A spike in inflation in the US led to a sharp fall in Wall Street on Wednesday, 12 May. The 90 bps spike in inflation is the worst non-core spike since April 1982 and is largely an outcome of the massive stimulus of $2.3 trillion. This has strengthened the view of front-ending of the 25 basis points hike in the Fed Funds rate. Dow and the S&P 500 were sharply down on the back of higher inflation data. The rate of CPI inflation is already way above the maximum limit defined by the US Fed and is a basket case for a rate hike.
The first tranche of the Sovereign Gold Bonds (SGB) scheme for FY22 will open on 17 May. The government is planning a total of 6 issues of SGBs in the first half of the fiscal ending in Sep-21. The first tranche of SGB issue will close on 21 May. The government plans to do 3 tranches in May and the fourth tranche of the gold bonds will be scheduled only on 12 July. Gold bonds are free of capital gains tax if held till maturity. These gold bonds are also attractive since they offer 2.5% interest. SGBs are only sold to resident Indians.
The index of industrial production or IIP grew 22.4% in March 2021, but this was largely on the back of the base effect as Mar-20 was an exceptionally weak year due to COVID. There was strong growth visible across manufacturing, mining and electricity sectors. There is also some genuine good news on the IIP front. While there is the base impact, it must be understood that there has been heightened activity in the export-driven sectors. Economists apprehend that the COVID 2.0 may play spoilsport for the IIP story.
There was good news from IIP and also from inflation. CPI retail inflation eased to 4.29% compared to 5.52% in the month of March 2021. This was largely led by the food inflation falling from 4.87% in Mar-21 to 2.02% in Apr-21. This keeps the inflation very close to the median level of 4% as defined by the RBI. This gives reason for the RBI to hold repo rates and also to maintain the accommodative stance of the monetary policy. Reuters had already presented a consensus estimate of 4.2% CPI inflation for Apr-21.
Sun Pharma Advanced Research or SPARC confirmed that it had issued warrants worth Rs.1,201 crore to promoter Dilip Shanghvi as well as to other marquee investors like RARE Enterprises and Ashish Maheshwari. SPARC will issue a total of 6.74 lakh warrants that can be converted into shares in the next 18 months. The warrants are being issued at a price of Rs.178 per share, which is a discount of 26% to the closing price of Rs.241 on 12 May. Sunil Singhania’s Abakkus Growth Fund will also participate in the issue.
Asian Paints reported 84% spike in consolidated net profit at Rs.852 crore for the Mar-21 quarter. Even the overall revenues from operations were up 43% at Rs.6,651 crore. The operating EBITDA for the quarter went up by 53% to Rs.1,318 crore. Asian Paints CEO confirmed that the Mar-21 quarter had witnessed very good traction across rural and urban markets. The pent-up demand and the festive season aided this sharply better numbers of APIL. For FY21, net profits of Asian Paints were higher by 16% at Rs.3,139 crore.
Indian markets are likely to see inflows of $350 million from FPIs due to the MSCI adjustment. As part of the review, MSCI had removed 1 stock and included 6 stocks in the MSCI index. Since most passive funds across the world track the MSCI for global investing, inclusion in the index is an automatic justification for fresh FPI flows into the stock. MSCI will be adding Adani Enterprises, Adani Total Gas, Adani Transmission, BEL, Cholamandalam and SBI Cards to the MSCI index. Zee Entertainment will be the stock to be removed.
Praj Industries has gained 275% since the beginning of 2021 and the big underlying story appears to be the rapidly growing demand for ethanol blending. Praj operates in the distillery and brewery installation business in India. Ethanol is suddenly the in-thing after government pulled back the deadline for 20% ethanol blending. Ethanol blending will reduce the sugar glut, while promoting cleaner fuels. Praj has a clear leadership position in biofuel technology. In Mar-21 quarter, EBITDA had grown by 44% on yoy basis.