Yesterday’s Market Performance

Nifty: 17,938.40 | -174.65 (-0.96%)
FII Net Sold: INR 2,704.77 crore

Sensex: 60,098.82 | -656.04(-1.08%)
DII Net Sold: INR 195.07 crore

Howdy Toasters!

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

• Bajaj Finance declares results for Q3FY22
• Microsoft now owns Activision
• Bajaj Finserv forms Ascending Triangle Pattern
• And educational concept to keep you learning everyday 🙂

Bajaj Finance declares results for Q3FY22; what’s up and what do you need to know? 💪

Financial highlights

• Bajaj Finance exceeded all expectations with an 84.4% YoY net profit growth of Rs.1933.9 Cr for the quarter ended December
• AUM saw a growth of 27% YoY (8% QoQ) and increased to Rs. 1.3 lakh crore driven by commercial and rural segments with asset yields improving
• Net Interest Income jumped 40% YoY with Rs. 5553 Cr (against expectations of a 17% rise)
• Despite raising longer tenure debt in 3Q, the back-book cost of funds declined to result in quarterly NIMs improving 8bps QoQ
• Cost income ratio remained within the guided 33-35% band while credit costs declined, leading to a PAT growth of +43% QoQ and 3Q RoE of 21.2%

Asset quality:

• Reported GNPA and NNPA numbers improved sequentially to 1.73% (Q2:2.45%) and 0.78% (Q2:1.1%) respectively with no negative impact seen from RBI’s clarifications regarding asset quality recognition
• 7 portfolios were green and back to pre-Covid levels and 2 were yellow (which included a 2-wheeler and home loan) showing overall good portfolio quality
• Loan-loss provisions declined (to Rs. 995 crores from Rs. 1,245 crores in the year-ago quarter) directly helping the bottom line; the company consumed INR 41 Bn in loan loss provisions

Business & Operational updates

• Loans booked in the quarter rose to 7.35 million (23% YoY growth) while
• Customer franchise increased 20% YoY to stand at 55.36 million (added 2.56 million this quarter) and is expected to increase by 8-9 Mn annually with increased app adoption
• The current consumer mobile application has 16.5 Mn customers, with ~6 Mn customers transitioning to the new application
• Digital initiatives that played out during the quarter:
  • The Company acquired 492K new EMI card customers digitally;
  • Digital New to Bank EMI card CIF is now 1.3 MM
  • In Q3, digital NTB EMI cards delivered 240K loans
  • EMI store visits touched 44.8 Mn, with the company booking ~393K new loans from the marketplace
  • EMI store currently hosts 27,917 SKUs across 23,250 merchants

Tell me more? What’s next? 🤔

• The company plans to transfer all its consumers to its new digital platform by February to ensure that every touchpoint with the consumer in the future would be via the app (plans to follow a tiered approach to transition)
• Focus is also on delivering new features/functionalities including 2-Wheeler Marketplace (to increase market share across mechanical / EV), short term wallet loan, merchant sponsored vouchers and loan against FD
• The Board has also approved capital infusion of Rs2,500cr and Rs400cr in Bajaj Housing and Bajaj Financial Securities respectively

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Microsoft now owns Activision; what’s up and what do you need to know? 💻

• Microsoft Corp. has agreed to buy Activision Blizzard Inc. in an all-cash deal valued at about $75 billion for $68.7 bn after adjustments
• The move will make Microsoft the world’s third-largest gaming company by revenue (after Tencent Holdings & Sony), adding games like Call of Duty, World of Warcraft and Candy Crush to its portfolio in addition to its own Minecraft and Doom
• With this move, Activision games will be brought under Microsoft’s subscription business called Game Pass – or ‘the Netflix of Games’
• Microsoft’s gaming revenue is expected to increase by 50% and its GamePass subscribers to 25 million from 18 million

Microsoft on a buying spree then? 🤩

• Microsoft’s largest & latest acquisition comes on the back of a booming video game industry (pandemic et al.) and move towards cloud-based gaming and the rise of the metaverse
• Nadella himself has spent $10 bn in acquisitions, to buy more than a dozen gaining studios, since he took over as CEO
• The company has been in a general buying spree (but none like this), with Mr. Nadella’s Microsoft acquiring professional social network LinkedIn for USD 26 Billion, artificial intelligence company Nuance Communication for USD 16 Billion amongst other companies
• Note that Microsoft has in the past also been unsuccessful with its acquisitions – most notably TikTok, Pinterest and Discord which fell apart due to different reasons

All things rosy? 😏

• Activision has been riddled with accusations of sexual harassment and the gender-pay disparity with the lawsuits causing a 30% drop in stock prices
• Activision longtime CEO Bobby Kotick will most likely leave after the deal closes and give the reins to Microsoft gaming chief Phil Spencer (speculated)
• The company is also facing scrutiny by the SEC esp on CEO Kotick who has also been accused of not reporting sexual misconduct cases to the board

Bajaj Finserv forms Ascending Triangle Pattern 🧐

• Analysing Bajaj Finserv on a weekly time-frame, indicates that the stock had been in a good upward momentum in the last 2 years (see image below)
• This up move in prices has resulted in prices making higher highs and higher lows
• The breakout above the falling wedge shows a good accumulation of shares which shows strength

Great! Tell me more? Any other tools? 🤩

• Looking at the chart on a daily time frame, prices have been facing stiff resistance around 18,410 and have been rejected a couple of times (see image below)
• Prices have been taking support along a rising trendline making an ascending triangle pattern. (currently around the stuff resistance)

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

• You should wait for prices to give a breakout above 18,410 and retest the resistance level, and going long post breakout would make the most sense;
• Stop-loss can be placed just below 18,410 or the next support level, which will help limit your losses
• To avoid false/fake breakouts (like marked above), look to enter when prices retest breakout levels to avoid any traps

Interesting! Final thoughts? 😏

• On a weekly time-frame, prices being in an uptrend making higher highs and higher lows and breakout above the falling wedge shows a positive bias
• On a daily time frame, prices taking support along a rising trendline making an ascending triangle pattern increases chances for a breakout considerably

Keep a track?

What else caught our eye? 👀

Delhivery IPO hitting the markets soon

• Supply chain giant Delhivery has received the SEBI’s nod to raise Rs. 7460 crore through an IPO
• This comprises a fresh issuance of equity shares worth Rs 5,000 crore and an offer for sale by existing shareholders of Rs. 2460 Crore
• Funds will be used for inorganic acquisitions, strategic initiatives and organic growth as well as general corporate purposes

Not a good year for fashion

• FY22 could see 8% of fashion retailer’s revenue being wiped off amid the third wave restricting operating hours and mobility
• Retailers will most likely touch 70-72% of their pre-pandemic revenues as opposed to the earlier estimate of 78-80% in FY22
• Strong rebound in sales however is expected once the restrictions lift in expected six to eight weeks

Thursday, 20th January: Asian Paints, Bajaj Finserv, Bajaj Holdings, Biocon, Century Textiles, Container Corporation of India, Cyient, HAP, Havells, HUL, Bank of Maharashtra, Mphasis, Persistent Systems, PCBL, PNB Housing Finance

Friday, 21st January: Hindustan Zinc, IDBI Bank, Vodafone Idea, Inox Leisure, JSW Steel, Jyothy Labs, Kajaria Ceramics, L&T Finance Holdings, PVR

Synthetic Options

Synthetic options are portfolios or trading positions holding a number of securities that when taken together, emulate another position.

The payoff of the emulated, synthetic position and the actual position should, in theory, be identical. If the prices for these two are not identical then an arbitrage opportunity would exist in the market.