Stock Market Investment Shot,1st November 2022

The key macros for Indian economy are out and the fiscal deficit for H1FY23 ended September 2022 has come in at 37.3% of the full year target. In absolute terms, the fiscal deficit for H1 stood at Rs619,849 crore. This is nearly 35% higher on a yoy basis. Total receipts stood at Rs12.03 trillion or 52.7% of full year budget estimates (BE). It looks like the government should be on target to limit the fiscal deficit for the year to its budget estimate of 6.4% of GDP. The good news is a 430 bps spike in capex in spending basket.

Tata Steel reported 90% fall in net profits for the quarter ended September 2022 at Rs1,297 crore, as higher costs took a huge toll on the bottom line numbers for Tata Steel. In Q2FY22, the net profits of Tata Steel had stood at an imposing Rs12,548 crore. Top line revenues for the quarter was marginally lower at Rs60,207 crore, as price realizations were tepid and the volumes got hit on the export front. But the real pressure came from a 22.11% spike in the expenses at Rs57,684 crore as input costs pinched quite sharply.

Core sector growth for the month of September 2022 came in at a 3-month high of 7.9% on account of a favourable base effect. Out of the 8 infrastructure sectors, the boost came from fertilisers, cement and electricity. While refining growth decelerated, crude oil and natural gas continued to show negative growth in output numbers. For the first 6 months of FY23, the cumulative core sector growth stood at 9.6%. To a large extent, this bounce in core sector can also be attributed to the higher capex by the centre.

Larsen & Toubro (L&T reported 22.5% higher net profit to Rs2,229 crore for Q2FY23. This was despite sustained pressure from input costs and currency translation. Amidst an uncertain global environment, the company saw good traction in its India business. EBITDA was up 24.5% yoy at Rs5,638 crore, but the operating margins saw a slight dip to 11.46%. Total revenues for the quarter was up 23% at Rs42,673 crore while fresh orders in the quarter were robust at Rs51,914 crore. L&T order book stays buoyant as before.

Bain Capital is likely to sell a 1.24% stake in Axis Bank on Tuesday worth Rs3,350 crore or $410 million. The sale will be made through the block deal window. The floor price for the deal has been pegged at Rs888 per share, which is 2% below the CMP. It may be recollected that Bain Capital had bought Axis Bank stake in 2017. The average cost of acquisition is around Rs550, so Bain is making a good return on its investment. Total holding of the Bain PE group in Axis Bank is 4.24%, so they will retain 3% in Axis Bank.

Bharti Airtel reported 89% growth in net profits for Q2FY23 at Rs2,145 crore, on the back of strong growth in data traffic. Total revenues were 22% higher yoy at Rs34,527 crore. This was largely in line with analyst estimates for the quarter. While voice traffic grew 5.1%, the data traffic grew 20.9% yoy. EBITDA margin stood at a healthy 51.5% for the quarter. India average revenue per user (ARPU) was at Rs190 per month, up 23.7% yoy. However, Bharti also saw net debt rise to Rs1.57 trillion with the net debt/EBITDA at 2.96X.

A recent report by Bloomberg Economics has noted that India’s inflation numbers might be better than what the official data suggests, if the impact of government food program is factored in. FY21 had seen inflation fall by 150 bps when the free food program was accounted for. The RBI has convened a special meeting of the MPC on 03rd November to evaluate the reasons the RBI failed to meet the inflation target. In fact inflation in India has overshot media target for 36 months and peak targets for 9 months in a row.

For the quarter ended September 2022, debt funds saw outflows of Rs65,372 crore amid rising yields, central bank hawkishness and treasury redemptions. Two third of the debt fund categories saw outflows in the quarter. The one category of funds to see solid inflows was overnight funds at Rs33,128 crore. Bulk of the outflows of Rs59,970 crore happened in liquid funds followed by money market funds and ultra-short duration funds. Asset base of debt funds now stands at just Rs12.41 trillion, much lower than equity.

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