Stock Market Investment Shot,28th October 2022

The Monetary Policy Committee of the RBI has convened a special meeting on 03rd November. This will be just a day after the Fed statement on 02nd November. The key item on the agenda would be for the RBI to explain why the inflation reduction was not happening despite 190 bps of rate hikes. The inflation had remained outside the RBI outer limit of 6% for 3 quarters in succession. The MPC may also recommend aggressive rate hikes to counter inflation, but a lot will depend on the language of the Federal Reserve.

For the September 2022 quarter, India’s oil imports from the Middle East fell to a 19-month low. The import of Russian oil at much cheaper rates had reduced India’s dependence on the Middle East for oil. While Iraq remained India’s largest supplier of crude, Russia took second place in the oil import sweep stakes, followed by Saudi Arabia. India’s total imports of oil in the September 2022 quarter stood at a 14-month low of 3.91 million barrels per day (bpd). Russia’s share in Indian oil surged in the quarter to 23%.

European Central Bank (ECB) effected another 75 bps rate hike on Thursday, taking the interest rates in the EU region to 1.50%. It remains to be seen how the ECB tackles the twin challenges of rising inflation and the risk of recession. In the last 3 months, ECB has raised rates by 200 bps from -0.50% to +1.50%. EU inflation is also hovering around double digits but in next 2 years this is expected to taper below 2.5%. Higher rates are very effective since these hikes make it difficult to lend, borrow or spend money in hand.

A day after the results were announced, Gland Pharma hit a 52-week low of Rs1,943 per share. For the September 2022 quarter, the net profits had fallen to Rs241 crore. This was triggered by lower sales and rising expenditure. The stock of Gland Pharma has now touched its lowest level of Rs1,730 per share. EBIT margins also contracted by 500 basis points from 38% to 33%. The market is clearly not happy with the revenues and profits tapering on a yoy basis due to supply chain constraints faced by Gland in the quarter.

For the third quarter ended September 2022, the US economy is estimated to have grown at +2.6%. That is a positive turnaround after contracting -1.6% in the March quarter and another -0.6% in the June quarter. The growth in GDP was largely triggered by a sharp fall in the trade deficit as exports have stayed stagnant even as imports have fallen amidst weak demand. One good signal is that PCE inflation is showing signs of tapering in line with rising rates. Also, consumption and housing investments are under strain.

Tata group and Airbus plan to jointly manufacture C-295 transport aircraft in India. This will be the first such case of production by a domestic company amid a push for expansion of defence manufacturing. India is planning to drastically cut its dependence on defence imports. The total project value is pegged at $2.7 billion and will entail the supply of 56 C-295 MW transport aircraft for Indian Air Force. The first such made-in-India aircraft will be rolled out in September 2026. This will replacing the ageing Avro fleet.

Credit Suisse has finally revealed its scheduled restructuring plan on 27th October, but markets are far from happy if you look at the stock price reaction. This restructuring will entail selling or spinning off most of its investment banking business and focus on global wealth and asset management. It will only retain very limited trading capabilities. However, what spooked the markets was the $4 billion share sale, which will dilute the equity further. Saudi National Bank will lead the investment in rights issue of Credit Suisse.

Sun Pharma stock crossed the Rs1,000 mark for the first time in 7 years. Its earnings announcement is scheduled on 02nd November. Sun Pharma rallied after brokers observed that the company could gain from operating leverage; even as it scales up its specialty business. For most brokerages in India, Sun Pharma and Cipla are among the top picks in India. Some of the benefits in Q2FY23 could stem from rupee weakness, low crude prices and a fall in raw material costs. Sales revenues had grown 11% on a yoy basis.

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