Market Buzz this week

Market movement this week

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What happened – We are 6 months into 2022 and Indian markets have seen their worst half-yearly performance in the last 2 years. Continued geopolitical conflict, high commodity prices, and rising inflation have all weighed heavily on the markets.

All are bleeding – Broad indices have corrected by 9% although outperformed compared to global peers. Fall in mid-and small-cap indices was sharper with both down 12% and 15%. Investors found few avenues to escape to as high inflation brought negative returns for debt instruments too. Gold, the so-called safe-haven in turbulent times also remained flat. Bitcoin the riskiest of all was down 60% from its peak. Real estate firmed a bit due to price hikes owing to increased cost. Practically everything was down except for $$ and oil of course!

Crystal ball gazing – 2nd half of 2022 may continue to see volatility and markets may remain directionless. A slowdown in corporate earnings cannot be ruled out and will be another dampener going ahead. Global inflation has been quite a sticky animal to tame and needs to be monitored closely. 

High growth stocks could see more downside ahead and bottom fishing should be done carefully. After all, Indian markets have outperformed compared to US and emerging markets. So, there is a chance that we could see some more corrections if global woes continue.
Bottom line – 2022 is a tough year and one should protect capital; stay away from risky investments. SIPs were born for times like these…

In the blink of an eye – Zomato picked up a 9.3% stake in Grofers in July’21 for a $1 bn valuation to make an entry into q-commerce. A year later, Zomato announced the full acquisition of Blinkit (ex Grofers) for roughly $570 mb, a 40% discount to the earlier stake buy. Shareholders were not impressed, Zomato stock prices corrected by a quarter since the deal was made public (ouch!). Why such a disappointment?

Hit and trial – Grofers has had several business pivots in its 9 years of existence. Once the darling of marquee investors for its asset-light grocery delivery model, Grofers had drastically scaled down, switched to the inventory-led model, from next-day delivery model to quick commerce in Dec last year and rebranded itself as Blinkit. Grofers has explored every possible option to survive. Now, its future is tied to that of Zomato’s.

Zomato holding up a sinking ship? – Can Zomato really turn around this cash-guzzling space with rivals like Dunzo, Zepto, Instamart, and Big Basket breathing down its neck? Mgmt is convinced that a higher monthly order frequency on the Blinkit app and increasing gross order value in key markets will justify this deal. But is that enough?

Bottom line – Despite obvious synergies, the road to profitability is too far to be seen and this acquisition is going to make Zomato even weaker, financially. Will it be able to deliver?

What happened – The saga of layoffs in high-funded startups continue with the latest being BYJU’s owned WhiteHat Jr and Toppr laying off 300 and 350+ and Udaan (a B2B e-commerce unicorn) parting with another 180. Funding crunch and covid ebbing have been particularly harsh for edtech companies. Over 3,600 employees in edtech companies have been laid off this year while smaller ones like Lido Learning and Udayy have closed down. 

Bigger worries – The edtech sector saw a massive uptick in demand and funding since the beginning of the pandemic, minting 7 unicorns so far. But the slowing demand for tech-based education services has forced companies to lay off employees, go slow on expansion, cost-cutting and explore newer revenue streams. These raise much larger questions around the viability of edtech in current times. 

Bottom Line – Layoffs never go down well and a reality check is what these companies need urgently.

Gen-Next in driver’s seat

What happened – Mr Mukesh Ambani, 65, has officially begun the 3rd Gen succession planning of his $90 billion empires. Elder son Akash Ambani, 30, is now chairman of the board of directors of Reliance Jio.  Mukesh Ambani has resigned from the Infocomm board but continues to control Jio Platforms Ltd., which owns all digital assets including the telco. Twin sister Isha Ambani, is expected to be elevated to chairman of the conglomerate’s retail unit. Anant, the youngest of the three children, is likely to get the legacy oil-to-chemicals biz. 

Learning from the past – Indian corp is full of stories of great founders who succeeded by feuding heirs. Modis, Shrirams, and Singhanias all got tangled with messy fights over control of business assets. Ambani brothers too fought a bitter battle, 13 years ago, after their father Dhirubhai died, without leaving behind a will. Hence, an early move to ensure the frictionless transition. 

