The Weekly Wrap | When Elephants Fight

When elephants fight, it’s the grass that suffers. The Kenyan proverb is as true for the forests of Africa as for the urban jungles of India.


tl;dr Hear the article in brief instead?



Amazon v Reliance Fight | Kuvera Weekly Digest


So, it doesn’t come as a surprise that in the battle between two of the world’s richest men, Mukesh Ambani and Jeff Bezos, the debt-laden Indian retail pioneer Kishore Biyani has ended up being the biggest loser.
But why is Biyani sandwiched between Ambani and Bezos? And what makes him the loser?


Late last weekend, Ambani’s Reliance Industries scrapped an August 2020 deal to buy the retail business of Biyani-led Future Group for $3.4 billion. Sure, the deal would have taken away from Biyani the retail empire that he built over two decades. But it would have also made him free of debt and of worries of dealing with creditors.


The deal hit a wall as soon as it was signed. For, Biyani had in 2019 signed an agreement with Bezos-led Amazon to raise funding. The Amazon deal, the US online retailer says, barred Biyani from selling its business to Reliance. What followed was a long legal battle, allegations, counter-allegations, regulatory scrutiny and the eventual collapse of the deal after Future’s banks and creditors rejected Reliance’s takeover.


Meanwhile, Reliance has—by stealth—already taken control of nearly half of Future’s retail stores. And it retains the option of buying the remaining when Future goes into bankruptcy. As for Amazon, it may have failed to beat Reliance in its own game, but has given enough indications it won’t give up so easily.


Reliance and Amazon, yet again


Two years ago, Reliance raised almost $20 billion from global investors for its digital services unit Jio Platforms and another $6.4 billion for its retail arm. India’s biggest conglomerate is now beefing up its war chest again.


This week, Reliance attracted Rs 13,500 crore ($1.78 billion) for broadcast arm Viacom18 Media Pvt. Ltd from Bodhi Tree Systems, an investment platform set up by James Murdoch’s Lupa Systems and former Star India chief Uday Shankar. Reliance itself will invest Rs 1,645 crore in Viacom18. The investments, it said, will make Viacom18 one of the largest TV and digital streaming companies in India.


Why is this important? For one, digital streaming in India has boomed, as is evident from the growing popularity of Netflix, Hotstar, Amazon Prime Video and a host of other OTT platforms.
Two, it prepares Reliance to bid for broadcast and streaming rights of the Indian Premier League. And guess, who else might bid for the IPL rights? Yes, it’s Amazon.


Enough about Reliance and Amazon. For now, at least. Let’s move on to other topics.



Twitter bows to Musk


Musk takes over Twitter | Kuvera Weekly Wrap


Barely a fortnight after Elon Musk made a hostile bid to acquire Twitter, the social network’s board unanimously approved the maverick billionaire’s offer. Musk, the world’s richest man and the founder of SpaceX and Tesla, will acquire all of Twitter for about $44 billion and take it private.


Twitter’s shares had risen after Musk made the offer to buy at $54.20 apiece. The shares have now slipped below $50 apiece. That’s well below the $77 price it commanded in February 2021.


What are Musk’s plans for Twitter? To begin with, Twitter CEO Parag Agrawal may depart although he remains in his role for now. Musk may also overhaul the Twitter board and has promised to relax Twitter’s content restrictions. This means the rules that led to the ban on former US President Donald Trump from Twitter maybe diluted.



LIC IPO, finally


The long-awaited IPO of Life Insurance Corp, India’s biggest insurer, will open for subscriptions on May 4 and close on May 9. LIC has set a price band of Rs 902-949 per share. Policyholders will get a discount of Rs 60 while retail investors and employees will have to pay Rs 45 less than the issue price.


The IPO was to happen in March but was deferred due to market volatility after Russia’s invasion of Ukraine. It will be India’s biggest IPO with the government raising Rs 21,000 crore by selling a small stake, down from Rs 50,000-60,000 crore that it was planning to mop up earlier.


So, should you invest? Well, fund managers are divided. Some say valuations are reasonable and point out LIC’s market leadership position in the insurance industry. But others remain cautious due to stock market volatility and recommend buying for the long term rather than for listing day gains. So, choose wisely!


Meanwhile, two other companies floated IPOs this week. Footwear maker Campus Activewear’s IPO was subscribed almost 52 times while hospital chain Rainbow Children’s Medicare managed to sail through on Friday.



Market wrap


Stock markets remained volatile this week, too. The 30-stock BSE Sensex and the NSE Nifty 50 fell on Monday and Wednesday, but rose on Tuesday and Thursday. On Friday, the market began on a positive note but ended lower after a late bout of selling to close the week almost flat.


