On Wednesday 09th March, the oil prices did a sharp turnaround falling by $15/bbl in the Brent market to $112/bbl. It had recently touched a peak price of $138/bbl and has fallen sharply. On Wednesday, the big trigger for the oil price fall came from the UAE. With oil at nearly historic high levels, UAE and to a lesser extent Saudi Arabia are in favour of increasingly production to make the most of spare capacity. In fact, UAE became the first OPEC+ member to call for more production. Analysts expect oil to bounce back.
Union Cabinet approved the creation of National Land Monetization Corporation (NLMC), which will hold and monetise surplus real estate assets of government departments and PSUs. This will specifically refer to those PSUs that are either being privatised or shut down. The NLMC will be an SPV with a paid up capital of Rs.150 crore. This is expected to help the government earn substantial revenues. For post PSUs holding surplus real estate assets, it is an idle asset that is underutilized. Modalities are yet to be worked out.
With gold surging nearly 18% since the start of 2022 amidst the Ukraine crisis, Goldman Sachs has come out with an aggressive gold price target of $2,500/oz by end of 2022. That implies 25% upside on top of an 18% appreciation already seen since the start of the year. Global uncertainty has already led to inflow of 300 tonnes of gold into gold ETFs this year. Ironically, Goldman Sachs also believes that the traditional inverse relationship between gold and interest rates may break and gold may rise even amidst rising rates.
As oil prices soared close to an all-time high, the market cap of Saudi Aramco is inching closer to that of Apple. The recent rally in crude prices have resulted in the market cap of Saudi Aramco touching $2.3 trillion, almost within reach of Apple’s $2.6 trillion market cap. The stock price of Aramco has rallied 15% in less than 3 months, even as the stock of Apple fell by 11% since Jan-22 amidst a broad market selloff. Globally, there is a sudden sentiment shift among fund managers as the big long trade is in commodities.
For Feb-22, equity fund flows remained robust at Rs.19,705 crore. This marks the 12th consecutive month of inflows into equity mutual funds. That has been one of the key reasons for domestic mutual funds buying stocks aggressively even as FPIs have been selling. All the eleven categories of equity funds saw net inflows; with flexi-cap and sectoral funds being the pick of the lot. SIP flows for Feb-22 were robust at Rs.11,438 crore, just a tad lower than January. However, overall AUM fell in sync with the falling indices.
The Employees Provident Fund Organisation (EPFO) liquidated Rs.12,785 crore of equity ETF investments. The capital gains of Rs.5,529 crore so earned will be used for FY22 EPF interest pay-out. EPFO sold the investments it had made in 2017. It remains to be seen what is the interest rate that the EPFO announces for FY22. The current norm is that EPFO invests 85% of annual accruals in debt and 15% in equity ETFs. This marks the fourth equity ETF redemption by EPFO. Capital gains were lower than the EPFO projection.
PNB Housing Finance, which made an abortive bid to raise Rs.4,000 crore via placement of shares to Carlyle last year, is back in the market to raise funds. The board of PNB Housing approved raising Rs.2,500 crore by issuing equity on a rights basis. It is yet to finalize the finer aspects of the issue like the issue price, rights entitlement ratio and record date, which etc will be finalized in the days to come. The stock of PNB Housing Finance closed tad higher at Rs.418, but has fallen sharply from the 2021 euphoria peak.
Tyre manufacturers continue to struggle amidst rising input cost inflation and despite a 15% price hike in the last one year. Raw material consumption cost for tyre industry rose over 22% yoy. In FY22, tyre prices were raised in the range of 12-15% but that has still not been sufficient. To maintain margins, tyre stocks will have to raise prices by another 6-8% in the replacement segment. Even the demand for tyres were muted in the first two months of 2022 due to tepid auto output. Most tyre stocks have fallen 10% to 25%.
