Good Morning Toasters!

Hii friends!! Happy weekend and a Happy break from the markets. I’ve never felt the need to say that more than at the end of this week. The Nifty50 was down ~5.6% during the week, with continuous FII selling amidst a 75 Bps rate hike by the US Fed. Inflation is real, is here to stay, and the Fed has little idea on how to bring it back down the sub-2% thresholds.

A consequence of near 0 interest rates last year, was the debt induced growth undertaken by companies and startups alike. And we have our first casualty. Cosmetics major and the OG favourite, Revlon filed for bankruptcy as its unable to fulfil demand and meet its debt obligations.

The week was filled with action, including 2 major countries hiking rates in response to the Fed’s actions, RBL Bank’s CEO Appointment not particularly inducing any confidence and the BCCI selling the IPL’s media rights for a record sum. Let’s revisit the major stories.

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: 15,293.50 | −67.10 (0.44%)
FII Net Sold: INR 7818.61 crore

Sensex: 51,360.42 | −135.37 (0.26%)
DII Net Bought: INR 6086.92 crore

Global Company News

Cosmetics giant Revlon files for bankruptcy; what’s up and what do you need to know?

• Once the second-largest global cosmetics company, Revlon has officially filed for Chapter 11 (American jargon) bankruptcy protection, as the company is unable to meet the massive debt obligations (taken last year at the time of low interest rates)
• The bankruptcy filing states the company is unable to fulfil 1/3rd of its order in a timely manner, primarily due to an inability to source a sufficient and regular supply of raw materials
• Further, the company added shipping components, which were generally sourced from China, now take between 8-12 weeks to arrive, and cost ~4x 2019 or last normal year’s prices
• Revlon has long-term debt to the tune of USD 3.31 Bn as of March 31, sales of ~USD 1.9 Bn in 2020 (down 21% from 2019 levels), albeit with the business rebounding in 2021 (and still below pre-pandemic levels)

Damn! Tell me more? And is there an India angle to this story? (For sureee)

• Owned by billionaire Ron Perelman’s MacAndrews & Forbes, the nail polish  and lipstick maker narrowly avoided bankruptcy in late 2020, as the majority % of bond holders participated in a debt restructuring plan to keep the company afloat
• While the business expanded via acquisitions, its major distribution channels continued to be via physical stores, severely impacting their ability to connect with younger generations who were more used to buying via TikTok and other social media channels
• That coupled with the emergence of D2C (direct 2 consumers) brands like Kylie Cosmetics, Glossier and RiRi’s Fenty Beauty kept diverting demand for Revlon
• Even fellow brand Estée Lauder continued to grow (and remain profitable) due to successful investments in their e-commerce ventures

So now? And the India angle?

• Last year, non-financial US companies have on-boarded >1.5T USD in debt, taking advantage (supposedly) of low-interest rates, which likely means there will be more ‘Revlons’ in the future (think Peloton etc.)
• News filtered out that Reliance Industries is mulling an offer to purchase Revlon’s operations in the US, with the giant looking to add to its growing retail portfolio (cosmetics is a missing piece at the moment)

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Around the World 🌎

• Mortgage Rates not cooling off – Fed Reserve’s effort to cool down inflation has led to mortgage rates reaching their 13-year high. The average rate on a 30-year fixed-rate mortgage rose to 5.78% (vs 3.11% at the end of last year). Investors worry about the US tipping into a recession as the Fed has raised interest rates by 0.75% – the biggest increase since 1994
• Tesla has fallen to their last resort – Surging costs across its supply chain in labour, transport and raw materials have caused Tesla to increase prices by > $6000 on some of its models. 10% of its salaried workforce is also expected to be laid off in a cost-cutting bid. Shares of the company were down 9% in recent trading. April was not the best month for Tesla this year with sales dropping 94% YoY for its Shanghai plant
• Russia playing games – Russia has warned that the Nord Stream pipeline could be turned off due to missing part though most of Europe believes this to be a political move aimed at retaliating against various imposed sanctions and support given to Ukraine. Germany will be the most affected by this move though all of Europe has been striking deals with the U.S, Egypt, and Israel