What’s the outlook for next week? Well, we all know the adage ‘sell in May and go away’. That may turn out to be true. For one, the LIC IPO will suck out some liquidity from the secondary markets. Moreover, the prospects of a rise in interest rates, inflation worries and geopolitical tensions will likely keep the markets on tenterhooks.


Talking of inflation worries, your household budgets may soon rise even further. This is because Indonesia, the world’s biggest edible oils exporter, is widening its export ban to include crude and refined palm oil. This could push cooking oil prices higher as India meets half of its annual palm oil requirement from Indonesia.


On the flip side, this is good news for those who bought shares of Adani Wilmar in its IPO three months ago. Shares of the edible oil maker have jumped nearly four times since their listing in early February.


Meanwhile, the top weekly gainers this week included Hindustan Lever, Bajaj Auto and IndusInd Bank, while the list of losers included Axis Bank, Bajaj Finance and Wipro, all of whom reported quarterly earnings this week. Hero MotoCorp was also among the top gainers while Coal India and BPCL were among the biggest laggards.



Corporate earnings


Three banks and the Bajaj twins—Bajaj Finserv and Bajaj Finance—as well as Bajaj Auto reported quarterly earnings this week. ICICI Bank, India’s second-largest private-sector lender, exceeded expectations with a 59% year-on-year jump in its fourth-quarter net profit to Rs 7,018.7 crore as provisions for bad loans fell.


Axis Bank beat estimates with a 54% rise in profit to Rs 4,117.8 crore while AU Small Finance Bank, India’s biggest small finance bank, doubled its net profit to Rs 346 crore.


Bajaj Finance’s profit soared 80% to Rs 2,420 crore while Bajaj Finserv reported a 37.5% jump to Rs 1,346 crore. Bajaj Auto posted a 10% rise in profit to Rs 1,469 crore. But this was mainly due to an exceptional profit of Rs 315 crore.


Hindustan Unilever, India’s biggest FMCG company, reported a 9% rise in profit to Rs 2,327 crore and a 10.4% increase in revenue that grew thanks to price hikes.



US Tech performance


US Tech Stocks | Kuvera Weekly Wrap


While many Indian companies exceeded earnings estimates, several US technology giants missed forecasts this week. That weighed on their stocks. So, if you are an investor in these giant tech companies or in Indian mutual fund schemes that invest in these companies, your portfolio may have suffered.


Twitter reported January-March revenue of $1.20 billion, missing expectations. But its user base at 229 million was higher than the 226 million expected.


Google parent Alphabet’s first-quarter revenue was in line with forecasts, at $56.02 billion, thanks to its search advertising and cloud businesses. But its profit lagged projections as costs rose and YouTube’s business slowed.


Amazon’s revenue of $116.4 billion was in line with estimates but it posted a surprise loss of $3.8 billion in the first quarter, compared with a profit of $8.1 billion a year earlier.


Online brokerage app Robinhood disappointed after missing forecasts and deciding to stop issuing revenue guidance in future. Its quarterly revenue slumped to $299 million from $522 million. Robinhood’s shares are now worth a fourth of their IPO price and are down 90% from the all-time high touched shortly after the listing in August last year.


Netflix and Facebook owner Meta missed earnings expectations while Microsoft exceeded estimates. The standout performance came from iPhone maker Apple, which shattered expectations for both revenue and profit growth.



Other headlines


  • Emmanuel Macron wins second term in France
  • US President Joe Biden to ask Congress for a further $33 billion in aid for Ukraine
  • China cuts forex reserve ratio to curb weakness in yuan
  • IMF flags impact of high oil price on India’s growth
  • NCLAT reserves order on Amazon’s appeal against Competition Commission of India
  • Won’t rush into taking decision on cryptocurrency: Indian’s finance minister
  • India Q1 gold demand declines 18%: WGC
  • Bank of India moves insolvency plea against Future Retail



The week ahead


  • In the coming week, keep an eye on the earnings of HDFC Ltd, Britannia, Yes Bank, Hero MotoCorp, Godrej Properties, Tata Steel, Titan, Kotak Mahindra Bank and Adani Group companies.
  • The biggest market-related development will be LIC’s IPO.
  • On the macroeconomic side, monthly data for GST collections, retail car sales, merchandise trade, ports freight traffic and power generation will offer insights into the state of the economy.
  • Meanwhile, north India is in the grip of a severe heatwave. And power cuts are making it even more difficult.



So, stay cool. Until next week.



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