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Market Buzz this week

by tavaga

Today we are covering: Rates hike till it’s just right, The Paytm dream demolished, Navi-gation Failed, India’s Wheat U-Turn, and much more.
Markets breathed a sigh of relief at the end after being battered this week as value buyers came to cash in. The rupee hit a fresh low. Waking up to weak global cues is getting scary now!
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Rates hike till it’s just right

Policymakers and bankers across the US and Europe feel that rates must rise to nullify the effect of inflation which BTW is still growing. But this makes us wonder when will it hit the sweet spot.

What is just right?
This is now the question of the hour and everyone is wondering where the neutralizing level of rates is at. The level needs to be just right where the economy is not under pressure or held back. The assumption is it stands between 4.5-6.5 percent and differs from country to country. After 15 years of tepid inflation and low borrowing costs, the answer to the question is becoming VERY hard to find.

What if they get it wrong?
Bankers are trying to hit a balance as inflation needs to be kept in check. With 50 bps changes, they are trying to make gradual hikes to ease the situation. They may go too high and have to come back down as it will hold the economy back. They feel that there is a change coming as countries raise rates under massive pressure.

What do experts say?
The experts know the hikes are the only way to go but are grappling to understand where the tightening will end. They say that the hikes will be the market driver for the coming months. This perfect rate cannot be measured and are using trial and error to get it right. Sheesh, this is a tough nut to crack!

Is the rate hike enough?
The past years may have been the calm before the storm and inflation at its decadian highs it may be a hurricane. The rate hikes may not be enough, countries may be forced to tip the economy into a deep contraction to counter inflation just like they did in the 80s. It’s a slippery slope.

The Paytm dream demolished

Trouble seems to be mounting for Paytm and doesn’t seem to end with the massive slump in stock prices, its top executive churn, RBI’s ban on its banking services, and its founder losing his billionaire status. As if this wasn’t enough! The valuation of Paytm Mall fell by 99% from $3 billion to $13 million.

What happened?
Investors Alibaba Group and Ant Financial decided to exit while the company was trying to transition to India’s Open Network Digital Commerce (ONDC). Both the companies sold their stake of 43% in the company for a whopping sum of Rs 42 crore at Rs 469 per share. This came as a big blow to other investors like SoftBank and eBay.

Why did the valuation drop so drastically?
After touting that it has the third-largest market share after the Snapdeal exit, a big claim, it kept losing its customers to Amazon, Flipkart, and other e-commerce giants operating in the country. Paytm now has losses that stand at Rs 503 crore and in the last-ditch effort, it is trying to create a seller-side app. Bless them!

Navi-gation Failed

What happened?
Flipkart founder Sachin Bansal’s Navi is one of the six applicants for the banking license which was rejected by the RBI. Quite a setback, as the bank, will not be able to raise funds and will not be able to compete with banks offering loans at 6.5-7 percent.

The universal banking license would have allowed Navi to access public funds via savings and FDs which would add to the company’s loan kitty of 1650 crore. The annual interest rate is between 10-36 percent and this plan would have allowed them to issue home loans at 6.5%. Raising funds from debentures will be expensive and make it impossible to issue loans that are dirt cheap.

The company plans to find out what RBI’s concerns were and reapply for the license. No pressure, as the company does not need to grow fast due to a lack of VC or PE funding.

India’s Wheat U-Turn

The world has been pushed into a food crisis, thanks Russia! India came to the rescue offering to supply wheat to countries facing food shortages. FYI, India has now banned all wheat, cotton, and other food grain exports for the next few months. 

The plan
As the second-largest wheat producer after China, the Indian government offered to export to provide relief. India had an ulterior motive when setting high export targets for the coming months as it also planned to cash in on the soaring prices of foodgrains, as wheat prices shot up by 6% globally. India exported a record 7 million tonnes of wheat up by 250% from the last year’s volumes. It was a win-win!

Till something went wrong
India bit off more than it could chew as the domestic supply has been short due to delayed monsoons. While India produces a lot of wheat it has 1.3 billion mouths to feed and it was a hurried move that could make the inflation situation worse in the country. Playing Superman without the cape was a bad idea after all.

Musk Sh*t Show

After burning out Twitter for $44 billion Elon Musk, aka Bruce Wayne is still not satisfied. Musk put the deal on hold until Twitter proved that its bot count was 5% and not the 20% Musk found. Musk has involved the SEC to look into these false account claims. 

Strategic Tantrums?
Twitter has given Musk a hard time and the takeover was not going to be smooth, we all knew this, but are these issues strategies to drive down the price? Shares fell another 8.2% wiping out all gains since Musk’s invasion. 

Stinky waters Ahead?
Musk took to Twitter with his concern again and got into a pissing fest with CEO Parag Agarwal, musk in a very mature move replied to Agarwal’s thread on the bots’ issue with the poop emoji. 
There’s also the curious case of Larry Ellison who offered $1 billion for the deal, why would a man who has tweeted just once care about Musk’s plan about free speech and MAGA? IYKWIM.

GoI shows it has the power

What happened?
High demand for air-conditioning in the sweltering summer and increased industrial activity post-pandemic. Surprise! surprise, there is a severe shortage of coal. The government has asked companies to import coal and will fine any firm that fails to do so. DRASTIC!

What is India doing?
The high coal prices internationally made the companies surly teenagers. Coal India can’t keep up and has prioritized households and industry, leading to the cancellation of almost 250 passenger trains to save the drying coal supply.
Power outages are common now and factories have been shut down in at least three states. FYI, factories have been drawing energy from the power grid which has made things worse. 

The macro-effect
7.5% of India’s electricity is powered by coal and this number will be pushed to 17.6% to meet demand making it a HUGE jump. This increases India’s dependence on coal and also puts pressure on both the environment and depletes foreign exchange reserves. Can it be winter already?

What else made the news?

Biofuel to the rescue- India approved the use and export of 20% Ethanol Blended Petrol

Deal Cemented- Adani buys Holcim’s controlling stake in Ambuja and ACC Cements for $10.5 billion

Crypto in trouble- India has asked celebrities to think before endorsing cryptocurrencies.

NATO gets bigger- Sweden and Finland applied to join NATO.

Edtech Trouble- Vedantu fires 424 employees amid a firing frenzy in edtech startups.

What Tavaga Tribe has been up to this week?

Reading: The Psychology of Money by Morgan Housel the book through 19 short stories explains the value of money and how to best deal with money, losses, gains, and most importantly investments.
Listening: Podcast – Money For the Rest of Us by J. David Stein– this podcast talks about money, how it works, how to invest it, and how to live without worrying about it.

Meme of the week
The Market Crash

Key insights from our Research Team

Best Investment Options For A Salaried Person In India

Cryptos – Mother of all bubbles?

Gold & Debt: How to Allocate and How Much to Allocate?

Red Flags to Look out for when picking an Investment Advisor

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Hope you have a safe weekend!

Ruchi Mehta
Business Analyst
(6) Ruchi Mehta | LinkedIn

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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