Yesterday’s Market Performance

Nifty: 15722.20 I 42.20 (0.27%)
FII Sell Net: 982.80 CR
DAX: 15650.09 I 46.28 (0.30%)

Sensex: 52484.67 I 166.07 (0.32%)
DII Buy Net: 930.39 CR
FTSE: 7123.27 I 1.89 (0.03%)

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Howdy Toasters!

In today’s issue, we discuss;

• Highlights of RBI’s semi-annual Financial Stability Report.
• Telecom Industry is under massive stress- operators desperately looking for tariff hike?
• Edelweiss Financial Services’ performance, other important financial news, and an educative concept to help you keep learning. Read along!

Edelweiss Financial Services: 74.25 | 2.15  (2.89%)

• The stock price gained 3% after the company decided to sell its 70 percent stake worth Rs 307,60 crore in insurance broking JV. Edelweiss, said it will exit the insurance broking business

Thyrocare Tech: 8.80 | -0.25 (-2.76%) 

• The share falls over 2% after the company asks the Directorate of Telecom for more time to pay spectrum dues. They declared a loss for the 11th consecutive quarter.

RBI released the semi-annual Financial Stability Report, taking stock of the sector’s health post a rough year (you don’t say) 🤓

• Highlighting better asset quality performance of the financial sector (than initially envisaged in January), the RBI noted an underlying threat to the recovery remained on the back of the full impact of the second wave, rising inflation risk/commodity prices, and global uncertainty/unwinding of economic growth measures undertaken by central banks world over.
• That said, the RBI noted that stress tests conducted showed a resilient financial sector had weathered the storm, and therefore dialled down on their initial projection of gross bad loans, down to 11.2% by the end of the fiscal year (Jan estimated was 14.8%).
• RBI Governor Das highlighted an unbalanced / in-accurate picture of the current system, due to increased liquidity availability because of loose monetary policies of major economies, and a better picture of the overall stress prevalent in the system once these measures were fully realized and an inflation risk was apparent enough to push countries towards limiting such ultra-accommodative policies.
• Also on the agenda (and surprisingly so) was commentary around the effects the banking sector would face due to climate change, cyber fraud and the imminent rise of fintech and the disruption caused by them to the incumbent system.

Woah! Okay, what else? 🤔

• Overall credit growth for Scheduled Commercial Banks (think: ICICI, HDFC & the likes) suffered (or was it by design?) to 5.5% in FY 21 (down from early teens in previous years).

• Growth in credit to MSMEs in FY 21 was largely driven by the ECGLS scheme (launched by the Finance Ministry, and topped up with another tranche recently in an announcement made by the Finance Minister); although growth here is with a caveat, previous tranches were not fully used and was largely driven by PSBs, with private bank participation muted, and with heightened stress in the SME segment, expect restructuring and stress on the balance sheet for lenders in this category.

• RBI highlighted an increased interruption to business, especially because of the second wave, however, at a stability level, the indicator highlighted a noteworthy reduction to risk due to improved capital levels, deposit/liquidity flows, and provisioning buffers (applicable for Private & PSUs).

• Also on the agenda were risks faced due to climate change and increasing capitalization of fintech players, and the risk they pose if they become too big to fail (some records suggest, large private players employ ~100+ fintech vendors each).

Okay, so what do I do with all this information? 🧐

• It’s all about stocks and names right – large private banks (think: ICICI, HDFC, Axis, IndusInd) are all well capitalised (Tier 1 > 15%), have covid contingent measures which will limit incremental credit cost in FY22 (expect growth to come through once there is some resemblance of normalcy), and subsequently leading to healthier return ratios in FY22 (with caveats)

• Vulnerable PSBs (we will avoid naming them here :P) have raised adequate capital (on the back of a stellar capital market mood) raising their growth profile for the medium term (at your own risk, check points above).

  Note: these are not recommendations, we don’t do that at FinLearn.

Low Tariffs & Increased Consumption finally catching up in the telecom sector? 🤨

What else caught our eye? 👀

Indians left unemployed by the pandemic prefer jobs over direct benefit transfers according to a survey

• In a survey conducted by the London School of Economics, a majority of urban individuals left unemployed by the pandemic want the government to promise them jobs similar to the rural sector.
• India currently guarantees 100 days of guaranteed employment to every household in the rural areas, and budget allocation was stepped up last year with >50% increase in the enrollment program.
• In a similar vein, urban individuals responded to a survey in an overwhelming majority, preferring jobs over direct cash transfers.

Fuel Prices know only one direction? 

• 105 per liter, yes!!, that’s how much petrol now costs in Mumbai (what choice do you have, let’s cycle?) Bangalore is a close second with INR 102 per liter.
• Fuel prices have risen by ~10% since the second wave hit the country, and aren’t showing any signs of slowing down.

Price to Book ratio (P/B)