Yesterday’s Market Performance

Nifty: 17323.60 I 89.40 (0.52%)
FII Buy Net: 768.58 CR
DAX: 15,781.20 I 59.39 (0.37%)

Sensex: 58129.95 I 277.41 (0.48%)
DII Buy Net: 668.60  CR
FTSE: 7,138.35 I 25.55 (0.36%)

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In today’s issue, we discuss;

• Maruti Suzuki’s production takes a short-term hit, albeit the company recorded an order book of 150,000 units for the month.
• Technical Analysis- Indigo breaks important resistance at 1900, up 10% in the last 5 days.
• Top movers and shakers of the market, other important financial news, and an educative concept to help you keep learning. Read along!

IRB Infra: 176.05 | +8.60 (+5.13%)

• The stock gained over 4% after the company emerged as a preferred bidder for the construction of six lanes of 20.060 Kms Pondavakkam to Kannigaipair stretch on the upcoming Chittoor – Thachur Highway in the State of Tamil Nadu at the cost outlay of Rs 909 crore.

Salzer Electronics: 167.55 | +16.85 (+11.18%)

• The company share price added 11% after it incorporated a JV Salzer Emarch Electromobility to make electric conversion kits for auto-rickshaws, cars, and buses and also manufacture novel electric driven utility vehicles and other allied activities.

Maruti Suzuki (MSIL) suffering short-term pain, albeit with silver linings; what do we know and what does this indicate for the future?  🧐

• India’s Numero Uno car manufacturer (in terms of market share) has suffered (like everyone else), initially through demand struggles and lately due to semiconductor chip shortages that have wreaked supply side havoc, increasing lead times

• The stock has been stuck, making a 52 Week High / Low of 8400 & 6270, with 2 yr Domestic Volume CAGR at ~6%, partly lead by chip shortages (more on this below), with the company recording a healthy order book of 150,000 units (for the month)

• Supply side lead times (industry wide), which have now increased to almost 40 weeks (woah!!), accentuated by Covid-19 & lockdowns in Asian countries, are expected to initially taper back to the 18-20 week range by Q2/Q3FY22, with resumption to normality (8-12 weeks) by the end of FY23 (we hope)

• Industry demand is present, with the Domestic Passenger Vehicle segment volumes increasing to 250,000 units (for the month of August), implying a 2 yr CAGR of 13% (see image below)

Interesting! What’s happening at MSIL? Products, New Launches? (you know the drill)  🤔

• The company is primed to initiate an aggressive model action plan, plugging gaps in its product portfolio, most notably adding across compact SUVs, mid-size SUVs, and the EV space; the company is collaborating with Toyota for these models, leveraging their expertise and & tech stack

• Despite being a late entrant to new products/categories, brand recall & product price points hugely aid MSIL in capturing market share from competitors (see image below)

• While local demand suffered in FY20 and to a certain extent in FY21, the company has successfully built out its export portfolio, most notably in Africa & Latin America, expanding their network through their own distributors, while also leveraging Toyota & Suzuki’s presence in these markets

Nice! Tell me more? 🤓

• The company has undertaken 3 price hikes (we’ve covered this in previous issues) to offset commodity inflation, with the management indicating a similar strategy (with a lag) set to continue till the supply & demand mismatch dissipates (second half of FY21 as per company)

• Management has indicated they intend to reach 8-10% in EBIT Margins in the near term, through economies of scale, cost savings (decreasing royalty, reducing dependence in imported goods, and bringing down material cost expenditure)

• To give you context FY20 EBIT margins stood at sub-4%, with FY21 even lower, and touching 8-10% is a big ask (not going to lie), and probably why the investing community isn’t particular enthused with volume numbers

• The stocks suffered (see image below), and performance going forward would hinge on supply-side issues (think: commodity inflation, semiconductor shortage) easing (even though demand has shown a decent (ish) uptick)

Keep a track for newsflow around lead time/commodity prices to gauge possible entry points (in our opinion, you take your call right??)

We’re starting a new series, where we’ll try to analyze some scripts purely from a Technical Chart perspective, with the aim to give you a stock to track. Read along! 

Interglobe Aviation (Indigo Airlines) has given a breakout above its resistance (wait what?) 😵

We cover the concepts discussed below in detail in the education section, check it out to get a good understanding of the set-up

• Analysing Interglobe on a monthly time frame (last 18 months), shows that the stock has finally broken out of its key resistance point of INR 1900 (see image below)

• Break-outs can be precarious, with some certainty to be a trap; very important to see if the stock is able to maintain its level after break-out (another way to judge is through the use of other tools)

• Prior to the stock giving a breakout, the prices accumulate within a tight range (see image below), with institutions & the public accumulating the stock in anticipation of a break-out

• We initially looked at Interglobe on a monthly time frame, trying to ascertain the trend the stock is taking; we now move into a daily time frame (allowing us to analyze the stock against any potential traps)

• Utilizing 50 Day – Simple Moving Averages (SMA, allows us to see if the price will reverse or continue in the same trend), we see in the image below three critical points (A, B,C) that have acted as Support, Resistance & Break-Out

• Initially, the prices take support at Point A, moving in an up-trend, however, there is role reversal once the prices fall below the 50-Day SMA, taking resistance at Point B eventually breaking the resistance and taking a bullish turn at Point C

• The formation of three green candles (see highlighted section below) prior to the break-out recorded at Point C is an effective measure in predicting the up move, when found at the base of consolidation (in this particular instance as well)

• Point C has provided confirmation of a break-out over the 50 Day SMA, indicating a strong bullish development

Nice! Keep a track? 

• Yess! Finding multiple confirmations on a technical set-up is key in avoiding traps (bull & bear alike)

• We started with Price Action (Support, Resistance, Breakout), took second confirmation through Simple Moving Average (SMA), and found confirmation in the successful break-out given by the stock

What else caught our eye? 👀

Bitcoin crosses $50,000 (AGAIN ?!?!?)

• Bitcoin, the world’s largest cryptocurrency crosses the $50k mark in a market rally again this week. Its market cap is now $943 billion and could even rise to $1 trillion soon (!!).

• For context Ether – the second largest cryptocurrency – grew by 3% to $3848.

• The reasons behind this push include Twitter’s possible integration of the coin as a payment option, and El Salvador’s launch of the coin as legal tender coming up on September 7 (say whattt!!)

• SEBI has given approval to Zerodha to start its own asset management company.

• The Kamath brothers have said that the main aim would be to grow the capital market participation (currently at 1.5 crores) and specifically target Millenials.

• India will now have 41 mutual funds that manage a total of Rs. 35 lakh crore.

Global food prices are the highest in a decade

• According to United Nation estimates prices were up by 32.9% in August (Y-o-Y)

• Grain costs climbed 3-4% while vegetable oils rose by 6% followed by sugar at 10%.

• Unfavorable weather conditions were the major reason behind this surge, along with a shortage of workers and higher shipping costs owing to the pandemic.

• This is bad news for both central banks and consumers as it significantly increases inflation risks, especially for the poorer nations that rely heavily on imports.

Support, Resistance, Consolidation, Breakout, Doji Candle