The Weekly Wrap | Niagara falls, Viagra rises.

In this edition, we talk about the falling Indian rupee and rising interest rates. We also talk about the Ukraine war, Tata Steel’s mega merger and the Singh brothers, Malvinder and Shivinder, who will spend the next six months in jail.

 

Welcome to Kuvera’s weekly digest on the most critical developments related to business, finance and markets.

 

tl;dr Hear the article in brief instead?

 

 

 

 

Now before you get any funny ideas, this is still your weekly newsletter and we’re just being, well, a little cheeky here as we quote American author Stewart Stafford, completely out of context, of course. (Give us a pass, will you? Pretty please?)

 

The Indian rupee you see, has been falling, as interest rates have been rising (out of context, we told you…right?) and more of that happened this week.

 

In the week gone by, the rupee sank to its lowest against the greenback (that’s the US dollar, in case you didn’t know), even as the US Federal Reserve and nearly half a dozen other central banks upped their interest rates to levels not seen in a long, long time.

 

The Indian currency on Friday hit an all-time low of 81 to the US dollar, with little indication that its decline is likely to be arrested anytime soon.

 

In fact, this was the seventh out of eight sessions when the rupee went south, losing more than 2.5% in the period, going down to a low of 81.15. So far, this year, the currency has lost almost 9%.

 

The Reserve Bank of India (RBI), which often intervenes whenever the rupee goes down by flooding the market with US dollars, is likely to keep a stand-off-ish approach this time, say analysts.

 

But to be fair, the RBI has its hands tied. Why, you may ask? For one, India’s foreign exchange reserves have plunged in recent months. The RBI has spent more than $80 billion so far this year to protect the rupee.

 

India had forex reserves of $550.8 billion as of Sept. 9, down from a record high of $642.4 billion last year. While this may not be a reason for panic yet, it is certainly a matter of concern. Especially when you consider that the drop in forex reserves comes at a time when India’s trade deficit has been widening as growth in imports has far outpaced the expansion in exports.

 

Moreover, the liquidity of the Indian banking system has slipped into a deficit and the country’s current account deficit looks set to hit its highest level in more than eight years.

 

The RBI’s stand will become clear next week when its Monetary Policy Committee meets to take a call on a rate hike.

 

While the Indian central bank makes up its mind on how to stem the fall in the country’s currency, the US Fed seems to have its stance clear. This week, the Fed raised its benchmark lending rate by 75 basis points (bps), and surprised global markets by projecting further significant hikes over the next few months. This, even as the Fed’s projections showed higher inflation and a slowdown in economic growth.

 

The US Fed was not the only one continuing to firefight. Central banks of Switzerland, Sweden, South Africa, Indonesia, Norway and the Bank of England, all announced significant rate hikes this week, as inflation continues to singe the world.

 

Will the RBI follow suit? We’ll tell you next week!

 

 

“Ra-ra Ras-Putin…”

 

Sorry Boney M fans, we are again only trying our hand at humour but clearly, failing badly.

 

Well, so is Russian President Vladimir Putin.

 

Seven months after he unilaterally invaded Ukraine, his forces have made little progress, and have even had to retreat from large parts of the former Soviet country, which has had a frosty relationship with Russia for the better part of the last three decades. The war has already left thousands of Ukrainian civilians and soldiers on both sides dead, and has crippled the county’s infrastructure.

 

This week, Putin, his back against the wall, ordered partial general mobilisation in Russia, as he looks ready to escalate the war. Following his announcement, Russian men of fighting age were barred from leaving the country, even as flights out of the county were booked to capacity and all border crossings were jammed by people trying to leave Russia as soon as they could.

 

If he does escalate the war, the world at large will be on tenterhooks again and already high commodity prices could rise to record levels, further hurting emerging economies like India that depend on crude oil imports to meet most of their energy needs.

 

We sure will be keeping a close eye on whatever happens. In the meanwhile, brace for impact!

 

 

 

Tata Steel’s Mega Deal

 

Back home, in a ‘mega merger’ of sorts, the Tata Group this week decided to merge seven of its group companies into Tata Steel. This, the Tata Group says, will consolidate its metals businesses and drive efficiencies.

 

Tata Steel will absorb Tata Steel Long Products, Tata Metaliks, The Tinplate Company of India, TRF, Indian Steel & Wire Products, Tata Steel Mining and S&T Mining.

 

The mergers will be carried out via a series of share swaps among group entities, and will help the conglomerate pool the resources of the merged entities.

 

Interestingly, this comes just months after the Adani Group announced multi-billion-dollar forays into the steel, iron ore and aluminium sectors, in what could prove to be a major challenge to India’s biggest private sector steelmaker.

 

 

Singh is no longer king

 

 

The lives of brothers Malvinder and Shivinder Singh (of Ranbaxy, Fortis and Religare fame, may we remind), have played out like a Greek tragedy over the last few years.

 

This week, it all came to a head when India’s Supreme Court ordered that the two former billionaires be jailed for six months in a case filed by Japanese drugmaker Daiichi-Sankyo.

 

The apex court also ordered a forensic audit of the deal in which Malaysia’s IHH Healthcare had, in 2018, acquired a 31% stake in Fortis by paying $1.1 billion after a bidding process overseen by an independent board.

 

The top court jailed the two brothers for failing to comply with its orders to pay an arbitral amount to Daiichi. The contempt of court case had been registered by the Supreme Court in 2019.

 

The entire case is complicated, so we will spare you the details. Suffice to say that this is not the end of the case and the Singh brothers may well face more heat going forward.

 

 

Market Wrap

 

This wasn’t a terribly great week for the Indian markets, as you can imagine, with the Fed’s rate hike and the possible Russian escalation bearing down heavily on them.

 

Both the benchmark indices—Sensex and Nifty—ended the week in the red. While the Sensex was down by more than 1.3%, the Nifty did a tad better, losing 1.2% over the last five days of trading.

 

The top Nifty 50 stocks that gained the most this week were pharma majors Sun Pharma and Cipla, FMCG companies Hindustan Unilever and ITC, and jewellery and watch maker Titan.

 

Other counters among the gainers were Bajaj Finance, Britannia India, Eicher Motors, Maruti Suzuki and Dr. Reddy’s Laboratories.

 

Among the top Nifty losers were Power Grid Corp, Indiabulls Housing, Vedanta, Ultratech Cement and Bharat Petroleum Corporation Ltd.

 

Other stocks that left their investors poorer this week included Indian Oil Corp, Hindalco, GAIL India, Grasim Industries, NTPC and Coal India.

 

 

Other headlines:

 

• Adani Group pledges stake worth $13 billion in ACC, Ambuja Cements

• Wipro sacks 300 employees for moonlighting

• Govt starts process to sell two subsidiaries of erstwhile national carrier Air India

• Oyo attempts to revive IPO plan as SoftBank slashes valuation

• Ola to sack 200 employees across software teams

• HDFC MF announces NFOs of Nifty200 Momentum 30 ETF and Nifty100 Low Volatility 30 ETF

 

 

The week ahead

 

• All eyes will be on the meeting of the RBI’s monetary policy committee.

 

 

Until next week, happy investing!

———–

 

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