Nifty50 Corrected 2.3% In The Last 5 Days, What’s Up

Yesterday’s Market Performance

Nifty: 17671.70 I 185.60 (1.04%)
FII Sell Net: INR 5,142.63 Cr
DAX: 15,688.77 I 7.56 (0.05%)

Sensex: 59306.93 I 677.77 (1.13%)
DII Buy Net: INR 4,342.51 Cr
FTSE: 7,237.57 I 11.90 (0.16%)

Howdy Toasters!

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

Nifty50 corrected ~2.3% in the last 5 days, so what now?? Read-Along
United Spirits (UNSP) kicks off strategic review of popular brands
Results Preview
An education concept to keep you chugging along

Nifty50 corrected ~2.3% in the last 5 days; What’s up and what do you need to know? 🧐

Analyzing Nifty 50 on a weekly time-frame (over 60 weeks), indicates that our benchmark index has been taking support at a rising trendline (view image below)
Nifty 50 has been in a constant uptrend for the better part of 2020 and 2021 (duhh!) breaking earlier highs and making news ones (HH); taking support at a rising trendline, and making higher lows (HL) in the process

Interesting! Tell me more? 😮

Nifty 50 has been in a strong trend since the Covid fall (think March 2020), with the index rallying from 7500 to 18000+, however the past couple of weeks have finally shown a different picture, with some weakness through healthy (?) corrections
Currently, prices are trading close to the support band (17610-17740) which also happens to be the 50-day Simple Moving Average; a good support level for swing traders
This makes chances for a reversal at these levels more probable, although if prices breach the support band and the 50-day SMA, index might continue to plunge

Interesting! Final thoughts? 🤔

The consistent higher high lower low patterns have made sure Nifty stays in a strong uptrend and the support band and 50-day SMA on daily time-frame makes the chances of reversals (prices moving higher) more probable
From a macro perspective, with the onset of 4 large IPOs (cumulative value >20,000 crores), rising inflationary trends, changing monetary policy scenarios (decreased government bond purchase program) and greater FPI selling, the Nifty50 is at a precarious point (?), with traders & investors keen to see direction before deciding their next move
Breaching of the current support, coupled with changing macro scenarios, could define the near term?

Keep a track?

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United Spirits (UNSP) sets new strategy targets, with double-digit topline growth insight; What’s up and what do you need to know? 🧐

UNSP delivered a strong second-quarter performance, led by Sales / EBITDA growth of 14% / 30%, led by improved trade environment, and strong mix gains
P&A growth (Premium range, highly margin accretive) was robust at 20%, led by 6% volume growth and 14% increase in realizations (high double-digit volume growth in Premium Scotch Whiskey & favorable brand mix)
Underlying gross margins improved by 3% (huge!), led by improving sales mix (towards premium branded portfolio)
The company indicated a continuation of the current margin profile in the medium term, with inflationary pressures (in glass) likely to be offset by improving product mix & COVID-19 induced cost efficiencies

Interesting! New Strategy? Give some information? 🤔

The company delivered a new growth strategy to achieve double-digit sales growth, led by much higher P&A growth vs history 9-10% rates (nice!)
Led by a greater focus on their scotch portfolio, a step-up in the introduction of global brands to Indian markets and dialing up innovations in luxury segments the company is poised to take advantage of the changing demand dynamic –
- Enter the craft segment through the launch of epitome whiskey,
- Target new & emerging categories through the launch of Guinness Beer
Of key importance for the company is to accelerate digital transformation & drive speed and simplicity through –
- Use Artificial Intelligence (AI) to advance inventory optimization, intelligence-driven purchase information, & support supply chain transformation

Nice! Final thoughts? Valuations etc? 😁

The growth outlook for the company & the industry, in general, is improving, with increased aggression (new initiatives) and strong volume recovery trends cumulatively positive for the company
In addition, strong regulatory alignment is key for sustained growth, with recent initiatives (think: price cuts, increased distribution dynamics) designed to benefit alcohol cos
UNSP has outlined an ambitious plan, that aims to be value accretive at both sides of the coin, yet execution remains key, with regulatory push a key monitorable
The company trades at 52x FY23E earnings, trading at a discount to peers UBBL, Nestle, HUL (other consumer discretionary peers), with a comparative return profile

We covered UNSP, UBBL & Radico Khaitan in detail. Click here to know more.

What else caught our eye? 👀

Winter vacations look tough

Indian airlines will operate 4.38% fewer flights in the upcoming winter schedule, and focus mostly on the more profitable flights
They have been allowed to operate at a full capacity since the middle of the month, however, customer traffic is still slow
SpiceJet, Indigo, AirIndia, and GoAir have cut their schedules by 30%, 0.65%, 8%, and 0.78%. Only Vistara has increased its schedule by 22%.

Paytm employees to enjoy the IPO season

Employees of One97 Communications holding shares and options can earn up to $900 million at the top end of the price band for the IPO
Founder Vijay Shekhar Sharma owns ⅔ rd of this pool of ESOPs and will plow back a lot of it into the company’s insurance arm Paytm InsurTech
One97 Communications is seeking a valuation close to $20 billion in its IPO

Nykaa IPO on a roll

FSN E-Commerce Ventures (parent to Nykaa) saw its IPO subscribed 1.56 times excluding the anchor allotment on Day 1 itself
Day 2 of the process saw an oversubscription by 4.8 times owing to huge retail interest
Most brokerage firms are positive on the IPO and have given it a subscribe rating.

Saturday 30th October: Aarti Industries, AIA Engineering, Amber Enterprises, DCB Bank, Dhanuka Agritech, IDFC First Bank, Indian Oil, Kalpataru Power

Monday, 1st November: Aditya Birla Cap, Bayer Crop Sci, HDFC Ltd, IRCTC, Relaxo Footwear, Tata Motors