Friday, 3rd June 2022

India’s largest cement manufacturer, Ultratech Ltd, has approved a Rs12,886 crore capex plan. It looks like a clear strategy to take on the rising influence of the Adani group in the cement sector, especially after they got control of ACC and Ambuja Cements. By 2025, Ultratech plans to increase cement capacity by 22.6 million tonnes per annum (MTPA) through a mix of brownfield and greenfield expansion. This would include integrated and grinding units plus bulk terminals across India. Expansion will cost $76 per tonne.

Preliminary estimates of the Commerce Ministry peg May 2022 exports at $37.29 billion; up 15.5% yoy. The growth was driven by petro products, electronics and chemicals. However, imports for May were sharply higher by 56.1% at $60.62 billion, resulting in a merchandise trade deficit of $23.33 billion. That is more than thrice the May 2021 trade deficit. Gold imports in May 2022 surged to $5.82 billion while the imports of coal, coke and briquettes stood at $5.33 billion. FY23 trade deficit has more than doubled yoy. 

On 02nd June, NSE saw a huge fat finger trade in options trading, where a large quantity of call options got exchanged on the 14,500 strike June weekly call option. The deep in-the-money call (ITM) option got executed at Rs0.15, indicating that the seller of the option must have incurred a huge loss. It is estimated that the seller’s loss must have been Rs200 crore on the trade. Since the Nifty closed at 16,628, the 14,500 Nifty call was trading close to its intrinsic value of Rs2,128. Around 12.5 lakh units of the call was traded. 

After the early weakness on Thursday, oil prices bounced and stayed steady. OPEC Plus agreed to boost crude output to compensate for lower Russian output. The OPEC members will raise output by 648,000 bpd in July and also in August. Meanwhile, US inventories have also rapidly declined by 1.2 million barrels, which is also bullish for oil. After dipping to $113/bbl, Brent rallied to $116/bbl towards the close of trade on Thursday. The market has also seen support from China’s gradual emergence from COVID lockdowns.

On the subject of crude oil, it looks like India and China are making hay from Russian oil. However, India may soon face a problem with secondary sanctions. It is expected that refined products supplied by India may eventually attract sanctions from countries lowering Russian energy exposure. Indian import of crude from Russia is likely to top 1.05 million barrels per day (bpd) in June 2022. Russian oil will grow from 2% of India’s import basket to 25% as Russia offers Indian refiners crude oil at attractive discounts of $40/bbl.

Chip makers, who thrived amidst shortages in last 2 years, may have a new problem to contend with. The slowdown in China’s economy and faltering momentum of the US tech sector could dent demand for electronic devices from both consumers and businesses. The first indicator comes from the data point that shipments of smartphones and personal computers are lower by 8.9% and 5.1% respectively. This could mean lower demand for chips and other equipment, leaving a deep imprint across South East Asia.

Yes Bank has secured approval to buyback Medium Term Notes to the tune of $200 million. The capital raising committee has asked the bank to make a tender offer for the re-purchase of the overseas bonds. The re-purchase will be carried at 100% of the principal amount of the notes for the MTNs tendered during the early tender offer period. It will be 97% for subsequent tendering. Yes Bank had gotten deep in mess in early 2020 after which the bank was bailed out by capital infusion from other banks and bailout by SBI.

According to a Reuters Poll ahead of the June monetary policy, RBI will sustain its focus on rate hikes in June and probably August policy too. Inflation at 7.79% is at the steepest level in over 8 years. In fact the Reuters poll expects rates to be hiked by 50 bps in June and another 50 bps before end of 2022. Another 75 bps rate hike will offset the COVID largesse and take repo rates to 5.15%, the pre-COIVD rate. For April CPI and WPI inflation were elevated. At the same time the GDP growth levers are firmly in place for India.

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