- The infrastructure push in the country has been gaining momentum steadily. Last week Reliance Infra raised up to Rs.550 crore by preferential allotment of shares to reduce debt and fund future growth. Adani group has incorporated a new wholly-owned subsidiary Adani Cement Industries increasing the competitiveness in the booming cement sector which is expected to do well in the coming years. India’s robust domestic demand is one of the major reasons for the bullishness in the cement sector. ICICI raised Rs.3,001 crore via infrastructure bonds which is another reflection of the expectations of infra development in the country.
- Adani Group stocks pummeled between 5%-20% as reports pertaining to the NSDL freeze on 3 FPI accounts surfaced. This freeze makes it impossible for the three FPI accounts – Abula Investment Fund, Cresta Fund and APMS Investment. Together, they own over Rs.43,500 crore worth of shares in four of the Adani group companies. The promoter group holds a majority stake in Adani Transmission (74.92%), Adani Enterprises (74.92%), Adani Total Gas (74.80%), and Adani Green (56.29%). The NSDL freeze is reportedly due to an “Inadequate beneficial ownership document” under the Prevention of Money Laundering Act (PMLA). There is a need to remain cautious as the impact of this freeze could have a long-term bearing on the future of the Adani group and its corporate governance standards.
- The Indian IPO market is expected to see a bumper revival after a slow FY 2020-21. The bullish market has set up a great platform for the IPO season. Over a dozen financial services companies have filed draft papers for IPO issues worth close to Rs.55,000 crores. The major chunk of this issue will come from the record-breaking Paytm IPO which plans to raise upwards of Rs.22,000 crore from the issue. This week alone will see 4 companies launching their IPOs worth Rs.9,123 crore collectively. Shyam Metalics and Sona BLW Precision Forgings will launch on Monday while Krishna Institute of Medical Sciences and Dodla Dairy will open for public subscription on Wednesday. Meanwhile, LIC is looking to raise up to Rs.25,000 crores from anchor investors in the IPO issue.
- Auto companies cut down on costs to increase the spending in R&D towards Electric Vehicles (EVs) by around 6.5%. Mahindra and Mahindra are expected to spend Rs,3.000 crores as Capex towards EVs in the next three years. Tata Motors will look to spend the same amount this year focused on EVs. Tech companies including Tata Elxsi and Capgemini have been bagging new projects to support this R&D initiative by the Automakers. Infrastructure development still remains one of the major laggards in this segment. India is expected to see major growth over the next five years in the EV segment.
- Axis Bank is planning to increase its stake from 13% to 20% in max life insurance company over the next 12 to 18 months. According to the deal, there will be no change in the brand but Axis bank will become the joint venture partner stated in the tagline. Max life renewal premium has been on the growth and so is the product line with 14 new product launches and variants over the last year. Max life also recorded a 22% rise in their total new business premium to Rs.6,826 crores.
- Oil prices hit an all-time high again for the third week. The outlook for demand has improved drastically. Brent crude was up 0.2% rising by almost 1.1% in the last week. US west texas intermediate was also up by 0.2% rising by 1.9% in the last week. Goldman Sachs expects the Brent crude prices to touch $80 per barrel with the increase in worldwide economic activity. OPEC+ has kept the supply under control since the demand was wiped out in 2020. There needs to be a supply revival from OPEC+ to meet the rising demands to help keep the oil prices under check.
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- Indian Auto Industry ended FY21 on a strong note, but what is in store for the next few Quarters?
Indian Auto Industry was facing a slowdown in FY20 amidst transitioning to Bharat VI norms and an economic slowdown in the country. Fears of a complete slump suddenly became real with the onset of the Covid-19 pandemic. Lockdown in the entire country meant that manufacturing came to a grinding halt. Demand for passenger and commercial vehicles fell drastically. All these factors adding up led to the Nifty Auto index to fall to levels close to 4700 points from about 8000 points at the beginning of Jan2020, almost a 40% drop. It was almost October before the index could recapture the 8000 points level. With the demand picking up in the festive season, ease in the lockdown restrictions and RBI providing liquidity relief to the manufacturing sector, the sector saw a positive momentum in the 3rd and the 4th quarters of FY 21. In PV segment, for 4 wheelers, companies like Tata motors and Maruti posted 106% and 32% revenue growth YOY, respectively. Hero MotoCorp shined bright in the 2-wheeler segment with a YOY revenue growth of nearly 39%. Strong comeback in the rural economy meant that Tractor sales were robust and escort motors posted a mammoth 60.7% revenue growth YOY for FY 21.
The second wave of surge in the Covid-19 cases in India has led to country-wide lockdown restrictions and the Auto industry is faced with a similar challenge faced a year ago in the same duration. Demand seems to be tapering in the PV segment and CV segment alike. However, this time the carmakers are predicting their estimated forecasts to be more accurate on the back of last year’s experience. Cost-cutting measures implemented last year will also help them navigate these turbulent times in a safer manner. With the Covid curve flattening in the last few weeks we can be hopeful of a faster recovery.
