Yesterday’s Market Performance

Nifty 50: 18,212.35 | +156.60 (+0.87%)
FII Net Sold: INR 1,001.57 crore

Sensex:  61,150.04 | +533.15 (+0.88%)
DII Net Bought: INR 1,332.01 crore

Howdy Toasters!

In today’s issue of the Morning Toast, we discuss: 

• Engineering & Capital Goods activity maintains momentum
• Bajaj Finance on the move?
• Vi now in business with the government?
• An education concept to keep you chugging along

Engineering & Capital Goods activity maintains momentum; what’s up and what do you need to know? 🧲

• In Spite of Oct-Nov being weak months, Q3FY22 saw inflows of Rs. 1190bn (up 15% YoY) due to strong awarding in Dec worth ~Rs710bn
• YTD growth of ~25% YoY has been largely buoyed by the Road sector, some one-off large orders in the Power sector and orders in the Water segment
• Tenders rose 36% YoY to Rs2.8tn in Q3. For 9M, tenders stood at 17% YoY

Tell us more! 🧐

• Among sectors, Roads (32%), Water (15%), Railways (8%) and Irrigation (6%) together constitute ~61% of the overall tenders
• Spending from key sectors, such as Roads, Railways, Defense and Housing, which generally account for ~70% of overall capex, saw 36% YoY growth
• TTM Dec’21 tendering stood at Rs8.7tn – the highest ever (up 22% YoY). Some of the significantly large tenders included Bharat Broadband, advanced chemistry cell and the development of an international film city in UP

Shoutout to the Road Sector then? 🙄

• Yes majorly! Excluding the Road sector, Q3FY22 inflows would have been down 20% YoY (and 2% YoY overall)
• Road segment saw BOT orders totaling Rs230bn (~Rs170bn won by Adani Enterprises; Rs65bn won by IRB Infrastructure) and HAM projects worth Rs95bn

Any particular stimulus? 🙄

• A good uptick in capex in the previous few months seems to have done the trick – State spending stood at ~Rs1.88tn (~5% 2-year CAGR) while combined spending saw a 2-year CAGR of 9%
• UP and MP with capex of Rs335bn and Rs237bn remained the top states respectively followed closely by TN, Telangana, Karnataka, Maharashtra, Gujarat and Rajasthan
• The Central government achieved ~50% of its annual budget target with an outflow of ~Rs2.73tn & incentivized states through an enhanced ceiling for borrowing and front-loading the share of devolution to states

All good news then? 😏

• Not for all – Of the 11 HAM projects awarded in Dec’21, Ircon International was the only listed player to have received a project, which was disappointing for key listed road players
• The Central Gov monthly run rate slowed down during Oct-Nov’21; Capex by the Ministry of Defense has grown by only 6.5% YoY with minimal spending from the Ministry of Roads

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Bajaj Finance on the move?

• Analysing Bajaj Finance on a weekly time-frame, indicates that the stock had been in a good upward momentum in the last 18 months (see image below)
• This up move in prices has been taking support along a rising trendline. (took support recently 3 weeks back)
• The overall structure of the chart is bullish as prices have been making continuous higher highs and higher lows as shown in the image

Great! Tell me more? Any other tools?🤩

• Looking at the chart on a daily time frame, prices have been facing stiff resistance around 8010 and been rejected 2 times (see image below)
• Stock recently broke out of the double bottom pattern which is a positive sign
• Yesterday, prices gave a breakout above the inside bar (high of the parent candle) which shows strength

That’s Great! How do I enter / exit such a setup? 🧐

• You should wait for prices to give a breakout above 8018 and retest the resistance level, and going long post breakout would make most sense; stop-loss can be placed just below 8010 or the next support level, which will help limit your losses

Interesting! Final thoughts? 🤩

• On a weekly time-frame, prices taking continuous support along a rising trendline making higher highs and higher lows, shows positive bias
• On a daily time-frame, prices giving breakouts above double bottom pattern and an inside bar adds strength and increases chances for a breakout considerably

Keep a track?

Vi now in business with the government? What’s up and what do you need to know? 🤯

• The telecom operator has decided to convert Rs. 16000 crore of its dues to the government into equity
• This will make the government the largest shareholder in the company holding 35.8% of shares priced at the face value of Rs. 10/share
• Dilution in promoter’s stake is inevitable with parent Vodafone Group Plc and Aditya Birla Group expected to own around 28.5% and 17.8%, respectively

Background please? 🙄

• A Telecoms Reforms Package introduced by the DoT last year gave an option to struggling telcos to convert interest on deferred spectrum auction payments and AGR dues into equity
• Basically Telecom companies could opt to pay the principal, the interest, and all other penalties (as directed by the SC), after four years, instead of immediately
• As a one-time opportunity, the GoI also gave the option to convert the interest (Note!) on this deferred payment into equity at the end of the four-year period

How are things looking for Vi? 🤨

• Vi has debt in excess of Rs. 2 lakh crore & owes the GoI Rs. 58000 Cr in this category alone and would need its Average Revenue Per User (ARPU)  to double from Rs.109 currently to at least Rs. 250 to survive
• It also needs to work on its capital raise, accelerate network investments, and stem subscriber losses (none of which are easy tasks) while also meet its enhanced payments to the government after the moratorium period ends
• Another concern is the potential of government intervention which may dissuade investors, heightened by rumours of a merger with BSNL

So who grabbed it and who passed? 🤔

• Bharti Airtel has opted for the 4-year moratorium but decided to pass on the interest-to-equity route while Reliance Jio Infocomm has not opted for the moratorium altogether
• Tata Teleservices (Maharashtra) has also decided to give the GoI 9.5% equity in exchange of dues

Overall reactions? 🤩

• Experts seem to be divided too – with many believing that a cleaner balance sheet will enable it to raise funds more easily for its capex plans, and government involvement will likely alleviate regulatory pressure on the company
• The street was sceptical at first, assuming the company would eventually become a quasi PSU (stock crashed ~21%); however, a ‘government source’ informed investors that the focus of the reform was to provide support, and nothing more
• The stock positively reacted to the news, was up ~9% in trading, with the source also informing of government plans to exit the stock once the company operations stabilised

Keep a track?

What else caught our eye? 👀

Tata to be omnipresent soon?

• The BCCI has found a new title partner in the Tata Group after China-based Vivo decided to opt out
• Potential reasons include increasing geopolitical tensions between the two countries + lack of return on investment
• Vivo India had bagged the IPL title sponsorship rights for Rs.2199 Crore committing to pay Rs. 440 Cr every season in 2017

LIC IPO finally here?

• In latest updates the government is pushing for a valuation of Rs. 15 trillion ($203bn) for LIC IPO – the nation’s biggest yet
• Embedded value (which combines the current value of future profits with the net value of assets) is expected to be 4 trillion rupees with a 4x multiple for market valuation
• The government is planning to sell 5% to 10% of the company before the end of March

Thursday, 13th January: Mindtree, CESC

Friday, 14th January: HCL Tech

‘Sharpe Ratio’

Sharpe ratio is the measure of the risk-adjusted return of a financial portfolio. A portfolio with a higher Sharpe ratio is considered superior relative to its peers

The formula for calculating the Sharpe ratio is: {R (p) – R (f)} /s (p)

Where

R (p): Portfolio return

R (f): Risk free rate of return

s (p): Standard deviation of the portfolio