This week, we talk about the cricket World Cup and how it many impact the economy. We also talk about the RBI’s monetary policy, Elon Musk and his latest moves on Twitter, and about Bajaj Finance’s plan to take Jio head on.
Welcome to Kuvera’s weekly digest on the most critical developments related to business, finance, and the markets.
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India is not known to be a sporting nation. Not by a mile, if you consider how countries with much smaller populations far outrank us in world sport. But India seems to be getting its sporting mojo. Well, sort of.
The Indian contingent at the Asian Games this year has delivered the best-ever performance for the country, winning more than 80 medals, with the biggest gold medal haul ever. Never mind that China has won more golds than India’s total medal tally, but we are getting there.
And just as Asian Games wrap up, Indians will be getting busy with their most favoured sport—cricket.
The Indian men’s cricket team gets ready to begin its campaign at the World Cup, which began this week. The Indians, fresh from their victory at the Asia Cup and against Australia, go in as favourites, although the team does face some very stiff competition, as its batsmen get ready to hit the ball out of the park.
But cricket in India is not just sport or entertainment. It also affects the broader economy. How, you may ask?
The two-month extravaganza, which coincides with the festive season this year, will boost consumption. Thousands of people will travel, by car or train or flights, to see matches at their preferred venues. They will stay in hotels or homestays and spend on food. And, of course, on match tickets that start with Rs 500 but go up to Rs 40,000-50,000!
Even if the fans don’t travel and stay at home, they will spend on television, online streaming and even gaming. They will buy snacks and cold drinks and beer and alcohol, often using ecommerce and food delivery services.
All this spending will give a boost to the economy with travel, tourism and hospitality companies benefitting the most. Bank of Baroda chief economist Madan Sabnavis estimates World Cup-related spending could add Rs 18,000-20,000 crore of output in the October-December quarter.
Moreover, consumption has risen over the past decade because more people are now taking a bigger pay cheque home. A recent analysis by BNP Paribas based on numbers from the income tax department show the number of people earning above Rs 5 lakh per annum has surged five times, from 3.8 million in FY12 to 18 million in FY21.
The downside of higher consumption is inflation. Hotel and flight tickets, for instance, have become costlier in the wake of the World Cup.
Sabnavis estimates the upward bias in inflation could be between 0.15% and 0.25% for these two months. But that’s a worry for another day. Today, let’s hope the medals, the sixes and the wickets, keep coming India’s way!
Staying Steady
While we would like to postpone our inflation worries for tomorrow, the Reserve Bank of India can’t afford to do so.
The RBI’s monetary policy committee on Friday kept the benchmark lending rate unchanged for the fourth time in a row at 6.5%. But it hinted that it would keep interest rates high and tighten liquidity to bring inflation closer to its 4% target. The stance of the six-member MPC remained “withdrawal of accommodation”. This essentially means that the RBI may not raise interest rates further in the near future, but won’t bring them down anytime soon either.
The central bank kept the Indian economy’s growth forecast for FY24 unchanged at 6.5% and the consumer price index of inflation at 5.4%, although numbers for the second and third quarters have been revised upwards.
“Monetary policy needs to remain actively disinflationary at the current juncture,” RBI Governor Shaktikanta Das said. He also sought to give a positive spin to the central bank’s view of the economy. “India is poised to become the new growth engine of the world. The twin balance sheet stress is replaced by twin balance sheet advantage,” he said.
Das can take heart from the fact that banks’ credit growth has been steady in the second quarter of the current financial year at 10-24%, but moderated slightly from 14-30% in the previous quarter, as per provisional numbers declared by some lenders so far.
On top of this, India’s services sector growth strengthened in September due to surging demand and subsequent increase in sales and output. The S&P Global India services Purchasing Managers’ Index (PMI) stood at 61 in September, up from 60.1 in August. The figure stood at 62.3 in July, 58.5 in June and 61.2 in May.
Further, India’s net direct tax collections grew 23.5% from a year earlier to Rs 8,65,117 crore till September 16, 2023. This will give greater comfort to the government in managing its fiscal deficit and keep its borrowings in check. In turn, this will make the RBI’s job of managing inflation easier.
While the stock market rose after the RBI policy, the bond market disappointed after Das announced that the central bank plans to auction bonds via open market operations to manage liquidity.
In recent months, the RBI had been selling bonds via screen-based operations to drain liquidity. Analysts say uncertainty over the timing of the open market operations will keep bond yields higher. In fact, the yield on the benchmark 10-year bond jumped 15 basis points after the RBI announcement, the sharpest rise in 17 months, to 7.3645%, Reuters reported.
