Value Stocks vs Growth Stocks – US Markets
Value stocks have beaten the growth stocks by about 13% in the latest data as per the Russell 1000 Value Index vs Russell 1000 Growth Index. The reason for the outperformance could be the lower valuation and lower PE that the value stocks were trading at.
Alternatively, there exists a massive opportunity in the technology space and bluechip stocks of the US Markets, namely Apple, Netflix, Tesla as they have seen some correction and there seem to be better days ahead due to the strong market share and fundamentals they command.
Also read: RBI Monetary Policy – Fintoo Blog
Global Cues – USA , China and Australia
The USA markets over the past few days have seen some downturn mainly due to worse than expected inflation data (rise in consumer prices) and the possibility of withdrawing some Fed Policies which were initially introduced. The USA markets staged a late recovery yesterday and ended on a positive note.
China on the other hand could not meet their quarterly GDP forecasts which led to selling in their market
Australian markets have been volatile due to its tug of war with China and the sharp fall in iron ore price could prove to be an economic disaster for Australia as they are an exporter of Iron ore to China
GO AIR IPO
The Wadia group-owned Go Air has filed the Draft Red Herring Prospectus for its initial IPO. They would be raising Rs3600 Cr via fresh issue of shares
The airline had started its operations in 2005 and has just over 50 aircrafts in its fleet.
The aviation sector is facing some tough challenges and amidst this chaos , it is to be seen how this IPO fares.
Rise in Unemployment Rates
India’s unemployment rate has increased to 8% in April 2021 as compared to 6.5% in March 2021.
Restrictions that were imposed by various State Governments due to the second wave of Covid 19 and the inability of the economy to absorb the labor force has resulted in about 7.35 million job losses.
EPFO Update – Insurance Cover upto 7 Lakhs
The Employee Provident Fund Organisation has announced that if an active salaried individual dies of Covid19, their family members will be offered a sum of up to 7lakh rupees as insurance cover.
This cover is provided under the EDLI scheme and the ceiling is Rs. 15000 for the purpose of calculation.
RBI cancels license of United Co-operative Bank
RBI has canceled the license of United Co-operative Bank based in West Bengal. Through an order dated 10th May, the central bank has prohibited the co-operative lender from carrying out banking business.
The reason for canceling the license was that the Bank did not have adequate capital and earning prospects were slim. The bank also failed to comply with various regulatory requirements. In its present capacity as well, the bank would be unable to pay its depositors in full and its continuance would further prejudice the interest of the depositors.
The Production linked incentive (PLI) scheme is a scheme that aims to give incentives to companies on incremental sales (base year is 19-20) from products manufactured in India. It aims to encourage local companies to set up and expand existing manufacturing units thus cutting down reliance on imports from other countries, mainly China. It will also invite foreign companies to set up manufacturing units in India.
Purpose of the Scheme
1. To introduce non tariff measures that would make imports expensive.
2. To focus more on the domestic market by producing locally and exporting to other countries
3. To offer production incentives and encourage investments both from within and outside.
Sectors covered in the PLI Scheme
The initial beneficiary of the PLI scheme was the Pharmaceutical industry where 53 drugs were made eligible for the scheme amounting to Rs 6940 Cr in March 2020. Then, As a part of the National Policy on Electronics, on April 1, 2020, the IT Ministry had notified a scheme which would give incentives of 4-6% to electronics companies that manufacture mobile phones and other electronic components amounting to Rs 40,951 Cr.
The other sectors that are covered are:
Source – CARE Ratings
• ACC battery manufacturing represents one of the largest economic opportunities of the twenty-first century for several global growth sectors, such as consumer electronics, electric vehicles, and renewable energy. The PLI scheme for ACC battery will incentivize large domestic and international players in establishing a competitive ACC battery set-up in the country.
