In this edition, we talk about the stellar quarterly results posted by Maruti and Tata Motors and expectations from the upcoming union budget. We all talk about changes in the stock market trading system, tech layoffs and the serious allegations levelled against 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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This was the motto formulated by the German engineer Gottlieb Daimler, who founded the Daimler Motors Corporation, which was later merged by Benz and now makes the iconic Mercedes brand of cars.
Maruti Suzuki India Ltd cannot claim to make the best cars in the world, not by a long shot. But what India’s largest carmaker can lay claim to is that it makes the best profits among all the carmakers in India.
The company’s net profit for the December quarter more than doubled year on year to Rs 2,351 crore, beating most analysts’ expectations by a mile. Revenue from operations rose nearly 25% on year to Rs 29,044 crore and was also higher than the estimated Rs 27,162 crore. EBITDA surged 82% year on year and the operating margin improved by a sharp 304 basis points to 9.75%. For the first time in two years, the automaker’s margin has surpassed 9.5%.
Needless to say, the stock gained and was up nearly 2.4% during the week.
Now, Maruti is not the only carmaker doing well. India’s auto industry has been on a high ever since the economy fully opened up in 2022 and this can only be good news for the economy as a whole.
Tata Motors, too, swung to profits—after seven quarters—and posted a consolidated net profit of Rs 2,957.71 crore for the quarter ended December 31, 2022, against a loss of Rs 1,516.14 crore in the same quarter last year. Revenue from operations came in at Rs 88,488.59 crore, up 22.51% from Rs 72,229.29 crore in the same quarter last year.
Eyes and ears on the budget
Come February 1 and Finance Minister Nirmala Sitharaman will present what will be the Narendra Modi government’s last full budget for its current term in office.
So, what will she announce in her speech, you ask? Well, we won’t know till she actually does, as budget-making in India is a hush-hush affair. But what we can tell you is that the market expects the government to take a cautious approach this time to cut India’s fiscal deficit, overriding the contrary priority of spending to support the economy.
During the COVID-19 pandemic, India spent billions to provide food to the poor, cheap loans for small businesses and free vaccines, pushing the fiscal deficit to a record 9.3% of gross domestic product in 2020-21.
Sitharaman will have good reason to try and pull back on the deficit as doing that will also help hold inflation below the top of the central bank’s target range of 2%-6%.
Moreover, as a Reuters report noted, India faces weakening demand for its exports from its trading partners. The international slowdown will hold down growth in nominal GDP—real growth plus inflation—to about 11% for 2023- 24 from an estimated 15.4% for 2022-23. That will lead to lower growth in tax collection, the report said.
All of this is unlikely to leave much room to cut taxes for the middle class. If anything, Sitharaman may even have to cut back on subsidies for the poor but market it smartly so that the move is not politically inexpedient.
Having said that, this will be the last full budget before next year’s general elections, so don’t be surprised if there are some goodies in the bag.
Overall, as Prime Minister Modi looks to get a third straight term in office in 2024, his finance minister and her mandarins in New Delhi’s North Block will have to tread cautiously and nimbly. It will be quite a tightrope walk, and we promise to keep watching every step of the way, and then report back to you next week on what they’ve done!
Saving a day
The week gone by was a landmark one for India’s stock markets. On Friday, all the listed stocks entered the T+1 (trading plus one day) settlement cycle.
Currently, the settlement is largely done on a T+2 basis, meaning that securities bought or sold by an investor reflect in their dematerialised account after two days.
About 200 stocks, which account for more than 80% of India’s market capitalisation, will be settled on a next-day basis, with effect from January 27. This will evidently complete the transition to the T+1 cycle that started in February 2022 with the bottom 500 stocks in terms of market value.
But apart from saving a day, why is this move significant? You see foreign portfolio investors (FPIs), who bring in all the forex hot money into the Indian capital markets, have a bulk of their holdings in these 200 stocks. These FPIs have been averse to a faster settlement cycle, citing operational challenges in adjusting because of differences in time zones, and booking foreign exchange either late in the evening of trade day or early morning the following day.
In fact, the shift to a shorter cycle is happening even as Indian capital markets are seeing FPI outflows. But domestic brokerages are happy with the move as it will help them free up capital quicker and churn money faster.
F&O trading
Even as the markets see these tectonic changes, the Securities and Exchange Board of India (SEBI) has said that the number of individual traders in the equity futures and options (F&O) segment shot up 500% times in 2021-22 from 2018-19 and 98% of individuals traded in options. Here’s the worrying trend: SEBI said nine out of ten individual traders in the equity F&O segment incurred net losses during 2018-19 and 2021-22.