- The government has ordered a 31.4% cut in the Sugar Export subsidy for the season-ending 30 Sept 2021
The Ministry Of Consumer Affairs, Food And Public Distribution on 20th May announced a cut in the export subsidy in the Sugar industry to Rs.4000 per tonnes down from Rs.5833 per tonne. This cut comes after the fact that India may achieve its target of exporting 6 million tonnes of the sweetener by the end of June, three months before September. When the subsidy of Rs.5833 per tonne was announced late last year there was a flurry of export deals from overseas. With the increased export demand and deals for 5.7 million tonnes export already locked in, the industry has regained momentum which can be observed in the stock market prices of the sugar companies as well. There has been no reason cited by the ministry for this cut and the only rationale that can be inferred is the cut is imposed to avoid inflation in domestic sugar prices due to export.
- BPCL likely to announce a large dividend payout; trade volumes up by 27% on expectation
BPCL share rose 2.1% as close to 99 lakh shares were traded on both the bourses on 20th May 2021. The company is expected to announce the decision on the final dividend on 26th May. BPCL recently sold the Numaligarh Refinery(NRL) in Assam for Rs.9876 cr. In two more deals, BPCL sold treasury shares worth Rs.5500 cr. and later acquired a stake in Bina refinery worth Rs.2400 cr. with estimated net cash of around Rs.13100 cr. after the three deals, if distributed entirely the dividend would work out to be Rs.55 per share.
- SFBs bid for Rs.400 cr during the RBI’s liquidity window
Out of the Rs.10,000 cr. allocated to help Small Finance Banks(SFBs) with liquidity, only Rs.400 cr. was bid on by the SFBs. RBI has mandated that the deployment of the Special Three-Year Long-Term Repo Operation (STLRO) funds within 30 day of raising which is hard due to the lockdowns and the low demand for the Loans. Moreover, SFBs have enough liquidity as the loan demands are muted. RBI will conduct the STLRO operation once every month till October with the unused portion of the Rs.10000 cr. from previous auctions.
Fincare Small Finance Bank is going to file for IPO this week. It is one of the 10 microfinance institutions to receive the RBI nod to convert into a small finance bank. RBI mandates SFBs to list within 3 years of reaching a net worth of Rs.500 crores. Accordingly, Fincare has till Sept 2021 to get itself listed. Ranging between Rs.1200-Rs.1400 crore, the issue will comprise of fresh issue and OFS by existing shareholders. Fincare will file the DRHP with SEBI this week.
- Since late last year, crypto-currencies started gaining steam with Bitcoin going from hovering around the US $10,000 mark to trading at above US $55,000 level presently. With the crypto-currency market opening up S&P Dow Jones Indices have launched the new crypto-currency indices namely, S&P Bitcoin Index, S&P Ethereum Index and the S&P Crypto Mega Cap Index. S&P Global announced the plans first in December 2020 to cover more than 550 crypto-coins in the indexes to allow for the creation of benchmarking tools on crypto-currencies. The indexes will use the data from the virtual currency company Lukka which is based out of New York.
- Angel broking announced its plans to enter the asset management business. The company is planning to open an AMC focusing on SIPs and low-cost passive funds. This will allow the AMC to minimize the distribution and management costs. On the back of this news, the Angel Broking stock soared to end at 20% higher on 6th May. In this pandemic, all the brokerage firms have focused on digitization to help increase their customer base. Angel Broking has added 3,93,500 new customers in March 2012 whereas, Zerodha has added 3,06,000 new customers in the same period.
- US government has approved the temporary waiver of patent protection rules on the Covid Vaccines. India and South Africa had approached WTO in October last year to get a waiver on the Trade-Related Aspects of Intellectual Property Rights (TRIPS) on Covid-19 vaccines. Approval on the waiver will mean that there can be a free flow of technology and medicines developed worldwide. This will significantly reduce the Vaccine cost. However, it will take time to reach a global consensus as many countries believe that this waiver will stifle innovation as it takes away the incentive of spending on R&D by the global pharmaceutical companies.
- Petrol and Diesel prices in India have been on the rise in the past week. With the 3rd rise in the prices in as many days, petrol prices are now at ₹99.99 per litre while diesel is being sold at ₹81.42 per litre in the national capital. The major reason for this price hike is the crude prices which had jumped over $69 per barrel on Wednesday.
- RBI has granted perpetual validity to Bajaj Finance for its entry into the digital wallet space. It will be included in Bajaj Pay which is a consolidated payments platform from Bajaj Finance. The company has announced a consolidated profit of Rs.1347 cr. in FY 21 against the Rs.948cr. profit clocked in FY 20.
