Stock Market Investment Shot,7th October 2022

From 07th October, a new rule for brokers will kick in with reference to client margins. Now, brokers have to square accounts with their clients on the first Friday of each month. However, clients can choose to carry on with the current practice of quarterly settling. The total margins lying in broking accounts is to the tune of Rs25,000 crore. One concern is that due to higher working capital requirements, the brokerage rates may go up. This move is likely to hit the valuations of zero brokerage companies in a rather big way.

In an unprecedented move, SEBI cancelled the license of Brickwork Ratings India for repeated lapses and irregularities. It is one of the 7 recognized CRAs in India. SEBI also instructed Brickworks to wind down its operations within 6 months and intimate clients about the same. Brickworks has been barred from adding new clients. All instruments rated by Brickwork will have to be rated by other ratings agencies and could be candidates for a downgrade. This move seeks to put an end to rating shipping, which is quite common.

World Bank cut India’s GDP growth to 6.5% for FY23, 100 bps below June estimates. It cited deteriorating global environment as the key reason. However, World Bank continues to be positive on the post-COVID recovery, India’s strong domestic market and relative soundness of corporate balance sheets. Low debt and stable monetary policies have helped India. World Bank expects a lot of weakness to get back-loaded in the second quarter. World Bank is concerned about fiscal deficit and very low per capita income levels.

Dabur India, a fair representation of Indian FMCG, flagged soaring inflation as a key risk during Q2FY23. Inflation at peak levels had impacted gross margins. In Q1, the consolidated sales grew 8.1%, but is likely to slow to mid-single digit in Q2. In Q1FY23, Dabur reported operating margins of 19.62%, which is likely to taper in Q2FY23 despite easing commodity prices. However, healthcare and the international business are expected to report double digit growth in top line. EBITDA margins may contract by 150 bps overall.

Airtel confirmed that 5G services would start in Delhi, Mumbai, Chennai, Bengaluru, Hyderabad, Siliguri, Nagpur and Varanasi. The rest of the rollout will follow. Even in these 8 cities it would be phased. Airtel 5G high-speed facility can be enjoyed by customers with 5G smartphones on existing data plans. Airtel 5G Plus runs on a technology with widest acceptance globally. Speeds are likely to be 20 to 30 times higher. Airtel 5G Plus network is also expected to be more environment friendly with a limited carbon footprint.

Nykaa, India’s leading cosmetics and lifestyle products retailer. signed an alliance with Apparel Group, a Dubai-based fashion and lifestyle retail conglomerate. The alliance will help to expand their presence in GCC. Nykaa will hold 55% in the JV while the Apparel Group will hold the other 45%. However, neither side spoke about the financial details of the agreement. Nykaa is betting on strong demand for its products in this quarter after inflation dented consumer spending in Q1. Nykaa is also betting on festival demand.

Indian IT is not struggling from high attrition and weak margins alone. A slide in key currencies presents a unique volatility problem for Indian IT industry. The impact is visible in the BSE IT index, which is down nearly 28% since January. While dollar benefits will be there, it would be diluted with weakness in some of the key currencies like UK£, Euro and Australian Dollar. Cross currency headwinds are expected to be in the region of 120-200 bps. Global recession fears has already led to aggressive manpower count cutting.

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