In this edition, we talk about the Tata-owned airlines and Tata Steel’s likely exit from the UK. We also talk about the gloomy economic outlook, looming inflation, job cuts at ed-tech firm Byju’s, and India’s festive demand boom.
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“Mergers are like marriages. They are the bringing together of two individuals,” American author Simon Sinek once said. “If you wouldn’t marry someone for the ‘operational efficiencies’ they offer in the running of a household, then why would you combine two companies with unique cultures and identities for that reason?”
The Tata Group will soon have to grapple with this question as it looks to simplify its aviation business that comprise four airlines—two with different foreign partners and the other two formerly government-owned.
The conglomerate is looking to merge two of the four airlines it operates—Vistara and Air India. While both these are full-service carriers, the other two—Air India Express and AirAsia India—are budget carriers.
Singapore International Airlines, which co-owns Vistara with the Tatas, said this week the two sides were in talks that could lead to a “potential integration” of the two carriers. In plain speak, this could translate into Air India, which is fully owned by the Tatas, cannibalizing Vistara, which is 51% owned by the conglomerate.
We do not know if the merger will eventually happen. But if it does, it could pave the way for a similar merger of Air India Express and AirAsia India. And if that happens, India’s skies could look very different from how they do today.
But hey, we are only speculating, so don’t take our word for it, yet. We’ll keep a hawk’s eye on whatever happens and when we know, you’ll know!
This is not all that the Tata Group made news for, this week. Tata Steel, India’s biggest private-sector steelmaker, could be looking to exit the UK, in the absence of government support. The company, The Economic Times reported, has little hope of getting a GBP 1.5 billion decarbonisation subsidy package for the transition to green energy.
We’ll spare you these boring technicalities, but here’s what you need to know: Tata Steel owns the largest steelworks in the UK, at Port Talbot in South Wales, and employs as many as 8,000 people in the country. If the company were to exit its UK business, a few thousand people could be at the risk of losing their jobs. And this certainly won’t be good news for the UK, which is already battling a big financial crisis.
RBI’s inflation failure
While the Tata Group is busy untangling its aviation and steel businesses, India’s central bank is firefighting inflation—with little visible impact so far.
The RBI, in line with its peers like the US Federal Reserve, the Bank of England and the European Central Bank, has been raising lending rates ever since the Ukraine war began and inflation began to bite almost every major economy.
Since May, the RBI has raised lending rates by 190 basis points. But so far, that seems to have helped little. In September, India’s consumer inflation rate spiked to a five-month high of 7.41% from 7% the month before. For the ninth month on the trot, inflation breached the RBI’s target of keeping the number in the 2-6% band, by a mile.
This has forced the government to step in. A group of bureaucrats are set to meet next week to figure out a way of reigning in the cost of food and other essential commodities that are burning a hole in the common man’s pocket. The government could further restrict food exports, go after hoarders and release buffer stock, to bring prices down.
As a double whammy of sorts, India’s industrial production in August fell 0.8% as manufacturing and mining output declined. This is the lowest level since a contraction of 3.2% in February 2021 and comes after July’s 2.2% growth.
All this is happening even as economic news keeps getting gloomier. The International Monetary Fund cut India’s 2022 economic growth forecast to 6.8%, from its January estimate of 8.2% and the July projection of 7.4%. The revision followed a downgrade by the World Bank, which now expects the Indian economy to grow 6.5% this fiscal year. The RBI though seems to be the most optimistic of the lot, as it thinks India’s GDP will grow 7% in 2022-23.
But do customers care?
Whatever be the data, the Indian consumers seem unfazed. India’s festival spending has been booming despite such gloomy numbers, with online and offline sales during the September-November period likely to cross $27 billion this year, Reuters reported, citing industry estimates. The number is 25% higher than that of last year and nearly twice as much as the figure in the same period in 2019, before the COVID-19 pandemic hit the economy.