- Russia has authorized the production of the single-shot Sputnik Light vaccine in India which has an 80% efficacy rate
- Worldwide semiconductor shortage in the markets have let the Auto companies produce vehicles leaving out the parts requiring the use of semiconductors; China set to build a self-sustaining supply chain of semiconductor products
- Zomato plans to invest $100 million in Grofers to expand into the grocery delivery market
Also read: RBI Monetary Policy – Fintoo Blog
- Some of the key points mentioned in the RBI Announcement on Wednesday are:
- RBI Governor announced Rs.50000 crore on-tap liquidity facility for the tenure of 3 years open till 31st March 2021, for the healthcare infrastructure and additional loan restructuring. This has led to Pharmaceutical companies doing well in the last week with Lupin rising almost 10-11% and Aarti drugs rising almost 13-14%
- Banks will be allowed to park surplus liquidity up to the size of the Covid loan book with RBI gaining 40 bps higher than the reverse repo rate
- 2nd Purchase of Rs35000 crore under G-SAP 1.0 will be conducted on 20th May 2021
- RBI Governor also announced targeted long term repo operations for small finance banks of up to Rs 10000 crores to be used for lending of up to Rs 10lakh per borrower, SME MSME borrowers have been given a chance to extend their payment schedules
- RBI has allowed a one-time restructuring of the loans to individuals and small businesses up to loan size of Rs 25 crore.
Market Analysis – Indian Pharmaceutical Industry
According to Global Market Estimates, the Indian API market will grow rapidly at a CAGR of 8.57% during the 2020-2026 phase. The Indian drug industry is the world’s third-biggest and as far as volume is concerned then it’s the thirteenth biggest industry. The rapidly increasing rate of persistent infections, along with the rising importance of conventional drugs, are major reasons for the Indian API market to grow positively.
Headways in dynamic drug fixing (API) assembling, and development of the biopharmaceutical area are additionally driving the market development. A large-scale setup of API manufacturers in the country is the positive outcome of the market growth. The promotion of API via clusters and Production Linked Incentive (PLI) programs by the Government of India, has drastically changed the market dynamics. As per the latest findings, China is representing 30% of the worldwide nonexclusive API vendor market. After China, its USA, and India are the main producers of nonexclusive APIs. Hence, making India the major hub for outsourcing API manufacturing.
One of the major reasons for the phenomenal growth in the Indian Pharmaceutical Industry in FY 20-21 has been the FDI inflows. As of December, FDI equity inflows in the industry for FY 20-21 were worth nearly $1.3BN. This was a sharp increase as compared to FY 19-20 where the inflow was close to 266mn USD. Reason being, the Indian Pharmaceutical companies being in demand for producing medical equipment, drugs, and vaccines.
India has also removed the 74% cap on foreign direct investment in local pharmaceutical companies, allowing foreign firms generally to make direct investments of up to 100% automatically. The government has also withdrawn the stipulation that foreign firms may invest up to 100% in certain specified areas only if they disinvest 26% within five years in favor of a locally-owned company.
One of the major threats to the pharmaceutical industry in FY 20-21 was the dependency on raw materials in China. Despite calls to reduce imports from China, India’s reliance on its hostile neighbor for the pharmaceutical sector remained high. At least 60% of India’s Active Pharmaceutical Ingredient (API) requirements came from China. During the pandemic, a massive disruption took place in the world supply chain resulting in losses to many of the API manufacturing industries in India. But the outlook has been seemingly better.
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Some of the companies to look out for:
- Suven Life Sciences
With a market cap of Rs.1155cr, Suven Life Sciences Ltd. has been performing really well. In December 2020, the stock rallied almost 110% hitting an all-time high of Rs.99.90 on BSE. Currently trading at close to Rs.90 per share, the stock is showing bullish momentum on the technical chart over short, medium, and long term moving averages. It has a strong outlook on its API production and is expected to do well in that segment.
- Abbott India Ltd.
The company has a market cap of Rs. 31,838cr. The company has a good promoter holding which remains unchanged at 74.99%. It has strong financials with 3-year revenue growth pegged at 12.4% CAGR. Abbott India Ltd. has a good valuation. It is currently trading at around Rs.15000 per share. With the restrictions being placed on the regulation of baby food Abbott has ventured into the market and is already competing with giants like Nestle.
- Kopran Ltd
It has a market cap of Rs.533cr. The majority of its production is in the API active formulations space. Almost 65% of its total sales comprise exports. It is a low debt company and also gets the advantage of being valued lower than its fair valuation. Its PE ratio is 10.4 which is much lower compared to the industry PE of 40. Technical charts indicate bullish momentum in the stock.
Future of Pharmaceuticals: Large cap or Mid & Small cap?
Over the last quarter, the small and mid-cap stocks in the pharmaceutical space have sharply outperformed the large-cap stocks. The growth trajectory and potential in the small and mid-cap pharmaceutical companies are much higher as compared to the large-cap stocks. The industry is however heavily regulated with a requirement of a lot of clearances and permissions to operate in which might cause a hindrance to the smaller companies as compared to the large-cap. Short-term growth is likely to be seen in the small and mid-cap companies in the sector.