• India is expected to have a USD 1 trillion digital economy by 2025. Additionally, the Government’s push for data localization, the Internet of Things market in India, projects such as Smart City and Digital India are expected to increase the demand for electronic products. The PLI scheme will boost the production of electronic products in India.
• The automotive industry is a major economic contributor in India. The PLI scheme will make the Indian automotive Industry more competitive and will enhance the globalization of the Indian automotive sector.
• The Indian pharmaceutical industry is the third-largest in the world by volume and 14th largest in terms of value. It contributes 3.5% of the total drugs and medicines exported globally. India possesses a complete ecosystem for the development and manufacturing of pharmaceuticals and a robust ecosystem of allied industries. The PLI scheme will incentivize the global and domestic players to engage in high-value production.
• Telecom equipment forms a critical and strategic element of building a secured telecom infrastructure and India aspires to become a major original equipment manufacturer of telecom and networking products. The PLI scheme is expected to attract large investments from global players and help domestic companies seize the emerging opportunities and become big players in the export market.
• The Indian textile industry is one of the largest in the world and has a share of ~5% of global exports in textiles and apparel. But India’s share in the manmade fiber (MMF) segment is low in contrast to the global consumption pattern, which is majorly in this segment. The PLI scheme will attract large investment in the sector to further boost domestic manufacturing, especially in the MMF segment and technical textiles.
• The growth of the processed food industry leads to better prices for farmers and reduces high levels of wastage. Specific product lines having high growth potential and capabilities to generate medium- to large-scale employment have been identified for providing support through the PLI scheme.
• Large imports of solar PV panels pose risks in supply-chain resilience and have strategic security challenges considering the electronic (hackable) nature of the value chain. A focused PLI scheme for solar PV modules will incentivize domestic and global players to build large-scale solar PV capacity in India and help India leapfrog in capturing the global value chains for solar PV manufacturing.
• White goods (air conditioners and LEDs) have a very high potential for domestic value addition and making these products globally competitive. A PLI scheme for the sector will lead to more domestic manufacturing, the generation of jobs, and increased exports.
• Steel is a strategically important industry and India is the world’s second-largest steel producer in the world. It is a net exporter of finished steel and has the potential to become a champion in certain grades of steel. A PLI scheme in Specialty Steel will help in enhancing manufacturing capabilities for value-added steel leading to an increase in total exports.
How Can India Benefit?
India will be well-positioned as a global hub for the manufacturing of Telecom and Networking Products. Incremental production of around Rs. 2 Lakh crore is expected to be achieved over 5 years. India will improve its competitiveness in manufacturing with increased value addition. It is expected that the scheme will bring more than Rs. 3,000 crore investment and generate huge direct and indirect employment. Through this policy, India will move towards self-reliance, thus realizing the goal of Atmanirbhar Bharat. The provision of higher incentives to MSME will encourage domestic telecom manufacturers to become part of the global supply chain.
The PLI is definitely a big boost to the manufacturing in India with some sectors to benefit specifically. The companies must deliver on both, the investment and sales to derive the benefit. Jobs will be created, local manufacturing will be boosted, India’s dependency on imports will reduce and exports will sharply rise. The base year of 2019-20 will be of advantage for the companies.
The only concern is that the performance parameters are stiff (For example, in case of the product of mobiles (value of above Rs 15,000) in the first year, companies must invest Rs 250 crore and show an incremental output of Rs 4,000 crore to claim the 6% benefit.)
If these norms and criterias are eased, the benefit derived would be greater.
There are a few companies that will directly benefit from this scheme and these would be shared in our sectoral reports at a later date.
- India is considering hiking import duties by 5% – 10% on more than 50 items in the upcoming budget. The move to increase the duties is part of the self-reliant India campaign by PM Narendra Modi. This move would add revenue of about $2.7Billion for the government. Companies like IKEA and TESLA could be affected.
