{"id":33660,"date":"2024-10-18T18:32:39","date_gmt":"2024-10-18T13:02:39","guid":{"rendered":"https:\/\/kuvera.in\/blog\/?p=33660"},"modified":"2024-10-18T19:47:21","modified_gmt":"2024-10-18T14:17:21","slug":"the-weekly-wrap-go-for-a-spin","status":"publish","type":"post","link":"https:\/\/kuvera.in\/blog\/the-weekly-wrap-go-for-a-spin\/","title":{"rendered":"The Weekly Wrap | Go for a Spin"},"content":{"rendered":"

In this edition, we talk about Hyundai Motor India\u2019s mega IPO and what quarterly earnings are indicating about the corporate sector. We also talk about the tussle between two billionaires over satellite spectrum and what the latest inflation print means.<\/span><\/i><\/p>\n

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Welcome to Kuvera\u2019s weekly digest on the most critical developments related to business, finance, and the markets.<\/span><\/i><\/p>\n

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tl;dr<\/strong>\u00a0Hear the article in brief instead?<\/p>\n

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Few people in India would have heard of Chung Ju-Yung. But only a few wouldn\u2019t have heard of the company he founded in 1967 and its cars that have carried millions of Indians over the past quarter of a century.<\/span><\/p>\n

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Any guesses on what company are we talking about?<\/span><\/p>\n

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Those who still don\u2019t get it, here\u2019s another hint: Its first brand ambassador in India was Shahrukh Khan.<\/span><\/p>\n

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Yes, we are talking about Hyundai Motor Company\u2014the South Korean automaker that entered India in 1996, launched the \u2018tall boy\u2019 Santro in 1998 and became India\u2019s second-largest carmaker just the next year. <\/span><\/p>\n

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And twenty-five years on, Hyundai has managed to retain that position despite competition from Indian, Japanese, European and American carmakers.<\/span><\/p>\n

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Why are we talking about Hyundai? Because this week, Hyundai Motor India hit another milestone. The company floated India\u2019s biggest initial public offering, with its Korean parent raising Rs 27,800 crore by selling part of its stake. The Hyundai IPO surpassed state-run LIC\u2019s Rs 21,000 crore offering in 2022 as the largest in India.<\/span><\/p>\n

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The IPO was covered 2.37 times, with institutional investors bidding for almost seven times the shares reserved for them. However, retail investors\u2019 portion was subscribed just 50%, indicating their reluctance to buy the company\u2019s shares. <\/span><\/p>\n

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On the flip side, the IPO comes at a time when car sales in India have slowed after two years of rapid growth due to pent-up demand after the Covid-19 pandemic. With interest rates and inflation still high, and economic growth slowing down, most carmakers in India have been reporting tepid sales in recent months.<\/span><\/p>\n

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In fact, the Society of Indian Automobile Manufacturers said this week that automakers\u2019 sales to dealers fell 1.8% during the July-September quarter, marking the first drop in two-and-a-half years. A separate set of data from the Federation of Automobile Dealers Associations showed that sales by dealers to consumers slipped 4.5% during the quarter. <\/span><\/p>\n

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Car sales are likely to grow in the current quarter thanks to festive season demand. Will that boost shares of Hyundai and its rivals such as Maruti Suzuki, Tata Motors and Mahindra & Mahindra? We can\u2019t say, of course. But even if the shares don\u2019t, you can still take out your favourite set of wheels out of the garage, go for a drive, and enjoy the festivals.<\/span><\/p>\n

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\"Start<\/a><\/b><\/p>\n

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Corporate Conundrum<\/b><\/h4>\n

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While India\u2019s IPO market is still going strong, the broader corporate sector has started showing signs of stress. This was evident from quarterly earnings announced by a bunch of companies this week.<\/span><\/p>\n

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IT giant Infosys\u2019 Q2 revenue rose 5.1% to Rs 40,986 crore but its profit of Rs 6,506 crore missed analysts\u2019 estimate. Wipro\u2019s revenue fell 1% to Rs 22,302 crore while HCL Tech\u2019s consolidated revenue climbed 8.2% to Rs 28,862 crore. <\/span><\/p>\n

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All the three companies exceeded revenue forecasts by analysts. But their outlook differed, which suggested that global tech spending hasn\u2019t yet fully recovered.<\/span><\/p>\n

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Infosys lifted its full-year revenue growth estimate to 3.75-4.5% from 3-4%. However, it retained its margin forecast at 20-22% on salary hikes. HCL Tech lifted its revenue growth forecast to 3.5-5% for FY25 from 3-5% earlier. Wipro expects revenue for the third quarter ranging from a 2% fall to staying flat.<\/span><\/p>\n

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The most disappointing outlook this week, however, came from Bajaj Auto. The maker of Chetak scooters and Pulsar bikes said Q2 standalone profit rose 21% year-on-year to Rs 2,216 crore thanks to higher motorcycles sales.<\/span> However, profit after including a deferred tax liability grew only 9% to Rs 2,005 crore.<\/span><\/p>\n

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Bajaj Auto\u2019s total quarterly revenue jumped 21.8% to Rs 13,127 crore, but its warning of only 3-5% sales growth expectation during the festival season shocked the market. The company\u2019s shares slumped almost 13% on Thursday and fell further on Friday. Its warning also affected its peers with Hero MotoCorp, TVS Motor and Eicher Motors slipping too.<\/span><\/p>\n

