Tuesday, 19th April 2022

WPI inflation for Mar-22 spiked to 14.55% compared to 13.11% in Feb-22. There was a sharp rise in edible oil prices and in power prices. Crude petroleum was the villain of the piece spiking 55.17% yoy in the month of Mar-22. Apart from crude, Mar-22 also saw sharp increase in the prices of natural gas, mineral oils, basic metals etc due to the ongoing Russia-Ukraine conflict. The sequential month-on-month inflation was at a high of 5.68% for Mar-22 indicating that high frequency indicators were principally unfavourable.

Parent company, L&T, is exploring a $22 billion merger of L&T Infotech (LTI) and Mindtree Ltd. This will give them much needed scale to compete with the larger players and get sizable orders from the global digital marketplace. Both LTI and Mindtree are likely to consider the swap ratio as early as next week, but neither LTI nor Mindtree was willing to confirm the news. L&T currently holds 61% in Mindtree and 74% stake in LTI. One reason for the merger is also that minimal overlaps could help them focus on synergies.

On the first day of trading after Q4 results, the stock of Infosys fell vertically by 9% to Rs.1,592 per share on BSE. Infosys had underperformed market expectations on top line and bottom line growth. However, more disappointing was the sharp fall in the operating margins as well as the spike in the attrition rate to above 28% in the fourth quarter. Even in the past, the stock of Infosys has tended to react negatively after the March quarter results. One of the worst such falls in Infosys was seen 19 years back in April 2003. 

Enforcement Directorate (ED attached assets worth Rs.758 crore of Amway. Incidentally, Amway is one of the largest direct selling companies in India. The ED is conducting a money laundering probe, which revealed that Amway was nothing but a pyramid fraud scheme in the guise of a direct marketing set-up. In last 20 years, Amway had collected Rs.27,562 crore from business operations and had paid out Rs.7,588 crore as commissions to distributors and members in India. Amway promoted pyramid schemes big time.

For the sugar cycle year 2021-22 (Oct-Sep), total sugar exports are estimated to increase to over 9 million tonnes. This is sharply higher than 7.2 million tonnes recorded in FY21. There has been a lot of demand for Indian sugar coming from Bangladesh and Indonesia. According to the Indian Sugar Mills Association (ISMA), about 8 million tonnes are already contracted and about 5.72 million tonnes have been physically shipped abroad. In the current cycle, Indonesia and Bangladesh had 44% share of Indian sugar exports.

It may by a torrid summer in 2022 for more than one reason. It is not just about the weather forecast but the way coal inventories in power companies are dipping, it looks like power cuts may be inevitable in this summer. According to the Central Electricity Authority (CEA), 173 power plants had average stock of 34% of required normative stock. About 101 out of these 173 power plants had less than 25% of normative coal stocks. Andhra Pradesh, Madhya Pradesh, Punjab and Maharashtra are facing early power outages. 

In a rather anomalous move, the credit spreads on AAA-rated corporate bonds fell sharply from their historical levels. The 3-year and 5-year bonds are trading at yields of 6.4% and 6.9% respectively, which is less than 10 bps spread over similar tenure government paper. In the last 10 years, the average spread would be around 82  basis points. One reason could be that private sector AAA bond issuances are tepid as the focus has been on deleveraging balance sheets. The limited supply has kept a lid on the bond yields.

Jindal Steel & Power (JSPL) reported record sales of 0.79 million metric tonne (MT) in Mar-22 and 7.63 MT for FY22. JSPL managed to meet production guidance for the first time, helped largely by a 33% share of exports in FY22. JSPL has set more ambitious targets of 9 MT for FY23 and 15 MT for FY25. The FY25 target will be assisted with their Angul plant coming on stream. JSPL also managed to significantly boost its raw material supply after it won 4 new coal blocks. JSPL is present in steel, power, mining and infrastructure.

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