Preparing for Jio onslaught
In corporate news, Bajaj Finance this week decided to raise Rs 10,000 crore from institutional investors as well as its parent Bajaj Finserv. The NBFC, one of India’s largest, plans to raise up to Rs 8,800 crore via a qualified institutional placement and Rs 1,200 crore by allotting warrants to Bajaj Finserv.
The fundraising plan is significant. For one, Bajaj Finance had last raised funds through a qualified institutional placement four years ago, in 2019, mopping up Rs 8,500 crore.
Moreover, the plan comes at a time when demand for loans is surging as the economy recovers from the pandemic-induced slowdown.
Most importantly, the fundraising will help Bajaj Finance brace for intensifying competition from Jio Financial Services, which was recently carved out of billionaire Mukesh Ambani’s Reliance Industries.
Jio Financial has said it intends to enter a range of sectors, from lending to asset management. This has prompted several existing non-bank lenders to shore up their war chests. Apart from Bajaj Finance, Tata Capital and Aditya Birla Capital are also looking to raise fresh capital.
Will Jio Financial be able to do what Jio Infocomm did in telecom and Reliance Retail did in retail? Let’s wait and watch.
The X factor
Meanwhile, maverick tech billionaire Elon Musk found himself in the crosshairs of the US market regulator, the Securities and Exchange Commission (SEC), which said it is pursuing a court order that compels him to testify, as it probes his acquisition of microblogging site Twitter (now renamed X).
Musk had acquired Twitter in October last year for $44 billion, and later took it private. The SEC action came after he failed to show up for testimony on September 15 despite receiving an investigative subpoena and not objecting at the time it was delivered.
Meanwhile, Musk is looking to make X a completely paid service. X’s CEO Linda Yaccarino reportedly revealed in a recent meeting with bankers who had financed the acquisition that Musk plans to have three different tiers of subscriptions and also plans to charge everyone for using X. The three different tiers show users varying levels of ads. This, executives at X believe, will shore up the platform’s revenue. Moreover, Musk has vocally advocated for transforming X into an “everything app” with revenue streams derived from features such as shopping and payments.
Why is this relevant to us in India, you may ask? India has the third-largest user base of X, with more than 26 million people using the microblogging site. Many Indians, in fact, use the platform as their primary source of news, and if it does go fully paid, millions of people could go off it.
Market Wrap
After a couple of tough weeks, the markets were back in the green this week, if only just about. The Sensex ended the truncated four-day trading week with gains of 0.26% while the Nifty eked out a gain of 0.08%.
Nifty stocks that ended the week in the green included Vedanta, Larsen & Toubro, Titan, Bajaj Finserv and Bajaj Finance, as well as the likes of GAIL India, Hero MotoCorp and lenders State Bank of India and HDFC Bank.
Tech Mahindra, Mahindra & Mahindra, Maruti Suzuki, ONGC and Asian Paints were among the counters that ended in the red. Others that lost value were Tata Steel, JSW Steel, Reliance Industries, Axis Bank, Britannia and NTPC.
Other headlines
- India’s inclusion in JP Morgan bond index could bring $23 billion worth of forex flow: FM Sitharaman
- India-UK FTA talks gain steam as commerce secretary reaches London
- TCS to consider share buyback next week
- WTO halves world trade growth projection for 2023 to 0.8%
- Iranian activist Narges Mohammadi awarded Nobel Peace Prize for 2023
- Mirae Asset Mutual Fund raises SIP limit for Emerging Bluechip Fund to Rs 25,000
- IndiGo to impose fuel charge of up to Rs 1,000 to offset rising jet fuel prices
- Govt starts procuring kharif paddy crop, buys 12.21 lakh tonne so far
- Azad Engineering files draft red herring prospectus for Rs 740-crore IPO
- Manappuram Finance unit Asirvad Micro Finance files for Rs 1,500-crore IPO
- JSW Infrastructure jumps 32% on stock market debut; Updater Services falls 5%
- SoftBank to sell more stake in Policybazaar parent PB Fintech
- Sun Pharmaceutical to buy a 38% stake in Ezerx Health Tech for Rs 28.69 crore
- Hero MotoCorp September sales rise 3% to 5,36,499 units; TVS Motor sales up 6% at 402,553 units
- Bajaj Auto September sales fall 1% to 3,92,558 units
- Maruti Suzuki September sales up 2.9% at 1,81,343 vehicles
- Mahindra & Mahindra SUV sales rise 20% to 41,267 vehicles; Tata Motors passenger vehicle sales fall
That’s all for this week. Until next week, happy investing!
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Saran
October 10, 2023 AT 21:27
Saran