As they get ready to celebrate Diwali and then Christmas and the New Year, Indian customers seem to be buying everything from houses to cars to white goods to travel packages to jewellery to, well, everything!
While more than $15 billion worth of these products are likely to be bought offline, online marketplaces like Amazon and Flipkart are estimated to sell goods in excess of $11 billion.
Little wonder, then, that auto sales hit another peak in September with more than 3.55 lakh passenger vehicles being sold, almost twice the number a year earlier. This breaks the previous high of 3.42 lakh vehicles sold in July.
Experts say this upsurge is owing to two years of pandemic fatigue, which has left consumers yearning for some fun. So, let’s pop some bubbly, shall we?
Job losses on the anvil
This euphoria though may be slightly misplaced and people could do with being a bit more cautious.
If you are in the ed-tech space, you know how badly the sector has been doing over the past few months. And now, Byju’s—India’s most valuable ed-tech company—is set to lay off as many as 2,500 people over the next six months.
Byju’s, which employs more than 50,000 people, said it is looking to rationalise its workforce “across product, content, media, and technology teams in a phased manner.”
For startups like Byju’s, the writing on the wall is, well, clear—downsize and cut cash burn, or shut shop.
This contagion may not be limited just to Byju’s or the ed-tech sector alone. A spate of job losses could hit the entire Indian startup space as funding begins to dry up and venture capital investors ask companies to cut down on spending and move towards profitability. So, once the festive cheer has died down, hundreds of thousands of employees and their families who depend on the new-age tech-enabled jobs may face a stark reality check.
Mutual fund inflows
The Indian markets may have been volatile in recent weeks but mutual fund investors remained largely unaffected in September as inflows via Systematic Investment Plans rose 2% month on month to Rs 12,980 crore, according to the Association of Mutual Funds in India.
Net inflows into equity mutual fund schemes, which had declined for three straight months to hit a 10-month low of Rs 6,100 crore in August, spiked 130% on a month-on-month basis to Rs 14,100 crore. Debt funds though did not find favour with investors as they saw outflows of Rs 65,000 crore with liquid funds alone losing Rs 60,000 crore.
Market watch
The markets opened lower on Monday and then remained mostly flat until Thursday. But on Friday, investors turned bullish and both the benchmark indices, the Sensex and the Nifty, jumped as much as 2% in intra-day trading before paring the gains. The two indices ended the week almost at the same level as last week.
The IT pack was a mixed bag of sorts. Infosys rode on a 11% jump in profits and was up 4% on Friday and 1.5% during the week. Wipro ended the week down 7.4% as the markets punished the counter after it reported a 9% drop in profits for the July-September quarter.
HCL Technologies posted a 7% rise in its consolidated net profit for the September quarter at Rs 3,489 crore. The Street rewarded this performance as the stock was up 4.7% as the week ended. TCS also ended in the green after exceeding analysts’ forecasts for Q2 earnings.
The week’s other best-performing stocks were Axis Bank, Coal India, Sun Pharma, Kotak Mahindra Bank, HDFC Bank and HDFC. The top losers were SBI Life Insurance, ONGC, Asian Paints, and Adani Ports.
Other headlines:
- Former US Federal Reserve Chair Ben S Bernanke and American economists Douglas W Diamond and Philip H Dybvi win Nobel Prize in Economics for 2022
- Malaysia’s IHH Healthcare begins talks with SEBI over stalled open offer for Fortis
- Government approves one-time grant of Rs 22,000 crore to state-run fuel retailers for cooking gas sale
- Wholesale inflation eases to 10.7% in September from 12.41% in August
-
Mindtree tops estimates as Q2 profit jumps 27.5% to Rs 509 crore
The week ahead
- The earnings season will pick up pace next week. Hindustan Unilever, PVR, Asian Paints, Bajaj Finance and Bajaj Finserv, Axis Bank and several other lenders will report Q2 results.
Until next week, happy investing!
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