seem to stop coming for the Adani Group. Index provider Morgan Stanley Capital International (MSCI) said this week it had cut the free-float designations of four stocks of the Adani Group. This move, analysts say, could have a negative bearing on the index weightings of these companies.
The MSCI said it has reduced the free floats of Adani Enterprises, Adani Total Gas, Adani Transmission and cement maker ACC, which the group now owns. The remaining listed companies’ free floats will remain the same. The MSCI defines free float as a proportion of shares outstanding that are available to investors for purchase in the public equity markets. These four companies had a combined 0.4% weighting in the MSCI emerging markets index as of January 30, as per a Reuters report. The changes come into effect on March 1.
The latest development comes even as the Adani Group has seen more than $100 billion in market value wiped out over just a few trading sessions, as US-based short seller Hindenburg Research alleged that a web of Adani-family controlled offshore shell entities in tax havens were used to facilitate money laundering, stock manipulation, and tax evasion. The conglomerate has called the report baseless and threatened legal action. Chairman Gautam Adani last week said that the group’s balance sheet was healthy.
Meanwhile, the MSCI has added government-owned Bank of Baroda to its Global Standard Index. It also added 24 stocks and deleted five from its small cap index. The most significant additions include Biocon, Campus Activewear, DCB Bank, Delhivery, Equitas Holdings, Escorts Kubota, GR Infraprojects, Global Health, HG Infra Engineering, Karnataka Bank, and South Indian Bank. The deletions are Cartrade Tech, Johnson Controls Hitachi, Sequent Scientific, Shilpa Medicare, and Shriram Finance.
Market Wrap
The stock markets ended the week flat, with the 30-share Sensex down about 0.3% and the 50-share Nifty falling 0.1%.
The Nifty stocks that gained the most were Adani Enterprises and Adani Ports, which rebounded off their recent lows to gain 18-20% during the week.
Other gainers included the Bajaj twins—Bajaj Finance and Bajaj Finserv—as well as IndusInd Bank, HDFC Life Insurance, SBI Life, State Bank of India, and Asian Paints. Following these in the green were the likes of UPL, HDFC Bank, HDFC, Grasim and Tata Consultancy Services.
Among the Nifty stocks that shed the most weight this week were three metals and mining companies—Tata Steel, Hindalco and Vedanta. Others that lost value this week included Hero MotoCorp, HCL Technologies, Hindustan Unilever, Coal India and Tata Motors. ITC, Bharti Airtel, NTPC and Wipro also lost ground.
Other headlines
- Norway sovereign wealth fund says divested entire stake in Adani group firms
- LIC Chairman to meet Adani management as shares tumble following the Hindenburg report
- CCI approves NIIF’s stake buy in Hindustan Ports and KKR’s purchase of Hero Future Energies stake
- Mahindra to set up EV facility in Telangana
- Retail inflation likely rebounded from 12-month low to 5.9% in January
- India in talks with four companies to set up semiconductor facilities
- TikTok sacks entire India staff
- Yahoo to lay off over 20% workforce to rejig advertising tech biz
- Pfizer names Meenakshi Nevatia to lead India business
Until next week, happy investing!
Interested in how we think about the markets? Read more: Zen And The Art Of Investing
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