Good Morning Toasters!

Hiii friends! Happy weekend! Markets were flat by the end of the week, as investors re-aligned expectations with inflation no longer transitory or surprising in nature 🙂 Gross GST Collection # was up 56% from a year earlier, with revenues now consistently coming in greater than the 1.4 Lakh Crore number.

In today’s issue, we look at the Finance Ministry’s action on import and export curbs across Oil and Gold, two of the highest imported items. Working in tandem with the RBI, the Finance Ministry is cognisant of the need to reduce CAD and the subsequent impact on the INR, which this week touched an all-time low.

The OG feel-good company, Bed Bath and Beyond is unable to find a landing spot, with the company ousting its CEO, burning through cash, and bouncing from one crisis to another. Guzzling ~USD 1 Bn in cash in a year, the next steps are key to see if the company survives this crisis.

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: 15,752.05 | -28.20 (-0.18%)
FII Net Sold: INR 2,324.74 crore

Sensex: 52,907.93 | -111.01 (-0.22%)
DII Net Bought: INR 1,310.71 crore

Government Action

GoI works in tandem with RBI to minimise CAD

Export tax on petrol and diesel

• In response to increasing exports and to protect against a devaluing INR, the GoI announces an increase in taxes on the export of petrol, diesel and aviation turbine fuel (ATF), mandating exporters to meet the requirements of the domestic market first
• Levying an INR 6 per litre tax on the exports of petrol and ATF, and INR 13 per litre on exports of fuel, the GoI moved to arrest the extraordinary gains made by OMCs since crude has spiked to unreasonable levels
• In a move to further designed to bring some parity, the government also announced taxes on windfall gains made by crude oil producers, slapping an INR 23,230 per tonne additional tax on domestically produced crude oil to take away windfall gains accruing to producers from high international oil prices
• Reliance Industries was down ~7.2% at day close, as investors dumped shares of India’s most valuable company; contribution from refining make up a high chunk of the overall profits, with a tax increase + windfall gains tax likely to impact the company
• PSU Oil and Natural Gas Corporation (ONGC) dipped by ~13.3% vs RIL as impact per barrel is much higher given % share of exports for the government entity is much more

Revert to 12.5% gold import duty

• In a gazette notification, the GoI has reverted to 12.5% import duty on gold after reducing it to 7.5% during the Feb’21 budget, on the back of decade high imports in 2021 after demand recovered post the pandemic
• In addition to the basic increase to 12.5%, the GoI also levies an additional 3.25% on agricultural/social welfare cess, which takes the overall import duty up to ~15%; the finance ministry attributed a sudden surge of imports, with May recording ~107 tonnes, while June # was also significant
• From a stock perspective, an increase in import duty is sentimentally negative for Titan, albeit with a pinch of salt – Q2 is a seasonally weak quarter + inventory gains are likely to last for 1-2 quarters, and the duration of new import duty is unknown at the moment
• Titan Industries didn’t react adversely to the news, with the stock within the same range at closing, probably also because the market was more involved with the increase in taxes levied on crude and the subsequent impact on RIL and ONGC

Interesting developments! Why? Can you share some context?

• In moving in tandem with the RBI, the Finance Ministry via indirect import and export curbs by duty tweaks aims to reduce the impending pressure on the Current Account Deficit (CAD) and thus the currency (INR touched all-time lows, devaluing heavily)
• Falling Foreign Exchange cover, and persistently high commodity prices have implied that a sole RBI policy intervention (raising rates and mopping up $$) cannot be the sole support for INR and fiscal support (GoI actions) will be needed

Expect reversion to pre-pandemic rules for sops doled out during the pandemic?

