Good Morning Toasters!

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

• RBI Monetary Policy Committee crawls towards change in policy stance
• Amazon US signs huge rocket deal to bring satellite internet worldwide
• News around the world
• An educational concept to keep you learning every day 🙂

Market Watch

Nifty: 17,784.35 | +144.80 (+0.82%)
FII Net Sold: INR 575.04 crore

Sensex: 59,447.18 | +412.23 (+0.70%)
DII Net Sold: INR 16,51 crore

Economy News

RBI Monetary Policy Committee crawls towards change in policy stance; what’s up and what do you need to know?

What’s up?

• India’s OG Bank and master economy creator, the RBI has finally crawled towards change in policy stance by being ‘less accommodative’, even as the Governor (Guv) kept the policy repo rate unchanged (Repo rate and Reverse Repo rate unchanged at 4% and 3.35% respectively)
• Amid new macro realities (Inflation is 👑), with Brent at USD 100 / bbl, and higher commodity complex in general, the RBI has revised its inflation forecast, towards a more relating 5.7% from 4.5% earlier
• Of key importance, and visible via read-through of fine prints is a change in priorities, moving away from growth (came in at 7.2%), and towards successfully managing inflation
• The Standing Deposit Facility (SDF) has been introduced to absorb excess liquidity and the overall stance is said to be “accommodative while focussing on withdrawal of accommodation to ensure that inflation remains within the target going forward while supporting growth,”

Damn!! Okay, tell me more? (Are you sure!!😜)

• The RBI is on a long journey of reducing the current INR 8 Tn+ system liquidity to a pre-Covid INR 2 Tn+ number, which is likely going to require the utilisation of multiple different mechanisms (think: SDF, VRRR et al.)
• With a changing policy stance, and a bias towards inflation overgrowth, the RBI no longer remains a stout dove, and the reaction function is now evolving with fluid macro realities (i.e. increasing the likelihood of rate hikes, sooner?)
• The next MPC committee meeting is scheduled for June, with some economists of the opinion that the first-rate hike could be a possibility during that cycle, depending on the worsening macro reality

Okay!! And what about the situation globally? (Fed😉)

• Fed officials would have raised rates by 50bps last month itself had it not been for the uncertainty generated by Russia’s invasion of Ukraine
• Many still argued that the upside risks to inflation from the war (which could have been curbed by a rate hike) were more significant than the downside risks to growth
• Multiple 50bp hikes may be on the cards going forward given elevated inflation and a tightening labour market, with ~6 more hikes scheduled for this year (according to the last statement made by the Fed Chairman)
• The Fed has also made some serious balance sheet reduction plans and will likely reduce asset holdings from as early as May; the size has doubled in the last 2 years (something about printing excessively to push growth through 🤭), and currently stands at USD 8.9 Tn
• Bond holdings will reduce as fast as $95 bn a month ($60bn in Treasury securities and $35bn in MBS) in a bid to further tighten credit across the economy to keep inflation under check

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Around the World 🌎

• Shell bearing the brunt of Russia – Owing to the Russia-Ukraine war, and Shell’s consequent exit from its Russian operations, the company might be looking to book accounting charges of up to $5 billion in the first quarter. It has decided to end financing the Nord Stream 2 natural-gas pipeline project and exit its 27.5% stake in a major offshore gas project in Russia’s Far East. The value of its noncurrent assets tied to its Russian ventures was about $3 billion. Shell’s shares were down 1.9% in early trading in London
• Zero Covid equals Zero Manufacturing? – The global supply chain is seeing increased pressure with widening Covid-19 lockdowns in China which are choking off supplies and clogging up truck routes and ports. Major players like Tesla, Volkswagen, and Apple are trying desperately to resume operations but in vain – the volume of goods moving through the port of Shanghai has fallen around 40% (vs pre lockdown levels.) Many US multinationals have reduced their annual revenue projections following the situation
• Buffett into tech full-time – Warren Buffett’s Berkshire Hathaway Inc. has revealed a stake of 11% in leading computer and printer maker HP Inc making him their biggest shareholder. Though he is said to be tech-averse, his other successful investment is in Apple of which he owns 5.6%. HP has increased its profit expectations for the year, and made some key strategic acquisitions like Poly, a maker of workplace communications products. Buffett has been a long believer in investing in long-term business performance and not as vehicles for timely market moves

Global Tech News

Amazon US signs a huge rocket deal to bring satellite internet worldwide; what’s up and what do you need to know?

What’s up?

• A third of the world’s population still doesn’t have internet access, with remote locations/lack of serviceable roads, and inflated costs preventing access to what is a basic requirement today
• The Zon, through Project Kuiper, aims to change this; Amazon plans to send thousands of internet satellites into orbit in 83 rocket launches over the next 5 years while spending a cool USD 1-2 Billion in doing so
• One of the world’s most valuable companies has now received permission from the US government to launch 3K+ satellites by 2026 in order to accomplish this mission
• The company has tapped three rocket-makers, United Launch Alliance (run by Boeing & Lockheed Martin), French Conglomerate, Arianespace and Mr. Bezos’s Blue Origin (Of-course)

Damn!! Tell me more?

• The company plans to send small, low-orbiting satellites that send broadband to remote locations, and do so without latency issues that satellite internet is known for
• And still, Project Kuiper isn’t the first of its kind; Elon’s StarLink satellites are currently live (~2k in orbit) and service ~250k customers (in the US), with the company, has applied for approval for 10k satellites more
• It’s a crowded space to be fair, with other competitors including Astra, OneWeb and Intelsat having already submitted plans to launch ~38k of their own (in total)
• This isn’t the first time Amazon is entering a new business industry (and probably not the last time either), with the ‘e-commerce’ giant now ever present in a plethora of industries, including grocery, cloud, computing, streaming, and healthcare
• It may not have a head start with satellites and rockets, but it does have $$ in the bank in the form of customers and infrastructure that will likely hold it in good stead in the fight for an edge in space

What else caught our eye? 👀

Flipkart to go public, and global!

• Flipkart (of which Walmart owns 77%) is now looking for a valuation of $60-70 billion and is planning a listing in 2023 in the USA
• This valuation increase will be supported by its two new businesses – online healthcare services and travel bookings
• Flipkart’s last funding round saw a valuation of $37.6 billion last year, and an IPO isn’t a necessity for the company at this point

‘All-in-one’ Super App is here

• The Tata Neu app launched by the Tata group is a one-stop solution for all a customer’s digital needs from shopping, travelling, payments and more
• Currently, the app includes Air Asia, BigBasket, Croma, IHCL, Qmin, Starbucks, Tata 1Mg, Tata CLIQ, Tata Play and Westside with brands like Vistara, Air India, Titan, Tanishq being added to the list soon
• It also has a rewards based platform where buyers will earn ‘NeuCoins’ (equal to a rupee each) every time they buy something via the platform

Educational Topic of the day

Out of the Money

An options contract is considered “out of the money” if it lacks intrinsic value, meaning that if its owner exercised it, they would pay more than the current market value for a stock (in the case of a call option) or sell a stock for less than its current market value (in the case of a put option).

In other words, a call option is out of the money if its strike price is higher than its spot price (market value), and a put option is out of the money if its strike price is lower than its spot price.

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