The Weekly Wrap | When billionaires go shopping

In April 2020, just a few weeks after India entered a nationwide lockdown that crippled the economy, Mukesh Ambani went shopping. Over the next few months, the billionaire chairman of Reliance Industries amassed more than $26 billion from global investors and then itself began investing in everything from tech startups to fashion labels as the rest of India Inc watched dumbstruck.

And then, another billionaire went shopping.

 

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Over the past year or so, Gautam Adani has bought solar and wind parks, ports, airports, and power lines, and entered new businesses like media and healthcare. He also roped in a few global investors such as American private equity firm Warburg Pincus and the Abu Dhabi conglomerate International Holding Company.

 

 

And earlier this week, the chairman of Adani Group struck his biggest deal.

Adani agreed to acquire Ambuja Cements and ACC Ltd from Swiss giant Holcim in a deal that could go up to $10.5 billion, assuming full success of the open offer made to public shareholders. The deal makes Adani India’s No.2 cement producer overnight, after UltraTech, and adds to his dominance in many other sectors.

The shopping spree has helped Adani overtake Ambani to become the wealthiest man in India. In fact, Adani’s net worth has jumped almost 20 times since April 2020, to nearly $100 billion as share prices of all his listed companies surged. Shares of group flagship Adani Enterprises, for instance, have jumped 18 times since the lows of 2020. Adani Transmission is up 16 times, Adani Green Energy 20 times and Adani Total Gas by a staggering 32 times.

So, had you put all your money into Adani group stocks, you would have made a killing! And if you are wondering about Reliance Industries, shares of the energy-to-retail-to-telecom group have just about tripled from 2020 lows.

 

Will he, won’t he?

Talking about billionaires, the world’s wealthiest man was also in the news this week. Elon Musk, the founder of Tesla and SpaceX, shocked the tech and media worlds in April when he announced an unsolicited offer to acquire social network Twitter for $44 billion. But he now appears to have taken a step back.

Late last week, Musk said the deal had been put on hold due to concerns over spam and fake accounts on the microblogging site. He has since upped the rhetoric and even said he would now vote for (former President Donald Trump’s) Republican Party instead of (current President Joe Biden’s) Democrats previously!

This drama has left analysts scratching their heads. Will the deal fall apart? Is Musk trying to bring the deal value lower after the recent meltdown in US tech stocks? Is Musk trying to also avoid the $1-billion breakup fee?

And then there is Tesla. Investors of the electric vehicle maker are fuming since Tesla shares have slumped almost 30% since Musk announced the deal.

Even if the deal moves forward, it’s becoming increasingly likely that the deal value may change. For, Twitter shares have fizzled out after the initial pop after the announcement and are now 30% below Musk’s offer of $54.20 apiece.

Moving back to India, a fall in the share price of a company that has been a household name for generations has left millions of people disappointed.

 

LICking their wounds

On Feb. 1, 2020, Finance Minister Nirmala Sitharaman announced the government’s intention to take state-run Life Insurance Corp public. That process culminated this week when India’s biggest insurer listed its shares on the bourses.

However, the 27-month-long process ended up being a disappointment, both for the selling shareholder—the central government—as well as the investors who bought shares in the IPO. For, the government raised Rs 20,560 crore by selling a small stake in LIC’s initial public offering, a third of what it initially wanted to mop up. As for investors, LIC’s shares ended the first day 8% lower than the IPO price. The shares are now down almost 13%.

 

 

To be fair, the LIC listing comes at a time when stock markets have been particularly volatile this week, rising 2% one day and falling 2% the next. Still, the fact that benchmark indices managed to clock a 3% gain this week after slipping 4% each in the previous two weeks, does raise concerns about LIC’s outlook.

LIC’s share performance, however, should be the least of our worries. There are bigger problems on the horizon.

 

Nine, 17 or 31

We have been talking about the acceleration in inflation for the past several weeks. And latest data released this week once again proves our point. India’s wholesale price index jumped 15.1% in April. And depending on which newspapers or websites you read, WPI inflation was either at a nine-year high or a 17-year high or a 31-year high!

Just to clarify the confusion, WPI was at a nine-year high based on the new inflation series that the government tracks. It was a 17-year high based on data from Refinitiv, a financial data provider, and the highest since 1991—when liberalisation started—based on estimates by some private economists that media reports cited.

 

 

Irrespective of the multi-year records, what everyone agreed upon was that April was the 13th month in a row that WPI remained in double-digits. This should leave policymakers with absolutely no confusion about how entrenched price pressures have become in the economy and what steps they need to take to bring inflation under control.

 

A lot of catching up

Earlier this month, the Reserve Bank of India raised its repo rate to 4.4% from 4.0% in an unscheduled policy meeting as it began its fight against inflation. The shock decision came just a month after the central bank kept rates unchanged. This week, the RBI released the minutes of the monetary policy committee’s meeting and noted that “heightened uncertainty” surrounds the inflation trajectory.

While the minutes showed that the decision was unanimous, one member issued a stronger warning. Jayanth R. Varma, a professor at the Indian Institute of Management, Ahmedabad, said that inflation risks have become more pronounced since April and that the RBI has “a lot of catching up to do”.

“It appears to me that more than 100 basis points of rate increases needs to be carried out very soon. My preference therefore is for a 50 basis points increase in the repo rate in this meeting,” he said. “The majority of the MPC is in favour of 40 basis points for reasons which are not very clear to me… I am thankful to the majority for not making my decision more difficult by choosing a 37.5 basis point hike (exactly mid-way between 25 and 50),” he added.

So, don’t be surprised if the RBI again increases interest rates in June, when it meets for the next policy meeting. In fact, pray that it does! Else, we will be looking at a long and hard battle against inflation.

 

Other headlines

  • Bharti Airtel reports 16% rise in Q4 profit to Rs 2,007.8 crore, beating analysts’ estimates

  • DLF reports 16% decline in Q4 net profit to Rs 405.33 crore

  • SBI’s Q4 net profit jumps 41% to Rs 9,114 crore

  • Dr Reddy’s net profit slumps amid high impairment cost

  • SC dismisses review petition in Tata-Mistry judgement

  • Government drops plan to sell BPCL, may sell only partial stake

  • Ruchi Soya to buy parent Patanjali Ayurved’s food business for Rs 690 crore

  • India’s trade gap rises to $20.11 billion in April from $18.51 billion a month ago

  • RBI’s forex reserves fall as it fire-fights to limit fall in the rupee against US dollar

  • India continues to face coal shortage for power production

  • Google’s Russian subsidiary to file for bankruptcy after bank account seized

  • UK inflation hits 40-year high of 9.0%

 

The week ahead

  • The corporate earnings season is all but over. But a few high-interest companies that will disclose their quarterly results next week including Zomato, Adani Ports, Grasim and IndiGo.

  • On the macroeconomic front, the situation will likely be quiet with no major data releases scheduled until the end of the month, when the GDP growth numbers for January-March 2022 will be out.

Until next week, happy investing!

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