Good Morning Toasters!

Hii friends!! The markets were in limbo until now (for obvious reasons). Well, at least we’re done till the next meeting in August (I hope).

The RBI Gov raised the repo rate by 50 Bps, along expected lines, while warning of future hikes to manage inflation, which is expected to be >7% for the next couple of months.

Global Tech Stocks continued their meltdown, with the S & P 500 Growth Index now trailing the S&P Value Index by the largest margin since 2000, or when the Tech Bubble burst.

And finally, we’ve started a rollout of our newest product, Trade:able, that aims to democratise trading, via a unique and fun learning experience. There are a bunch of amazing rewards and prizes to win. Click here to know more.

Market Watch

Nifty 50: 16,356.25 | -60.10 (-0.37%)
FII Net Sold: INR 2,484.25 crore

Sensex: 54,892.49 | -214.85 (-0.39%)
DII Net Bought: INR 1,904.33 crore

Economy News

Main man Das strikes again with some big moves; what’s up and what do you need to know

• The repo rate has been increased by 50 basis points to 4.9% with a clear change in priority to inflation control though changes have been made ‘without losing sight of the growth requirements’
• The RBI has decided to focus on calibrated withdrawal of accommodation while supporting growth and retained its growth estimates at 7.2% for FY23
• The front-loaded (high % nature) hikes come as no surprise to the markets, as the RBI had already de-anchored and readjusted market expectations on policy moves, thereby limiting potential shock to the system
• India’s OG Bank has also increased the inflation forecast by 1% to 6.7% for FY23, with ~75% of the revision led by higher fuel prices, coupled with a ‘globalisation of inflation’ due to the conflict in Ukraine

Okay, tell us more!

• A triple whammy of commodity price shocks, supply-chain shocks and resilient growth has shifted the reaction function firmly in the favour of inflation containment
• Inflation prints for the next two quarters are expected to be >7%, which could force the RBI to act sooner rather than later, i.e. further front-loading of hikes
• That being said, a front-loaded rate hike cycle doesn’t necessarily imply a lengthy liquidity tightening cycle, and once the RBI reaches supposed pre-Covid level monetary conditions, the Governor is expected to limit potential hikes
• This is under the assumption of a normal monsoon in 2022 and an average crude oil price (Indian basket) of US$ 105 per barrel

Okay! Anything else? Final thoughts? And what’s next?

• The higher than expected rate hike can have some negative influence on the equity and bond market, although most of it has been factored into prices already
• Domestic bond yields will be hit hard due to gradual tightening of domestic liquidity conditions, elevated crude oil prices, tightening of global financial conditions and risks of overshooting of FY23 fiscal deficit
• In a major non-monetary led move, the RBI has now allowed UPI via Credit Cards, initially only through Rupay Cards, which will likely significantly help in deepening the overall usage of the cards

Check this tweet to know the potential impact on stocks + consumption due to RBI’s monetary policy moves

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Around the World 🌎

• Spotify reassures investors: In a move designed to clarify its strategy for investors, amidst a >50% drop in stock price, Spotify CEO and Arsenal fan, Daniel Ek emphasised the loyalty of its hundreds of millions of listeners, its industry-leading recommendations and its podcast units success. Delivering a presentation as a means to end speculation that the company may not turn a profit soon, Spotify is available across >2000 devices including watches, smart speakers to cars and kitchen appliances. The stock reacted positive and was up 5% during trading
• Spirit takes its time: In what could one day be a major motion picture, Spirit Airlines postponed a planned stockholder meeting on its proposed merger with Frontier Group Holdings as the company weighs a competing (and latest) bid from JetBlue Airways. Spirit had initially pushed ahead with the sale to Frontier, but the delay comes as JetBlue’s aggressive push to investors to reject the deal has paid fruition. Accordingly to JetBlue, both mergers (ie Frontier with Spirit Or Spirit with JetBlue) face the same regulatory scrutiny, and with JetBlue offering a higher break-up free, the odds may be in JetBlue’s favour
• EV Companies Lucid and Rivian CEO pay rises: Equity accounted for the build of nearly USD 566 Mn in compensation for the Lucid Motor (Tesla competitor) CEO, while the Rivian CEO (EV Trucks) made ~USD 422 Mn. The reported pay is a steep rise from 2020 and reflects, in part, the company’s ambitions for growth. The size and structure of both compensation plans reflect the high expectations of investors and boards in the race to transition the automotive industry away from vehicles with ICE (internal combustion engines), with these pay packages valued at >14x those of leaders of larger automakers such as Ford Motor and General Motors

Global Market News

Tech Stocks continue their weak period, even topping the 2000 bubble; what’s up and what do you need to know?

• The S&P 500’s IT sector has dropped 19% in 2022, its worst start to a year since the Tech bubble burst and the after-effects were felt till 2002, prompting investors to withdraw ~USD 7.6 Bn this year from tech-focused ETFs
• Many trends that flourished in the last 2 years, including bullish options trades, special purpose acquisition vehicles (SPACs) and cryptocurrencies have all made sharp u-turns, with OG sectors including energy and utilities guiding the way
• The S&P 500 Value Index (which includes stocks like Exxon Mobil, Coca Cola) is outperforming the S&P 500 Growth Index (with stocks like Tesla, and Meta) by >17%, its widest margin since 2000
• This has led to a sharp withdrawal of >USD 48 Bn from growth stocks, while value index stocks have recorded >USD 13 Bn in inflows

Damn! Tell me more? (Are you sure??)

• The current market scenario is slightly reminiscent of the 2000 tech bubble bust, when the allure of technological innovation, combined with the allure of low-interest rates led to a rush in internet stocks (sound familiar?)
• When the bubble burst, the NASDAQ Composite tumbled >80% between March 2000 and October 2002 (are we just at the start?); anecdotally, SNAP dropped >40% in a single session
• Although tech stock valuations have soared in recent years, we’re still to touch the same Forward Multiples seen during the 2000 Tech Boom, with current 2 Yr forwards of ~24x, someway off from the 26x seen back then
• And yet, we’re just getting started – the US Fed is expected to continue raising rates, at the meeting scheduled next week and for the rest of the year, with potentially putting further pressure on tech & growth stocks
• In anticipation of this extended slowdown/lull in the availability of cheap capital, companies have been downsizing and/or maintaining optimal headcount in an effort to ride out the storm

What else caught our eye? 👀

Public Sector Banks employees threaten to go on strike

• Employees of PSBs threatened to go on strike on June 27 to press for issues related to pension and the demand for five-days-a-week work; the United Forum of Bank Union, which is an umbrella body of nine bank unions (~7 Lakh workers) are expected to participate in the strike
• Their demands include updation and revision of pensions for all pensioners and doing away with the national pension scheme and restoration of the old pension scheme for all Bank employees

Vistara plans synergies with Air India

• Vistara has held initial discussions with fellow TATA Group Airline company Air India on leading 4-5 Boeing Dreamliners as the American plane maker is running slower than expected on deliveries
• Vistara has a fleet of 53 planes and currently operates 250 flights to 41 destinations, and was supposed to take delivery of the third Dreamline in October and a few more six months later

Educational Topic of the day

Automated Customer Account Transfer Service

The Automated Customer Transfer Service (ACATS) refers to an electronic system that ensures a smoother transfer of various financial securities of the customers from one institution’s Trading Account to another’s. These institutions are mainly banks or brokerage firms. ACATS help in transferring numerous types of assets and investment products.

Edited by Raunak Karwa

Let’s connect, I always love hearing from you. Hit me up at Raunak_Karwa on Twitter or Raunak.karwa@finlearnacademy.com