Stock Market Investment Shot,6th October 2022

OPEC plus agreed to cut oil supply by nearly 2 million barrels per day (bpd), in a desperate attempt to boost the price of oil above $90/bbl. This is likely to be once again inflationary. This came under pressure from Russia which wanted to avoid the cap on Russian oil. However, the fear of economic slowdown is still high, so it remains to be seen how oil prices react. EU has already agreed to a price cap on Russian oil. Russia is desperate as the EU oil embargo is effective from December and Russia will need new markets.

For the sugar marketing year 2021-22 (October to September), sugar exports were up 57% at 109.80 lakh tonnes. This has infused Rs40,000 crore of forex into India. As a result, the sugarcane arrears to farmers is down to just Rs6,000 crore, with Rs1.12 trillion out of Rs1.18 trillion being cleared to farmers. India was the second largest exporter of sugar this year, after Brazil. Out of the 394 lakh tonnes of sucrose produced in the year, 35 lakh tonnes was diverted to ethanol production and 359 tonnes towards sugar production.

The Competition Commission of India (CCI) approved the merger of Zee Entertainment with the Indian arm of Sony Corporation. The deal will create a $10 billion media giant and that had been one of the main objections raised by CCI earlier. This approval is conditional, although the CCI did not elaborate on the conditions. Both companies have offered requisite remedies to the points raised by CCI. Zee and Sony had offered concessions like price discounts to ease regulatory concerns after the CCI ordered further scrutiny.

With the190 bps rise in repo rates, most banks have raised interest rates. This has made bank FDs a lot more attractive. The uncertainty surrounding equities and the volatility in other asset classes is driving investors towards the safety of debt. Now higher rates are an added advantage. Private banks like ICICI Bank, Kotak Bank and Axis Bank increased their FD rates, while other banks are likely to follow suit. Private banks are offering up to 6.5% on longer FD maturities with while rates for senior citizens are 50 bps higher.

Post the value write-down by Softbank of Japan, the valuation of OYO is down to $6.5 billion. Softbank had cut OYO holding value by 20% in its books. For FY22, OYO had nearly halved its losses while revenues had grown 21% yoy. OYO had originally targeted valuations of $10 billion, which was later lowered to $8 billion. Now it looks like a best case valuation of $6.5 billion for the IPO bound OYO. The IPO is expected to be worth Rs8,500 crore, but OYO may cut size and pricing of the IPO, depending on market conditions.

It is now official that Indian bonds are not being included in the JP Morgan Sovereign Bond index. There were big expectations that the inclusion would result in FPI bond flows of $40 billion, but that is now not likely to happen in 2022. JP Morgan cited investment hurdles as the reason for non-inclusion. Apart from the lengthy registration process, there were operational hassles in trading and settling assets onshore as India is not part of Euroclear. JPM had sought exemption from withholding tax, which government denied.

In a nutshell, the IT hiring boom is spluttering as leading IT companies slash campus hiring, revoke offer letters and freeze packages. With rising fears of recession in the US, UK and EU, IT companies are taking no chances. In fact, FY24 hiring is expected to drop by nearly 20%. In FY23, Infosys will hire 50,000 from college campuses, Wipro 30,000, TCS 40,000, TECHM 15,000 and HCL Tech 45,000. However, in many cases freshers have got offer letters but no joining dates. In a number of cases, offers were also revoked.

Hindustan Zinc Limited, part of Anil Agarwal’s Vedanta group, announced 18% surge in metal production on yoy basis. Silver production was up 28% yoy in Q2FY23. In fact, in Q2FY23, Vedanta recorded highest ever mined metal production at 255 kt, while refined metal production was up 18% at 246 kt. HZL zinc production was up 16% at 189 kt while lead production was up 21% at 57 kt. The record metal production in Q2FY23 was achieved on the back of better grades and improved mill recoveries amidst robust demand.

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