Good Morning Toasters!

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

• Bajaj Auto on road to recovery
• Airtel announces investment from Google International
• News around the world
• An educational concept to keep you learning every day 🙂

Market Watch

Nifty: 17,339.85 | +237.90 (+1.39%)
FII Net Sold: INR 3,624.48 crore

Sensex: 58,014.17 | +813.94 (+1.42%)
DII Net Bought: INR 3,648.65 crore

Technical Setup

Bajaj Auto on road to recovery? 🚀

• Analysing Bajaj Auto on a weekly time-frame, depicts the stock to be in a downtrend recently
• However the last 6 weeks indicate strength (more on this below), which increase chances of reversal in trend (see image below)
• Volatility has taken a hit as prices are trading in a narrowing Descending Triangle Pattern, with such consolidations great opportunities for institutions to accumulate stocks

Nice! Tell me more? Any other tools?🤔

• After the steady correction, prices have broken the earlier swing high,  switching to a potential uptrend, indicative of strength in the counter
• This uptrend has resulted in the prices making higher highs and higher lows (see image below)
• Yesterday (31/01), prices gave a closing above the previous swing high which indicates positivity

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

• Current levels would be a good time to enter the uptrend, and going long post breakout would make most sense; stop-loss can be placed just below 3,500 or the next support level, which will help limit your losses

Interesting! Final thoughts?🧐

• On a weekly time-frame, prices taking support at a crucial level and a steady recovery in prices shows positive bias
• On a daily time-frame, prices making higher highs and higher lows increases chances of the steady uptrend continuing

Keep a track?

Around the World🌍

Geopolitical tensions are escalating while old supply chain worries don’t seem to go away – yet all hope is not lost! What happened and what’s next?

• The price of Aluminium is approaching its decade high having increased by 24% in the last 6 months to > $3100 a metric ton. Russia being one of the world’s largest producers of metal might face issues with exporting the same if conflict with Ukraine takes a destructive turn. Aluminium supply is expected to fall short of demand by 1 million tons in 2022 with the only hope being a recovery in China’s production
• Elliott Management Corp.’s PE arm, Evergreen Coast Capital, and Vista Equity Partners are set to pay $104 a share for Cloud-computing company Citrix Systems Inc. in a deal valued at $13 billion. The takeover would be the biggest leveraged buyout in recent months and comes against the backdrop of a corporate struggle at Citrix with the CEO stepping down after investor pressure to explore a potential sale of the company
• Supply woes for the rest of the world are reason to celebrate for the chip industry manufacturers as they recorded their best year in sales ever. The shortage has stimulated national reckonings over chip production, government subsidies and a historic wave of investment. Annual sales hit a record high of $500 bn in 2021 (25% increase) with the pandemic playing a major role in digital acceleration. Much of the sales growth of the future is anticipated from pricier, and high-end chips

Company News

Airtel announces investment from Google International; What’s up and What do you need to know?💰

Deal Contours

• India’s OG Telecom player, Bharti Airtel has announced an investment from Google International LLC through a preferential issue of 71.2 Mn shares at INR 734 / share
• The total investment (through this route) translates to a sum of INR 52.2 Bn, which gives Google a stake of 1.28%
• Further, as part of the deal, Google will invest USD 300 Mn toward potential multi-year commercial agreements, aimed at scaling up Airtel’s offerings across the spectrum (more on this below)

Details please

• Under their first commercial agreement, Google & Airtel will work together to build on Airtel’s extensive offerings that cover a range of Android-enabled devices to consumers via innovative affordability programs (make it make sense :P)
• Together, the companies will work towards further opportunities to bring down the barriers of owning a smartphone across a range of price points, along with various device manufactures (similar to Jio’s INR 5000 phone)
• Likewise, both companies will potentially co-create India-specific network domain use cases for 5G; Airtel is already using Google’s 5G-ready Evolved Packet Core & Software defined network platforms

Interesting! Implications? (Company & Industry)🤩

• Google’s investment, albeit minuscule in the larger scheme of things, validates the teleco’s strengths, and comes 2 years after its investment in Jio (more on this below)
• Airtel has been aggressively focusing on accelerating non-mobile revenue streams, with the commercial agreements signed likely to provide added impetus in that context
• The company recently re-financed its differed spectrum debt, and with strong expected cash-flows, Airtel is walking the talk, continuously deleveraging its balance sheet
• Across the industry, VIL decision to opt for equity conversion in lieu of internet payments during the moratorium period, and the lack of any apparent interest in fund infusion from its promoters, clearly points to the eventual emergence of a two player telecom market going forward (we feel bad as well)

And Jio? What about Google’s Investment in Jio Platforms in 2020? (Ahh~ Yes of-course)🤔

• In-comparison, Google’s investment in Jio, worth ~6x at INR 337 Bn, for ~7.4% stake in Reliance Industries was limited to creating an entry level affordable smartphone, with optimisations to Android operating system and the Playstore

Nice! Final thoughts?🤨

• This company’s Q3 results are expected on Feb 8, with key metrics including subscriber base, ARPUs and profitability (deferred spectrum, refinance will help bottom line) to look out for
• The stocks corrected in the recent past, but is up ~5% in the last 5 days on the back of RIL results, and Google’s investment news
• The company is on a path to raise tariffs, acquire subscribers (from VIL) and build-out its 5G network (with significant capex in the pipeline); multiple levers for the stock to re-rate (whichever way you’d like to look)

Keep a track?

What else caught our eye? 👀

Naaptol the IPO

• Naaptol Online Shopping Pvt Ltd (teleshopping & online shopping marketplace) is looking to raise Rs.1000 Cr via IPO
• A mix of primary and secondary share sales is proposed; it had last raised $15 million in 2018 from JP Morgan, Mitsui & Co. etc
• Consolidated revenue was Rs. 318 Cr in FY21 (vs Rs. 321 Cr in FY20) but it managed to turn a profit of Rs. 3.5Cr this year vs a loss of Rs. 52Cr in FY20

India to become a hydrogen hub under Ambani

• Mukesh Ambani has announced plans to invest $75 billion in renewables infrastructure including generational plants, solar plants and electrolyzers
• Producing green hydrogen at competitive costs remains a problem with Ambai having committed to produce it at $1/kg (a 60% reduction from today’s costs)
• Apart from the environmental benefits, Reliance is wanting to avoid the wholesale electricity market plagued by financially stressed utilities and adopting hydrogen

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Results Preview

Tuesday, 1st February: Adani Ports, Indian Hotels, Jindal Steel, P&G Hygiene, Tech Mahindra, TTK Prestige, Laxmi Organic, Jubilant Ingrevia, VIP Industries, Kansai Nerolac

Wednesday, 2nd February: Alkyl Amines, Bajaj Consumer, Balaji Amines, Dabur, Balrampur Chini, HDFC, Jubilant Foodworks, M&M Financial, Tata Consumer Products, Adani Green Energy, Adani Total Gas

Educational Topic of the day

What is Divergence?

Divergence is when the asset price moves in the direction opposite to what a technical indicator indicates. When a stock is diverging, it signals weaker price trends and the beginning of a reversal.

The two types of divergence are:

• Positive: A positive divergence is a sign of higher price movement in the asset
• Negative: A negative divergence signals that the asset price may move lower