Yesterday’s Market Performance
Nifty: 16496.50 I46.00 (0.28%
FII Sell Net: 1363.36 CR
DAX: 15,852.79 I 44.75 (0.28%))
Sensex: 55555.79 I 226.47 (0.41%)
DII Buy Net: 1452.51 CR
FTSE: 7,109.02 I 21.12 (0.30%)
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In today’s issue, we discuss;
- Ujjivan Small Finance bank’s going through a rough patch, stock price has fallen over 50% from Jan’21 to Aug’21, upper management’s changing, persistent asset quality issues and whatnot.
- Monetary Policy Committee Minutes indicate a more hawkish tone, indicated a budding dissent between members on the inflationary risks prevalent.
- Top movers and shakers of the market, other important financial news, and an educative concept to help you keep learning. Read along!
Arwind Fashions: 261.85 | +22.20 (+9.26)
The stock jumped over 10% after the company raised Rs 439 crore from marquee investors, including promoters, at a price of Rs 218.50 per equity share.
Adani Enterprises: 1396.70 | -33.40 (-2.34%)
The stock shed 2% after the market regulator SEBI held the Adani Wilmar IPO due to an investigation against Adani Enterprises. SEBI has “kept in abeyance” the Rs 4,500-crore IPO of the agro-commodity company due to an investigation that is pending against the flagship entity of ports-to-energy conglomerate Adani Group.
Monetary Policy Committee Minutes indicate a more hawkish tone, than the policy itself (what whaaat?) 😮
The August’21 MPC Minutes (released over the weekend) indicated a budding dissent between members on the inflationary risks prevalent, with 3 out of 6 members arguing that liquidity / policy normalisation and accommodation can co-exist (excuse me? Can you explain please?)
From a growth prospective, the narrative was largely similar (to previous meetings), with members agreeing on sustained / long-term growth the only way to tackle the effects of the pandemic
Of note were comments made by one of the members, Professor Verma around MPC’s inflation target being 4% (and not the widely reported sub-6% band), with that range more to safeguard against estimation errors and using that flexibility overly leading to inflation targeting failures in the future (interesting)
The committee is at a crossroads (we don’t want to be dramatic), with 3 out of 6 members now revealing (what can be categorised) Slightly Hawkish traits (i.e. rates being the same are counterproductive to growth going forward)
Emerging differences amongst members may have implications on October edition of MPC
- It’s all about the trade-off at this point; another committee member, Dr. Saggar admitted that the risk of policy errors on either side remains, given the large uncertainty around growth & inflation with respect to policy trade-offs (i.e. questioning how much longer they need to continue with this measure before growth arrives)
The need to support the recovery (through enhanced liquidity) remains the predominant view, however commentary pertaining to inflationary risks has become more enhanced, with more action (less words) likely during the October edition of the meeting (we feel)
Back to back readings of inflation easing (we covered the sub-6% reading in our previous issue) should go someway in persuading the MPC members of the transitory nature, due to an enhanced supply & demand mismatch
The Governor has maintained his view (unchanged from the past), and is still arguing on a favourable risk:reward in maintaining status quo (high liquidity, greater growth prospects), with a state-led (possible external factors apart from just data) approach bound to drive decisions in the future
Okay? How does this impact me? What was the point of all that?
- RBI MPC has kept the repo-rate fixed at 4%, touching these levels through consecutive actions since the start of the pandemic
This has fuelled a liquidity situation that, according to some market participants, has been partly responsible for the rally we’ve seen, with subsequent monetary & fiscal measures going a long way in deciding the next phase
MD resignation, high attrition and persistent asset quality issues; What’s happening at Ujjivan Small Finance Bank? (damn) 😕
- Ujjivan has been in the news lately; last week the company’s MD resigned (or was asked to go?) because of –
Large scale attrition in the lower-mid level workforce (apparently due to a terrible working environment)
Consistent underperformance from an asset quality perspective
And delayed recognition / correction of NPAs in their MFI book
The bank’s overall recognized stress pool stands at 15.6% of the loan book (including GNPA of 9.8% / restructured loans of 5.8%), with next steps aimed at recognising this stress and providing provisions (and suffering losses for the foreseeable future)
The Small Finance Bank (SFB) has struggled to build out it’s CASA (Current Accounts / Savings Account) ratio as well, with the early stage strategy of targeting its MFI book to mobilise deposits faltering
The banks provision coverage ratio (PCR, ability to provision for future losses) is best in class, at 75% (see image below) and should hold the lender in good stead while it navigates through this period
Damn! Okay. Next steps? What’s the board planning?
- The board is expected to announce an interim CEO at it’s board meeting (scheduled for 25th August), while they interview candidates (internal and external) for the permanent position (expectation basis market chatter is an internal candidate, who has been a part of the organisation since 2005 and understands the MFI space well)
In addition, the company has reconstituted the board, reappointing the Founder along with some old hands and bring in some much needed expertise to steady the ship (at least)
It’s going to be stressful (in the interim), with the bank expected to realise a good % of the stress and provision for it (thus impacting growth as well?); the SFB has suffered, current price of IR 24 a far cry from listing (INR 58 in 2019, including a 59% premium over issue price of INR 37)
The MFI business is cyclical in nature, with the aspiration for all MFIs is to convert into SFBs, en-route to applying for a universal banking license (think: Bandhan Bank) and thus building out a strong liability franchise; Ujjivan had similar plans (that being pushed for the time being)
What else caught our eye? 👀
JioPhone Next to launch next month
Expected to retail at INR 5,580, newest phone (in partnership with Google) is expected to boost smartphone adoption, and overall device shipments in the coming year; ~300 Million Indians still use 2G feature phones, with this offering targeted at converting those customers (mostly from Vi & Airtel who have limited interests in servicing this price point)
Jio is looking to cross 500 Million users (presently at 441 Million) through this new offering
India smartphone shipments is expected to record a 14% yoy growth, touching a record high of 173 Million
Finance Minister gives Infosys ultimatum on Income Tax Portal (dramatic)
Expressing ‘deep disappointment’, the FM given the Infosys CEO till September 15 to resolve all issues that have plagued the portal since it’s launch ~2 months ago
The CEO indicated that over 750 people are working on resolving the glitches (no ways), and the COO is personally overseeing the work
This isn’t the first portal being managed by the company, previously being responsible for GST Network portal, which also suffered glitches and was criticized
India is embracing virtual dating, more so than usual (interesting!!)
According to a Tinder Future Dating Report, Indian users engaged for 32% longer this February (in comparison), with 11% more swipes and 42% more matches per member, with nearly 50% of Tinder users video chatting with a match
Digital dating (part circumstances, part choice) meant new ways of finding connections or just hanging, with Gen Z referring to a pause in their life due to the pandemic
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