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Meanwhile, billionaire Mukesh Ambani-led Reliance Industries reported a 4.8% year-on-year drop in second-quarter consolidated profit to Rs 16,563 crore while revenue was little changed. Reliance, India\u2019s biggest company by market value, said lower margins hurt its mainstay oil-to-chemicals (O2C) business, offsetting the boost from tariff hikes by its telecom unit Jio Infocomm. The O2C segment\u2019s EBITDA fell 23.7% while Jio posted a 23% jump in profit.<\/span><\/p>\n

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Battle of the Billionaires<\/b><\/p>\n

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While Reliance\u2019s earnings maybe a short-term cause for concern, Ambani has a longer-term headache to deal with.<\/span><\/p>\n

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The government said this week that it won\u2019t conduct any auction to allot spectrum for satellite broadband services but would instead allocate the airwaves through an administrative process.<\/span><\/p>\n

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The decision goes against Reliance, which had been pitching for an auction to create what it called \u201ca level-playing field\u201d, and had opposed the Telecom Regulatory Authority of India\u2019s consultation process that hinted at allocating\u2014not auctioning\u2014 spectrum for satellite-based home broadband services.<\/span><\/p>\n

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Ambani\u2019s position is similar to those of his main Indian competitor\u2014Sunil Mittal. The Bharti Airtel boss this week also supported an auction, saying satellite companies should take licences and buy spectrum as telecom companies do. <\/span><\/p>\n

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But the government\u2019s decision is a huge boost to another billionaire\u2014Elon Musk. The Tesla boss and the world\u2019s richest man wants to offer satellite broadband services in India through his company Starlink. This could be problematic for both Reliance Jio and Airtel as Musk has extra-deep pockets to start a price war\u2014something that Jio itself had done in 2016.<\/span><\/p>\n

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After Reliance\u2019s objections became public, Musk this week tweeted that an auction would be \u201cunprecedented\u201d since spectrum was a natural resource and that the global trend was to allot the airwaves administratively.<\/span><\/p>\n

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Musk\u2019s view found support from Indian communications minister Jyotiraditya Scindia, who said that the spectrum will be allocated administratively and the TRAI will work out its pricing. \u201cIf you do decide to auction it, then you will be doing something which is different from the rest of the world,\u201d Scindia said.<\/span><\/p>\n

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Musk immediately cheered the decision. \u201cWe will do our best to serve the people of India with Starlink,\u201d he tweeted.<\/span><\/p>\n

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The Horse Bolts Away<\/b><\/h4>\n

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Last week, the Reserve Bank of India kept interest rates on hold yet again and Governor Shaktikanta Das warned about keeping the \u201cinflation horse\u201d on a tight leash lest it bolts away. Well, this week, the horse did just that!<\/span><\/p>\n

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Government data showed that retail inflation accelerated to 5.49% in September\u2014far above the RBI\u2019s 4% target\u2014from 3.65% the previous month. This is the highest reading since December 2023, when the price index was at 5.69%.<\/span><\/p>\n

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More worryingly, food inflation surged to 9.24% from 5.66%, with vegetable prices soaring 36% year-on-year in September versus 10.71% in August. <\/span><\/p>\n

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Higher food prices also pushed the wholesale price index-based inflation to 1.84% in September from 1.31% in August.<\/span><\/p>\n

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Wholesale food prices jumped 9.5% in September, versus 3.26% in August, with vegetable prices on the boil at 48.7%, compared with a drop of 10% in August.<\/span><\/p>\n

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Clearly, risks to inflation persist due to adverse weather conditions and unseasonal rains.<\/span><\/p>\n

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So, what\u2019s the impact of the jump in inflation? Well, besides pinching out pockets, the latest numbers make it less likely for the RBI to start cutting interest rates at its next policy meeting in December. <\/span><\/p>\n

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However, inflation isn\u2019t the only factor that guides the RBI. Economic growth is another. And the economy is showing signs of a slowdown. GDP growth slowed to 6.7% in the April-June quarter. Auto sales, industrial production, manufacturing and services output, and corporate earnings are slowing, too. All this makes the RBI\u2019s job trickier.<\/span><\/p>\n

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\"FD<\/a><\/p>\n

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Market Wrap<\/b><\/h4>\n

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Indian stock markets remained weak this week as well, weighed down by tepid quarterly earnings and record foreign outflows. The 30-stock Sensex slipped 0.2% over the five-day period while the 50-stock Nifty lost about 0.4%.\u00a0<\/span><\/p>\n

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While many companies have reported earnings that missed Street estimates, foreign portfolio investors have offloaded shares worth a net amount of $8.4 billion so far in October, according to NSDL data. This tops the previous record outflow of $8.35 billion in March 2020, when the Covid-19 pandemic started.<\/span><\/p>\n

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Tech and banking stocks were the major gainers this week. Wipro was the standout performer, followed by ICICI Bank and Larsen & Toubro. State Bank of India, HDFC Life Insurance, Axis Bank, HDFC Bank were among the top gainers. Tech Mahindra, Bharti Airtel, HCL Tech, and drugmaker Dr Reddy\u2019s also ended in the green.<\/span><\/p>\n

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Other stocks that rose during the week included automakers Grasim, BPCL, Hindalco and Power Grid.<\/span><\/p>\n

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Bajaj Auto was the biggest loser this week, falling almost 15%. Other automakers including Mahindra & Mahindra, Maruti Suzuki, Hero MotoCorp and Tata Motors also slipped.<\/span><\/p>\n

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FMCG stocks remained weak for the second week in a row with Nestle and Tata Group company Trent dropping nearly 6% each. Bajaj Finance and Bajaj Finserv as well as Adani Enterprises, Tata Steel, UltraTech also lost ground.<\/span><\/p>\n

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Earnings Snapshot<\/b><\/h4>\n

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