[vc_row][vc_column][vc_column_text]
Market Today with EZWealth – 7 Oct 2021
[/vc_column_text][/vc_column][/vc_row][vc_row][vc_column][vc_column_text]Domestic benchmark equity indices bounced back on Thursday, thanks to improved sentiments in the global market. All sectors saw buying, led by consumer durable, realty, media and auto names. India VIX plunged sharply lower.
The US debt ceiling impasse seems to have been resolved which led to a sharp bounce back in US market after a very weak opening yesterday. Energy prices cooled off a bit which should also aid bullish sentiments, said an analyst.
[/vc_column_text][/vc_column][/vc_row][vc_row][vc_column][vc_single_image image=”67890″ img_size=”large” alignment=”center”][/vc_column][/vc_row][vc_row][vc_column][vc_column_text]
1) World Bank flagged higher than expected inflation and slow recovery of the informal sector as the main risks to consumer spending. The Production-Linked Incentives scheme to boost manufacturing and a planned increase in public investment should support domestic demand.
The trajectory of the pandemic will cloud the outlook in the near-term until herd immunity is achieved. Growth is projected to stabilize around 7% FY23 onwards, helped by recent structural reforms to ease supply-side constraints, and increased infrastructure investment, as per the bank’s South Asia report released today. However, the degree of asset-quality deterioration from the pandemic-shock is unclear and may pose downside risks to the outlook, the report said.
2) Finance Minister Nirmala Sitharaman on Wednesday said India is “very close” to arriving at the specifics of the two-pillar taxation proposition at the G20 and is in the last stage of finalising the details.
A total of 130 countries had in July agreed to a overhaul of global tax norms to ensure that multinationals pay taxes wherever they operate and at a minimum 15 per cent rate. The Finance Ministry had then said that some significant issues including share of profit allocation and scope of subject to tax rules are yet to be addressed and a ‘consensus agreement’ is expected by October after working out the technical details of the proposal.
The proposed two-pillar solution consists of two components – Pillar One which is about reallocation of additional share of profit to the market jurisdictions and Pillar Two consisting of minimum tax and subject to tax rules.
3) India’s domestic air-passenger traffic grew marginally by 2-3% to about 69 lakh in September as compared with about 67 lakh in August, credit rating agency Icra said on Wednesday.
When compared year-on-year (Y-o-Y), air-passenger traffic growth stood at about 74% in the month under review over September 2020. Airlines witnessed about 61,100 departures in September as compared with 39,628 in the same month of 2020, it said, adding that on a sequential basis, the number of departures in the month gone by were higher by about 6%, as COVID-19 infections demonstrated a downward trajectory.
The average number of passengers per flight during September was 113, against an average of 117 passengers per flight in August.
4) A coal shortage in India has led to soaring costs for steel producers as they compete with other industrial consumers for supply. Mills are paying more than four times the normal costs for procuring coal from e-auctions and from mines, according to V R Sharma, managing director at Jindal Steel & Power Ltd. Still, there has been no impact on production at most primary steel producers yet as they have adequate supplies and are unlikely to curtail output, he said.
“Integrated secondary steel mills or stand-alone sponge iron producers may have to face production cuts as they rely on non-coking coal to run operations,” said Jayanta Roy, senior vice president at ICRA Ltd. “Aluminum producers too are going to face a problem of availability and price of coal for their captive power plants and, depending on their supply tie-ups or contracts for international purchases, may have to face shortages as the government’s priority remains to the power sector,” he said. However, with the end of the monsoon season and efforts of Coal India Ltd to boost production, supplies should improve going forward, Jindal Steel’s Sharma said.
5) After battling high cotton prices for more than a year, apparel makers plan to increase the prices of their products. Labels such as Indian Terrain and Raymond UCO Denim will likely become more expensive once the increases take effect. Innerwear brand Enamor has already increased prices.
“We have taken a double-digit price increase in the last one year given the abnormal increase in the prices of cotton and yarn,” said Shekhar Tewari, CEO of Enamor, which was acquired by private equity firm Advent International in 2019. Advent also has a controlling stake in men’s innerwear brand Dixcy Textiles.
Apparel makers have been reluctant to pass on the higher cost to consumers so far because of sluggish demand on account of the COVID-19 pandemic. But with the revival of consumer demand led by festive sales, a price hike in clothing products is on the cards now.
6) As a merged entity, IRCON and RVNL can possess a solid portfolio of services, which can help them bring down cost and build capabilities that can shield them against competition.
