Stock Market Investment Shot, 9th June 2022

On 08th June, RBI announced its monetary policy and hiked repo rates by 50 bps to 4.90%. This led to the SDF rate increasing to 4.65% and the MSF and bank rate increasing to 5.15%. However, the RBI left the CRR untouched at 4.5% citing that the existing VRRRs were sufficient to take care of liquidity issues. The RBI also raised its inflation forecast for FY23 by 100 bps to 6.7% while the GDP growth forecast for FY23 was maintained at 7.2%. Despite the second repo rate hike, rates are still 25 bps short of pre-COVID levels.

The government raised minimum support prices (MSP) of kharif crops for FY23. The MSP is applicable for the July to June period. The average increase was between 5% and 9%. The big hikes in MSP were in pulses and oilseeds (moong, soybean and sunflower seed). Even the MSP of jowar was raised since it consumes less water and is more nutritious. The average price hike was 5.8% and this is likely to prop up the WPI inflation by 20 bps. However, soybean and groundnuts already quote above the MSP in the open market.

Biocon stock hit a 2-year low of Rs312. It has lost 18% since it reported a 4% fall in net profits in Q4FY22. Revenues from operations were up by 31% in Q4FY2. In the last 1 year, Biocon has fallen 22%, while the index is up over 30%. However, not all brokers are pessimistic. Biocon has several triggers like the Serum Vaccine distribution alliance, launch of multiple biosimilars etc. Another big area of focus is Biocon plans to become a dominant player in immunosuppressants API, a high opportunity low-competition segment.

The rally in MRPL continued touching a 4-year high of Rs119 on the BSE. It has rallied 31% in 2 days and is up almost 3 fold since the start of 2022. Most refineries are in a sweet spot after the Singapore benchmark Gross Refining Margins (GRMs) spiked to $25.2/bbl amidst a global shortfall in refining capacity. The GRMs were just $8/bbl in the March quarter and at $2/bbl one year back. This trend has benefited the pure refiners like MRPL and CPCL most since, unlike BPCL and IOCL, they don’t worry about marketing margins.

India’s coal production surged by 33.88% to 71.30 million tonnes in May 2022. This was disclosed by the Coal Ministry. Coal India output surged 30.04% at 54.72 MT, Singareni Collieries output was up 11.01% at 6.04 MT while output of captive mines grew 83.3% at 10.54 MT. The captive mining growth has been one of the key trends in the last one month. This resulted in thermal power generation growing 26.18% in May 2022 on yoy basis. Total power generation in May 2022 rose to 140,059 MU due to hydro and wind energy.

TVS Motor Company has kick-started the process to raise $350 million for its electric mobility business, with a view to unlocking the hidden value in its EV business. TVS Motor Company would then become the third listed company after Tata Motors and Greaves Cotton to raise funds for an electric vehicle subsidiary. Some of the top private equity funds and sovereign funds are expected to participate in this round. Its current e-scooter offering, iQube, has an order backlog of nearly 12,000 units as at the end of March 2022.

In the middle of rising input costs and weak demand, Indian paint companies have a new problem to contend with; the challenge from the unorganized sector. The price gap between the unorganised and organised players in paints had fallen sharply in 2021. However, with price hikes of nearly 20% in 2022, this gap has widened and is likely to result in higher sales for unorganised companies. Down trading is now visible with consumers preferring lower cost paints since the cost of labour has also gone up sharply.

Brookfield Renewables commissioned its first greenfield solar plant in India with 445 MW capacity at Jodhpur, Rajasthan. NTPC will offtake this power under a 25-year PPA (power purchase agreement). The project will generate 800 GWH of clean energy annually and avoid 6 lakh tonnes of carbon emissions. The overall operational Brookfield renewable energy portfolio in India is close to 1 GW. Brookfield Renewables has partnered with Axis Energy Ventures while Tata Power Solar Systems was the construction partner.

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