Week Recap

A week that included record sale of IPL Media Rights, 3 Major countries raising Interest Rates, with market reactions in equal measure and the RBL Stock dipping >20% in a single day

Interest Rates, Macroeconomics, and Markets

• FED Chairman and the ultimate global decision marker, Mr. Powell decided that enough’s enough, inflation isn’t transitory anymore and FED’s ability to actually tame inflation and keep it below the 2% threshold isn’t as sure-shot as initially thought
• In response, he raised interest rates by 75 Bps, the largest since (sure you’ve read this before already), while also indicating that he plans to take similar measures in the next rate cycle as well
• Taking the cue, the Bank of England hiked rates for the fifth time in a row by 25 Bps to 1.25%, Swiss National Bank surprised the markets in announcing a 50 Bps unexpected rate hike, with the European Central Bank expected to follow-suit next week
• And on cue, US stock indexes closed lower (Dow -741 pts, S&P -123 pts) on Thursday, in broad sell-offs as recession fears grew, following moves by Central Banks to stamp out rising inflation

And India?

• Nifty50, India’s headline Index dipped ~5.6% during the week, and is down ~15% from its most recent peak of 18,050 made in April’22 (seems like another era right??)
• The last 5 days’ analysis also shows one-way traffic, with Net FII sales and net DII buys limiting the actual impact; there was no hiding place, with major losers like Reliance, HDFC Bank also Nifty50 heavyweights, pulling the index down in equal measure

RBL Bank fell 23% on new CEO Appointment

• The RBI parachuted its distress management expert as the new CEO of RBL Bank, leading to a 23% drop in stock price during trading on Tuesday 😳
• By onboarding an executive whose past tenures included MD & CEO of troubled Indian Overseas Bank, and administrator of the maligned DHFL, the RBI laid bare their confidence in the current set-up at RBL
• In the most recent financial quarter, RBL refrained from growing its book, instead of focusing on cleaning up its operations, identifying delinquencies and provisioning for it accordingly
• RBI expects the new CEO to set the house in order, institute-wide risk and compliance measures, and identify/clean up the book first & foremost, before focusing on new product strategy and growth (probably also explains why the market battered the stock)

All stakeholders won with a record IPL Media Right Sale

• The BCCI sold the media rights for the world’s premium cricketing competition at a whopping INR 483.9 Bm (cumulatively), catapulting the Indian Premier League to the 2nd most expensive sporting property world over (after NFL)
• Breaking up the rights across TV, Digital, Marquee and Overseas, the BCCI followed a very American approach to broadcasting, on-boarding more than one partner, in a quest to widen the scope of offering
• Reliance Industries via Viacom18 won big, with Disney playing it safe (somewhat) by bidding for the TV rights, which ultimately entails lesser expenditure (vs OTT) over the five-year period
• In what could turn out to be a boon, Zee + Sony combinations stuck to their estimates, refraining from overbidding in a quest for subscribers, instead of preserving their cash flows

What else caught our eye? 👀

Mastercard makes a comeback

• Mastercard has now been given permission from the RBI to onboard new customers after it demonstrated “satisfactory compliance”
• Failure to comply with data localisation norms had imposed restrictions on the company last July from onboarding new customers (along with Diners Club and American Express)
• It was mandated in 2018 that all payments data from India is to be stored in the country, and faced a lot of backlashes but was adopted by most in the end

ShareChat is back in business

• ShareChat – a popular social media and social networking service – has raised $225 million from investors including Google, the Times Group, and Temasek
• The round saw a total of $520 million being raised (earlier investors include Alkeon Capital, Temasek, HarbourVest, Moore Strategic Ventures and India Quotient)
• The company has been given a valuation of $5 billion

Educational Topic of the day

Iron Condor

The iron condor option strategy involves the use of call and put options. All in all, it revolves around four options, each with the same date of expiration.

To construct an iron condor, here’s what you need to do.

– Sell an out-of-the-money put

– Sell an out-of-the-money call

– Buy a further out-of-the-money put

– Buy a further out-of-the-money call

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