- Motherson Sumi is set to acquire a 75% equity stake in two companies of the Turkey-based Plast Met group. This will mark the entry of Motherson Sumi’s formal entry into the Turkish market, the 42nd country in its global operations. The acquisition will help Motherson Sumi serve its customers with more products and service offerings globally. It is an all-cash deal to be completed over the next three months.
- Franklin Templeton Mutual Fund has got a nod from the Unitholders to wind up six schemes. Over 90% of the unit holders had voted for winding up the schemes. There will be another hearing on 25th January, post which the process will be finalized. Franklin has said that it will take time for them to refund the entire money to the unitholders.
- Piramal has won the race to acquire DHFL after lenders have approved the 37,250Cr bid. Piramal received 94% of the votes from the Committee of Creditors. Although the bid from Oaktree was higher, Piramal offered a higher upfront cash payment and also an additional amount to Fixed Deposit Holders.
- French energy company TOTAL buys a 20% stake in Adani Green, hence they will hold a minority interest. This is a strategic alliance between the two companies with a commitment towards a sustainable economy for the future and helps India in its quest for the development of renewable energy. India has a policy target of 450 GW of renewable power capacity by 2030 and this alliance will be a major boost.
- L&T Financial Services is having a rights issue of 3000Cr with the record date set as 22nd January. The rights issue price is set at Rs. 65, a 34% discount from the closing price of Monday (Rs. 99.55). The entitlement is set at 17 shares for every 74 shares. This can be a good opportunity for investors to subscribe to the rights issue at a discounted price.
- Godrej Fund Management, the real estate private arm of Godrej group, plans to strengthen its PAN India office projects portfolio to over 22,000Cr by 2023 as it deploys a strategy to take this portfolio public through REITS or holding these assets through a private core fund.
- Paytm Money is planning to introduce loans against mutual funds and invested stocks. The main reason why they are mulling over the idea is to provide short term liquidity to its customers. The interest rate is expected to be competitive at 10.5% with a nominal processing fee.
- The Moratorium on LVB has now completed i.e customers of the bank can now withdraw more than 25,000. The amalgamation with DBS bank will come into effect today.
- The RBI has also asked Laxmi Vilas to write off the Series VIII, Series IX, and Series X Tier 2 Bonds worth Rs 318cr.
- Since Section 45 of the Banking Regulation Act, 1949 has been invoked and the scheme has been notified, the bank is deemed to be non-viable or approaching non-viability, and accordingly, the triggers for a write-down of Basel III Tier 2 bonds issued by the bank has been triggered.
- The GDP numbers are expected to come out today with the forecast suggesting it be down by (-9% to -10%). However, with the quick recovery of the Indian economy and consumption slowly picking up, we can expect a turnaround with better GDP numbers.
- Auto firms have been able to overcome supply chain disruptions caused by the pandemic and deteriorating bilateral ties between India and China.
- They have been able to reach almost 85%-90% of pre covid levels as they planned to shift sourcing of certain parts from China and increase local manufacturing.
- With India moving towards BSVI norms, the supply chain will play a very important role considering reduced dependency on China and competitive prices. Maruti, Tata, Hero Motocorp, Bajaj Auto, and TVS Motors have boosted production to record levels before the festive season.
- Gas transmission companies like Indraprastha Gas, Mahanagar Gas, and Gujarat Gas have rallied on Friday after the regulatory board notified the unified gas transmission structure.
- The regulatory body has simplified the gas pipeline tariff structure to make fuel more affordable and to attract more investments for building the gas infrastructure. Gas companies are expected to have long term volume growth.
- Sugar companies rallied on 28th Nov 2020 as the Union is expecting export subsidies and export schemes from the government’s end to promote exports and reduce surplus inventory.
- There is also an expectation that there can be an increase in Minimum Support prices for sugar which will lead to an increase in profitability and free cash flow generation for Sugar companies.
- The government on Thursday said that it has extended the Emergency Credit Lone Guarantee Scheme (ECLGS) to 27 sectors as part of the Atmanirbhar Bharat 3.0 package.