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Around the World 🌎

• Activism gets the better of Dollar Tree – CFO Kevin Wampler will be stepping down as part of a broader executive reshuffling amidst mounting pressure from an activist investor to improve its performance. Four other top executives will no longer be continuing, and the search for their successors is on. The activist investor Mantle Ridge LP has demanded improvements  in the Family Dollar brand (acquired in 2015)
• Using the power of media – Companies across the U.S are reacting to the Supreme Court’s elimination of the constitutional right to an abortion by increasing focus on marketing strategies that highlight emergency contraception (or morning-after pills) as well as using them to protest government moves against reproductive rights
• Big win for SpaceX- SpaceX recently received authorization to link a range of vehicles to its satellite-internet service – essentially allowing its interest unit Starlink on everything from aeroplanes and boats to RVs, both consumer and business. It currently faces tough competition from Amazon, which is also planning to have thousands of satellites launched to reach a range of potential customers

Global Company News

Bed Bath and Beyond struggle to contain burn; what’s up and what do you need to know?

• In a bit of free-fall, the OG feel-good player Bed Bath and Beyond, which just this week ousted its CEO and revealed financial losses, is facing a strategic and financial crisis
• The retailer ended May’22 with USD 100 Mn in cash after burning through >USD 300 Mn of its reserves and borrowing USD 200 Mn from its credit line, as it attempts to arrest a decline in growth (revenue dropped 25% to USD 1.46 Mn as the company lost USD 358 Mn last quarter)
• In an attempt to raise funds, Bed Bath has already sold a chunk of its real estate, while is working with advisors on cash management and trying to find a buyer for its Buy buy Baby Business

Woah! Hold up! What happened? Can I get some context please? (Yess for sure)

• Wooing the recently ousted CEO from competitor Target in 2019, Bed Bath and Beyond was already troubled prior to his appointment, with growth sagging and activist investors demanding change after a poor performance in consecutive quarters
• In true American fashion, the CEO began a radical transformation of the business, initially monetizing the company’s real estate (selling ~USD 250 Mn in total), while off-loading non-core businesses like Christmas Tree Shops and Cost Plus World Market Chains
• The company then kick-started a business transformation of sorts, using the proceeds to declutter stores, scale back discounts and replace national brands with new private label goods
• Weirdly enough around the same time, the board also approved an ambitious buyback plan to the tune of USD 1 Bn, significantly denting the company’s cash reserves (odd that a struggling company performs such an action)
• While the company aimed to execute the right strategies, changing macro conditions played spoilsport, as supply chain challenges delayed delivery of products, coupled with a high mismatch in inventory as the move into private label failed to connect with consumers

Okay! Anything else?

• The company’s been badly mismanaged (to say the least), burning through USD 1 Bn in reserves in a year, while making questionable decisions to restart growth
• A sale of its BuybuyBaby Division has also divided the street, with the division performing better than the core business, and estimated to fetch USD 800 Mn if sold, and yet robbing the company of future cash flows

What else caught our eye? 👀

Top-level becomes tougher to change

• Leadership changes are becoming highly expensive and unsustainable for companies due to CEO compensations touching all-time highs
• Top CEOs and MDs got an avg an 11-15% increase in salary and perks in 2021-22, with some even touching a  25-45% jump, mostly part of a retention strategy for top talent
• The need of the hour is ‘creating a second cadre of leaders to succeed ageing leadership’ or the talent pool will remain too small to avoid higher payouts

HDFC Bank struggles to recover funds transferred in a glitch

• India’s largest private bank HDFC Bank Limited (HDFC Bank) made a technical mistake in May’22, due to which around Rs 1,000 crore got transferred to close to 4,468 customer accounts
• After the transfer that made several customers millionaires accidentally, around 4,515 customers had withdrawn ₹126 crores
• HDFC Bank managed to recover around ₹26 crores from 47 customer accounts from those who have used electronic means (NEFT, RTGS, IMPS) to transfer the amount
• However, the bank is still trying to recover around ₹100 crores from the customers claiming to have spent that money

Educational Topic of the day

Indicative Match Price

The indicative match price represents the best price at which the greatest number of buy and sell orders can be traded during the applicable auction. It represents a valuable piece of information for resolving the imbalance.

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