SUNDAY WEEKLY ISSUE #19

Hello EveryFinions,

This week, the finance minister tabled the budget for the year coming up. There were clear winners and losers from the policy measures that were announced. Hospitals, real estate, metal makers, PSU banks and textiles were the big winners while exporters, the bond market, farmers/rural India and IT companies had not much to take home. You are probably overwhelmed by the amount of news that came this out this week on this front. So, we won’t go much into it in our edition today.

However, the budget together with the economic survey that was released last week should drive some of our short-term tactical investment decisions. From a long-term perspective, the secular growth story that India is, will carry on – No matter the budget.

IN TODAY'S NEWSLETTER

• News in brief
• Quarterly results update - Q3FY21
• Cover story - Perceptions and Expectations
• Quiz, thought for the day
• In case you missed it : The worst investment you'll make

MARKET UPDATE (WEEK ON WEEK CHANGE)

NEWS IN BRIEF

• The central bank this week announced that retail investors will now be given direct and greater access to the government bonds market. The RBI hopes that this will create more depth in the GILT market. This will make India the first country in Asia to do so. Bond markets are typically restricted to institutional investors in most countries across the world.
• The manufacturing capacity utilisation survey results released this week indicated that capacity utilisation witnessed a sharp recovery in Q2 FY21 from an abysmal 47% to 63%. While this is an improvement, it is still less than the 75%+ levels of capacity utilisation that businesses were starting to get used to pre-COVID. Encouragingly, inventory to sales ratio was also down indicating that more goods are being sold or equivalently less goods were being produced.

• PayPal is shutting down its domestic payments business in India at the end of March 2021 marking a further set back to a company which has been long trying to figure out the Indian market. The company said that it will continue to support cross-border payments for Indian merchants.

• TikTok this week announced that it is withdrawing from India. In an email sent to over 2000 of its staff in India, the company said that most of them will be laid off and has no idea if it will return to the country.

• Kia seems to be nearing the finish line on the Apple car deal. The company seems to be in discussions to make an investment in Georgia, Atlanta to assemble the car. Kia insisted that the deal has not been signed off in full yet. Kia which is owned by Hyundai already has a facility in Georgia to assemble its cars.

IN LESS THAN A FEW HUNDRED WORDS

Quarterly Results Update - Q3 FY21

We have had results from 400+ companies from our watchlist of 900+. Here is a preview of what these numbers look like at a high level.

OVERALL RESULTS

Overall, sales and profits growth are generally positive. While y-o-y sales growth has been between -20% and +30%, y-o-y profit growth has been between -10% and 50% for most companies. This faster growth in profit compared to sales is primarily attributed to the aggressive cost cutting that most companies undertook earlier last year.

AUTO & AUTO ANCILLARIES

Auto and Auto ancillaries have clocked record sales and profit growth this quarter. Profits grew by 85% for ESCORTS, 88% for TVS motors and 95% for SWARAJ Engines on a year on year basis.

BANKING AND FINANCIAL SERVICES

Banking and financial services companies are a bit all over the place. Bajaj finance recorded a staggering 30% drop in profits on a year on year basis. While the company’s gross NPA was around 0.5%, it said that if the moratorium relief was not included its NPA figure would have been around 2.9%. 2-wheeler and 3-wheeler loans were showing the most sign of asset quality weakening with over 6% in Stage 3 NPAs (customers with more than 2 instalments pending). SBI life insurance also recorded similar profit drop of -40% year on year.

Cement companies continued their phenomenal winning spree. Average y-o-y profits growth excluding the outliers was a cool 265%! The commentary from India Cements shows a continuation in the trend of improving price realisation per tonne. Ultratech, JK Lakshmi and Shree cement were some of the top winners.

FMCG

Sales and profits growth moderated for the FMCG businesses in Q3 on a quarter on quarter basis. Sales and profits grew by about 20% y-o-y for HUL (this is in spite of the fact that current quarter results reflect the merger between HUL and GSK Consumer Healthcare) while profits declined by 2% sequentially.

We are keeping an eye out as more results come in. You’ll hear more from us next week!

QUIZ

It was decided in the RBI’s monetary policy committee meeting which concluded this week to hold the REPO rate stead at 4%. What does this REPO rate actually stand for?

COVER STORY

Perceptions & Expectations

This week, the RBI released its perception & expectation survey results for the month of January 2021. The perception & expectation survey is just that. A survey with a sample population of people to get their perception of the current economic/financial condition and their expectation for the future. The results are quite contrary to what the results would have been had the same survey been run with a sample population of stock market participants.

People’s perception of the current general economic situation in Jan-21 is much worse than the year ago period and has only slightly improved compared to May-20.

Read more to find out what people said about income, employment & spending levels.

IN CASE YOU MISSED IT...

The worst investment you'll ever make

We have written in length about making good investments – in equity markets, in bond markets, mutual funds and in our own selves too. But every one of us at several stages in our lives make some terrible investments too – bad career choices, bad relationships, bad financial investments and so on. Amongst them, there is especially one that we will all end up making and that is buying a car! Read more to find out why.

ANSWER TO QUIZ

REPURCHASE OBLIGATION

That’s what REPO stands for. It is the interest rate at which the RBI lends money to commercial banks. But why is it called a repurchase obligation? Simple. When a bank needs funds, it takes one of the government bonds it holds to the RBI asking for a loan with the bond as a collateral. The central bank lends money under one condition – it is that when the bank has the funds it needs, it will be obligated to come back to the RBI and ‘repurchase’ this government security by returning the money. That’s why!

THOUGHT FOR THE DAY

So, we wait!

READ/WATCH/LISTEN

• Financial bubbles are bad things. Right? Well, not entirely. The railway stocks bubble in 1800s in Britain made way to significant investments in track expansion. There’s more. A Wealth of Common Sense
• Parts of the brain employed when actually talking, walking or making love are illuminated by the very act of reading about talking, walking or making love. But how should we read? Lithub

From the writer in me, to the reader in you ♥

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