- The loans provided under ECLGS will have a five year tenor with a 12 month moratorium period. The entities will be eligible for additional funding up to 20% of their total outstanding credit as a collateral-free guaranteed emergency credit.
- The Johnson and Johnson coronavirus vaccine trial which has paused earlier this month due to an illness in a participant is all set to restart after an independent committee decided that, the illness was not related to the vaccine. Johnson and Johnson may come out with the vaccine as early as January 2021.
- Tata Motors has received an order for 6400 Tata Mini Gold from the Andhra Pradesh government amounting to close to ₹ 350Cr.
- Tata Motors is also set to find a strategic partner for their Passenger Vehicle business as they are looking for ways to separate their Passenger Vehicle and Commercial Vehicle portfolios. Tata Motors feel that going forward it would be better for the Passenger Vehicle segment to operate independently due to the growing demand. They have started their hunt for a strategic partner.
- Bharti Airtel has launched a cloud-based platform called Airtel IQ for encrypted and secure communication. The platform has been developed in-house and companies such as Swiggy, Just Dial, Havells have signed up as customers for the beta phase testing. The Indian cloud communication market is estimated to be worth over $1 billion and this move by Airtel could be a game changer.
- Indian Railway Finance Corporation (IRFC) has filed papers with Market regulators SEBI to float an initial IPO of ₹ 178Cr shares. The Draft Red Herring Prospectus has been filed. The net proceeds will be utilized towards augmenting the company’s equity capital base to meet future capital requirements. Four other Railway companies – IRCON, RITES, Rail Vikas Nigam and IRCTC have already been listed with IRFC being the 5th company. HSBC Securities, ICICI Securities, SBI Capital Markets and DAM Capital Market Advisors are managing the offer.
- India and US are all set to ink the landmark defence pact BECA ( Basic Exchange and Cooperation Agreement) which will provide for sharing of high-end military technology, geospatial maps and classified satellite data between their militaries. This agreement is expected to be signed today by Mike Pompeo and S Jaishankar. This agreement will add a boost to India’s defence and military space as they continue their fight against cross border nations.
- Sales of sedans, hatchbacks and SUV’s has seen a spike in this festive seasons as more than 2,00,000 buyers have reached out for their cheque books. Maruti Suzuki has delivered its best performance in 5 years by delivering 95,000 cars. Hyundai, KIA and Tata Motors also registered record numbers. Meanwhile, the two-wheeler is playing catch up as sales remained tepid in metro and tier 1 cities.
- The Indian Market fell sharply by about 1% and Dow Jones fell by over 2% as several countries saw a spike in COVID19 cases which led to nationwide lock-downs especially in European countries.
Quarterly Results Update
- Kotak Mahindra Bank – They have reported a profit growth of 27% YOY. Kotak Mahindra Bank reduced total expenditure from 5477cr to 4990 cr. They have also posted stable asset quality on a sequential basis as NPA’s reduced to 2.55% as compared to 2.70% (QoQ). CASA deposits also saw a slight increase and CASA ratio stood at 57.1% as compared to 53.6%.
- SBI Life Insurance – SBI Life Insurance reported a twofold jump in its net profit at Rs 299.73cr as against 129.84cr ( previous quarter) for the second quarter ended September. The total income rose by 45% led by strong renewal premium and investment income. Their operational expenditure was steady and thus led to a reasonable PAT growth. There has been a 27.2% growth in overall premiums and a 71% rise in single premiums. The company has also kept additional reserves of about 64.76cr for any COVID19 impact that may affect the business.
- M&M Finance – M&M Financial Services reported a 34% rise In its profit at Rs 353Cr in the September quarter as the rural markets remained resilient. The total income increased by 5%. Tractors, passenger cars and light commercial vehicles are seeing health demand. Customer footfalls have substantially improved and they are expecting demand to further accelerate in the festive season.