SEBI says that, on average, loss makers registered a net trading loss close to Rs50,000 in 2021-22. The average absolute net loss of a loss maker was over 15 times the net profit made by a profit maker. Over and above the net trading losses incurred, loss makers spent an additional 28% of net trading losses as transaction costs, SEBI said.
Tech layoffs
While stock market traders need to find ways of eking out a profit, thousands of employees across tech companies need to find new jobs.
Foreign tech majors, some of whom employ thousands of people in India, are continuing to fire people in droves, as a recession looms. Apple seems to be the only notable exception thus far after SAP and IBM joined the list this week.
Why are the likes of Microsoft, Google, Twitter and Facebook parent Meta, (just to name some, by the way), letting go of so many people? Well, some of them over-hired during the height of the pandemic betting on the prospects that people may never spend as much offline as they had begun doing online during lockdowns.
But, guess what, as the world opened up, people did begin going back to shops and cinema halls and also took to travel, with a vengeance. Schools and gyms opened up, as did parks and museums. Online spends dropped and several startups have had to scale back significantly or simply shut shop, as venture capital funding dried up.
The good news is that no Indian tech major has announced any mass layoffs yet, although smaller companies, including, most notably edtech firms, have fired hundreds of folks.
So, will the likes of Infosys, Wipro and Tata Consultancy Services follow suit? We hope not, but never say never, so if you are a techie, put your seat belts on, and keep tight.
Adani-Hindenburg
Meanwhile, after all the good news over the past few months, this was a bad week for billionaire Gautam Adani, whose listed group companies saw their stocks crash by as much as 20%.
This followed a bombshell investigative report by short-seller Hindenburg Research. On January 25, Hindenburg disclosed short positions in Adani Group stocks, alleging widespread manipulation and accounting fraud in a detailed investigative report that it said had been published after two years of research.
On Friday, all group stocks plunged. Adani Total Gas, Adani Transmission, Adani Green Energy, Adani Ports, Adani Power as well as Ambuja Cement and ACC, which Adani acquired last year, and the flagship Adani Enterprises, which launched its Rs 20,000 crore follow-on public offering on Friday, were all hammered on the bourses.
The Adani group has denied all allegations and indicated it will take Hindenburg to court. The short seller, on its part, has welcomed the statement, saying they will look forward to the conglomerate going legal in US courts as that will pave the way for more disclosures from the Indian group.
This promises to be one battle royale, and we sure are ordering some popcorn as we get ready to watch the drama!
Market Wrap
The benchmark indices Sensex and Nifty ended the week in the red by about 2.5% while the Nifty Next 50 slumped over 4%, dragged down by Adani stocks.
Adani Ports led the selloff as it shed almost 24% this week. Other top Nifty losers included SBI, Yes Bank, Ultratech, Asian Paints, IndusInd Bank, Grasim, and Axis Bank lost more than 5% each.
The counters that remained in the green in the sea of red were three auto majors—Bajaj Auto, Tata Motors and Maruti Suzuki. Others that bucked the trend included ITC, UPL, Coal India, GAIL, HCL Tech, Sun Pharma and TCS.
Earnings snapshot
- Bajaj Auto Q3 net profit rises 23% to Rs 1,491 crore, beats estimates
- TVS Motors Q3 net sales rise 22%, net profit up 21% to Rs 300.89 crore
- Wipro Q3 profit inches 2.8% higher, revenue grows 14%
- DLF’s net profit up 35% in Q3, total revenue falls to Rs 1,560 crore
- Cipla Q3 profit rises 10% YoY to Rs 801 crore, revenue up 6%
- Dr Reddy’s Q3 consolidated profit jumps 77%, revenue increases 27%
- Ceat swings to Rs 35 crore net profit in Q3 from year-ago loss
- Amara Raja Batteries Q3 net profit rises 53% to Rs 222 crore
Other headlines
- CBI registers case against GTL directors, bankers in Rs 4,760 crore bank fraud
- US economy slowed but still grew at 2.9% rate in October-December quarter
- UN agency cuts India's 2023 growth forecast to 5.8% from 6% on rate hikes, global slowdown
- India’s services exports to cross $300 billion target for this fiscal year, says Piyush Goyal
- UAE sovereign wealth funds Mubadala, ADIA among bidders for Adani’s $2.5 billion FPO
- Global shipping company Hapag-Lloyd buys a stake in maritime logistics company JM Baxi
- India Post Payments Bank looks set to break even in FY23, says CEO
- Mukesh Ambani joins other billionaires to buy stake in Josh Kushner’s VC Firm Thrive
Until next week, happy investing!
Interested in how we think about the markets? Read more: Zen And The Art Of Investing
Watch here: ELSS: Saving tax through mutual funds
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