First and foremost, capital allocation will improve drastically and that could justify returns and valuations they command. For instance, in the case of Rail Vikas Nigam Limited (RVNL) and IRCON International (IRCON), which are the most likely merger candidates considering the overlap of businesses, the combined entity will hold close to Rs 5500 crore of cash, which will be 55 per cent of its net worth. This is huge and one of the reasons why the return on equity is low at 13 per cent (combined). A large pool of cash can be used to pay dividend or, more importantly, for the buyback of government shares, which will not only reduce the government stake but will also create value as the stock trades at less than the treasury yield.
A right allocation of capital along with a better management of growth capital will significantly improve return ratios, possibly leading to higher valuations. The stocks, at present, are trading at 7-9 times their fiscal 2022 estimated earnings, despite strong earning visibility, cash in the books (50 per cent of current market capitalisation) and growth.
The merged entity will have a huge scale. On a combined basis, they now hold an order book of close to Rs 1,10,000 crore, which is close to 6 times their annual revenues. The combined entity will not only have the highest revenue visibility among the listed engineering companies but, due to the scale, their ability to rationalise cost will also increase. As they grow, they will incur higher operating expenses, such as hiring more employees. For instance, the employee cost of IRCON, as a percentage of revenue, is almost 5 per cent as against 1.3 per cent for RVNL. The common pool of employees can be better utilised and lead to future cost savings, helping the combined entity to command a higher operating margin.
7) Cement companies can come under pressure, with brokerages expecting a drop in profitability when they report September quarter numbers amid a sharp increase in costs. Global research firm CLSA said that cost inflation and seasonal price softness was weighing on the profitability of cement companies. It has forecast a 14 percent year-on-year drop in profits in the second quarter. The brokerage firm believes that volumes are likely to be resilient, with mid-single-digit YoY industry growth. “We are in the midst of a demand upcycle, but cost increases have been persistent. For FY22, we forecast about 12 percent volume growth and flat EBITDA per tonne YoY,” the research firm added.
Stocks in the news:
Zee Entertainment Enterprises Ltd. said a potential merger with the Indian unit of Sony Group Corp. is the best deal on the table but India’s biggest private-sector TV network is open to offer from other bidders even as it faces resistance from key shareholders.
“This is the best deal for shareholders at this point in time as we are interested in maximisation of values for all our stakeholders including shareholders, the company and consuming public,” company’s chairman R. Gopalan said in a Bloomberg Television interview Wednesday adding the company is open to “consider if there is another deal on the table.”
Gopalan’s comments show the battle between the company and its largest investors is set to worsen. Zee has already filed a law suit asking the Bombay High Court to declare illegal and invalid a notice by key investors Invesco Developing Markets Fund and OFI Global China Fund LLC calling for a meeting of shareholders. Invesco and OFI sought court’s intervention after the entertainment company refused to hold the meeting.
Shares of Sobha rallied over 13 per cent in early trade on Thursday following its strong sales update for the September quarter of 2021. The Bengaluru-based real estate firm clocked 49 per cent growth in bookings at Rs 1,030.2 crore during the second quarter on better housing demand. Sobha had sold properties worth Rs 689.9 crore in the year-ago period.
Reliance Retail Ventures Limited (RRVL) on Thursday said it has entered into a master franchise agreement with 7-Eleven Inc (SEI) for the launch of 7-Eleven convenience stores in India. Nearly three days ago, Future Retail terminated its two year-old franchise agreement with 7-Eleven Inc that had planned to open and manage the global eponymous brand stores as a master franchisee in India.
Kalyan Jewellers share price added over 11 percent intraday on October 7 after the company reported a revenue growth of 60 percent for its India operations during quarter ended September, as compared to the same period in the previous year.
Indiabulls Housing Finance were up 1.4% in early Mumbai trading Thursday after the company said that it has exited its stake in UK-based OakNorth Holdings for around Rs 3,049 crore.
Shares of Tata steel rose 1% in early trading on Thursday as the country’s leading steel producer said its consolidated steel output rose 7% year-on-year to 7.78 million tonnes in the July-September quarter.
Shares of Lupin rose 1.1% in early Mumbai trading Thursday after the drug firm said it had received a tentative nod from the US health regulator for marketing of generic Brexpiprazole tablets, used as an anti-depressant, in the US market.[/vc_column_text][vc_separator][vc_column_text]
Disclosure:
EZ Wealth is a Stock Broker registered with BSE, NSE and MSEI in all the major segments viz. Cash, F&O and CDS segments. EZ Wealth is also a Depository Participant and registered with both the Depositories viz. CDSL and NSDL. Further, EZ Wealth is a SEBI registered Portfolio Manager. EZ Wealth is a step-down subsidiary of Wealth Discovery Securities Pvt. Ltd (referred as ‘WDSPL’ hereafter).