What now – Mr Ambani had begun to publicly talk about this “momentous leadership transition” late last year. It is yet to be seen how the eventual arrangement pans out and whether telco, retail, and energy to end up as separate listed entities. Whatever the case, the conglomerate has amassed huge wealth for the family & shareholders over the years and the legacy should continue. Especially due to growing rivalry with the other industrial titan, Mr Adani who has rapidly advanced to global wealth rankings. 

Bottom line – Hopefully the father can ensure a better transition than what he had to bear. 

Good but not so Simple Tax

What happened – The 47^th GST council meet concluded this week. Key decisions taken during the meeting were:

More expensive? Unbranded, pre-packaged and labelled food such as wheat, fish, paneer, and curd removed from the exemption and will attract a 5% tax. Hotels charging less than ₹1,000 will come under the 12% GST bracket. Checkbooks, hospital beds, LED lamps, pumps and dairy machines to get dearer too.

What is cheaper now? Ropeway rides, goods carriage rent, orthopaedic devices, and defence items.

Pending – Online gaming, horse racing and lottery escaped a tax hike which was expected at a flat 28%. No decision taken on the crucial subject of compensation to states. At the time of implementation of GST, govt had decided to compensate the states for any loss of revenue from the new tax for 5yrs. Several states have demanded an extension, owing to low revenues during the pandemic. The proposal is likely to be taken up in the Aug meeting.

Others – State empowered to impose e-way bill on gold for intra-state movement. Small e-commerce sellers exempted from registration

5 year Report card – GST rollout completed 5 years this week. The “one nation one tax” had a roller coaster ride with scorecard showing some hits and more misses. Removing 17 diff levies and 13 kinds of cess/surcharge is a huge feat. Initial 2 years were challenging from overcoming resistance from masses, to handle the procedural burden and repeated glitches. The benefits have now started to surface.

Hits – Tax payer’s base has more than doubled, monthly average revenues is up from Rs. 70k crore in FY 2016 to Rs. 1.3 tn currently. 

Misses – Delays in implementing GST returns, continuous amendments, still a complicated tax structure, and unnecessary block of input tax credit 

GST 2.0 – Despite the hiccups, GST seems to have stabilized now and is poised to enter a new era. States should learn to live without an assured revenue growth from the centre. After all, no tax regime is sustainable with an endless compensation regime. It’s about time we consolidate the gains of last 5 years and strengthen the GST ecosystem for future.

What else made news?

• Tables turn – Eknath Shinde sworn as next Maharashtra CM following days of drama. Fadnavis to be deputy.

• Slide continues – Rupee breaches 79 mark vs. $$ for the first time

• Feeling the heat – Russia defaults on its foreign dollar debt for the 1st time in a century

• Warning alert – RBI cautioned investors against cryptos calling them “clear danger”. Earlier, RBI Gov had termed the crypto craze as the doomed tulip mania

• Dry spell – India received 8% lower rainfall than avg in June, the 1^st month of the SW monsoon, due to low rainfall in Central India, IMD says

• Shopping on: Lenskart acquired Japanese D2C eyewear company Owndays for $400 million

• Fine slapped – Sebi imposed fine of Rs. 11 cr on 8 entities for corporate governance violation in an algo trading case

What Tavaga Tribe has been up to this week?

Reading: Hyperfocus by Chris Bailey– In this fast paced world full of distractions, this book is a practical guide to managing your attention –

Listening: The diary of a CEO with Steven Bartlett – an unfiltered journey into some  remarkable stories of entrepreneurs that have achieved greatness and created stories worth listening to.

Tweet of the week

Key insights from our Research Team

Will Asian Paints Paint the Town Red Again?

Banks losing the fight against frauds?

Are you delaying your investment decision?

Did you like today’s issue? If yes, please spread some love, Share the weekly wrap

Hope you have a safe and relaxed weekend!

Cheers,

Ruchi Mehta

Business Analyst

Disclaimer: This write-up is solely for educational purposes. This in no way should be construed as a buy/sell recommendation. Please consult your investment advisor before investing.

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