This report is not to be altered, transmitted, reproduced, copied, redistributed, uploaded, published or made available to others, in any form, in whole or in part, for any purpose without prior written permission from EZ Wealth.
The projections and the forecasts described in this report are based on estimates and assumptions and are inherently subject to significant uncertainties and contingencies. Projections and forecasts are necessarily speculative in nature, and it can be expected that one or more of the estimates on which the projections are forecasts were based may not materialize or may vary significantly from actual results and such variations will likely increase over the period of time. The recipients should consider and independently evaluate whether it is suitable for its/ his/ her/their particular circumstances and if necessary, seek professional / financial advice as there is substantial risk of loss. EZ Wealth does not take any responsibility thereof. Any such recipient shall be responsible for conducting his/her/its/their own investigation and analysis of the information contained or referred to in this report and of evaluating the merits and risks involved in securities forming the subject matter of this report. The price and value of the investment referred to in this report and income from them may go up as well as down, and investors may realize profit/loss
This report has been prepared by EZ Wealth and published in accordance with the provisions of Regulation 19 of the Securities and Exchange Board of India (Research Analysts) Regulations, 2014, for use by the recipient as information only and is not for general circulation or public distribution. The solicitation of an offer to buy, purchase or subscribe to any securities, and neither this report nor anything contained therein shall form the basis of or be relied upon in connection with any contract or commitment whatsoever. It does not constitute a personal recommendation or take into account the particular investment objective, financial situation or needs of any individual in particular. The research analysts of EZ Wealth have adhered to the code of conduct under Regulation 24 (2) of the Securities and Exchange Board of India (Research Analysts) Regulations, 2014. The recipients of this report must make their own investment decisions, based on their own investment objectives, financial situation or needs and other factors. Past performance is not a guide for future performance. Actual results may differ materially from those set forth in the projection. This report has been prepared by EZ Wealth based on the information available in the public domain and other public sources believed to be reliable. Though utmost care has been taken to ensure its accuracy and completeness, no representation or warranty, express or implied is made by EZ Wealth that such information is accurate or complete and/or is independently verified.
The contents of this report represent the assumptions and projections of EZ Wealth and EZ Wealth does not guarantee the accuracy or reliability of any projection, assurances or advice made herein. Nothing in this report constitutes investment, legal, accounting and/or tax advice or representation that any investment or strategy is suitable or appropriate to recipients’ specific circumstances. Since EZ Wealth or its associates are engaged in various financial activities, they might have financial interest or beneficial ownership in various companies including subject company/companies mentioned in the report. EZ Wealth or its associates have not received any compensation for investment any compensation including brokerage services and for products or services other than investment banking or merchant banking from the subject company in the past 12 months. It is confirmed that EZ Wealth or research analyst or its associates have not managed or co-managed public offering of securities for the subject company in the past 12 months.
Research analyst or EZ Wealth or its relatives’/associates’ have no material conflict of interest at the time of publication of this report. Neither research analyst nor EZ Wealth are engaged in market making activity for the subject company. It is confirmed that research analysts do not serve as an officer or director. No material disciplinary action has been taken on EZ Wealth by any regulatory authority impacting Equity Research Analysis activities. The views contained in this document are those of the analyst, and the company may or may not subscribe to all the views expressed within. This information is subject to change, as per applicable law, without any prior notice. EZ Wealth reserves the right to make modifications and alternations to this statement, as may be required, from time to time. Research analyst or EZ Wealth or its actual/beneficiary ownership of 1% depends from case of case. It is also confirmed that research analysts have not received any compensation from the subject company in the past 12 months.
WDSPL registered address: 1206, 12th Floor, Kailash Building K.G. Marg.
Connaught Place New Delhi-110001
Tel No: 91 +11-43444-666 | 91 +11-43444-623 |
Wealth Discovery Securities Pvt Ltd – CIN: U74999DL2010PTC211626
Wealth Discovery Commodity Pvt Ltd – CIN: U74999DL2011PTC213264
SEBI-NSE-INB/F/E231435737,BSE-INB011435733/INF011435833, DP-IN-DP-CDSL-679-2013 SEBI- REG.NO- MCX & NCDEX – INZ000015731
[/vc_column_text][/vc_column][/vc_row]