Good Morning Toasters!

Hellow friends! If you thought Rupee is the only currency struggling to keep up with the Dollar, you got to know this- the euro and dollar are at parity for the first time in 2 decades.

In today’s issue, we cover Retail Inflation (or CPI) in India during June stood at 7.01% due to a slight easing in food prices. And in the other corner of the world, Retail Inflation rose to 9.1% in the USA,  the largest gain since the end of 1981.

We overlook Twitter’s lawsuit against Elon after he pulled his hands out of a $44 billion deal to purchase Twitter. So what now? Keep Reading 😉

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: 15,996.65 | -91.65 (-0.57%)
FII Net Sold: INR 2,839.52 crore

Sensex: 53,514.15 | -372.46 (-0.69%)
DII Net Bought: INR 1,799.22  crore

Economy News

Headline CPI Inflation shows signs of easing; what’s up and what do you need to know?

• India recorded a Consumer Price Index (CPI) inflation print of 7.01% in June’22, which was below expectations, supported by easing food inflation and fiscal actions undertaken by GoI (more on this below)
• June’22 was the sixth straight month of core CPI inflation above the RBI’s threshold of 6%, albeit with initial signs of easing in food prices globally, while weakness in crude and metal prices globally (if sustained), will likely lead to the first signs of inflation easing (we believe)
• Sequentially, fruits, oils, pulses and fats all declined, while vegetable prices increased by 4% MoM; high-frequency mandi prices (markets used by farmers to sell stock) show both fruit & vegetable prices easing going forward (July print)
• Core Inflation (excluding food, fuel and intoxicants) was flat MoM, primarily led by stable transportation costs, given healthcare, education and telecom tariffs also increased MoM

Interesting! What about Industrial Production? And any views on US Inflation print?

• The Index of Industrial Production (IIP) which tracks economic output on a monthly basis recorded 19.6% YoY growth, led by a low base effect (Covid wave this time last year)
• Manufacturing grew 20.6%, led by electrical equipment, chemicals and apparel, while mining and electricity also recorded strong growth

US continues upward inflation trajectory

• In stark contrast, US Inflation recorded its highest level in 41 years, touching 9.1% in June, eclipsing May’s annual rate of 8.6% which had pushed the Fed to initiate an expedited rate hike process
• Prices were up across most categories, however, Gasoline far outweighed other categories, rising 11.2% over the previous month; odds for a 100 bps rate hike in the next Fed cycle are 35% at the time of writing

Got it! Final thoughts? Rate Hikes to still happen? (Million $$ question broo)

• Current estimates basis mandi prices & down-trending commodity prices point to a 6.7 – 6.8% July’22 inflation print, much lower than the RBI’s forecast of 7.4%, marking a sharp downtrend from the central bank’s forecasts (from some months ago)
• That being said, RBI is likely going to stick to its initial plan of a 75+ Bps hike in FY23 continuing on its front-loaded tightening path to tame the still-elevated inflation
• Likewise, once consistently under RBI’s accepted threshold, rate hikes will likely become more sporadic in nature, as the central bank rejigs itself to the new economic scenario (we believe)

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Around the World 🌎

• Google shattering dreams – With about 10,000 new employees hired in the second quarter, Google has now decided to slow hiring after a cool down in the tech sector due to rising inflation and other economic challenges. It however emphasised focus on hiring in engineering, technical and other critical roles for the rest of the year
• Junk FTW – Inflation can’t stop the cravings evidently as PepsiCo Inc. reported a 5.2% increase in revenue in the latest quarter (vs a year earlier) in spite of prices on average rising 12% (to help offset the rising costs of trucking, packaging and agricultural commodities).  It has however not ruled out the possibility of a recession just yet
• Sri Lanka needs some help – Sri Lanka President Gotabaya Rajapaksa fled the country on Wednesday morning amid massive protests against the mismanagement of its economic crisis. A countrywide state of emergency and a curfew in Colombo, and the prime minister, Ranil Wickremesinghe, has also said he would resign

Global Corporate News

Twitter sues Elon for being Elon 😉

• Unless you’ve been living under a rock(et), the world’s most talked about human, and Founder of 9990 companies, Elon Musk has decided to renege on his agreement to purchase the to-be world’s town hall, Twitter Inc
• Let’s take a walk down memory lane –
  • Mid-April: after becoming Twitter’s largest shareholder, amassing ~9% stake, Elon Musk offered to buy the rest of the company at a 38% premium to the stock price
  • Late April: After a couple of weeks of yo-yoing, which involved outlandish claims of converting Twitter into the world’s town hall, Elon announced agreements to purchase the company for USD 44 Bn or USD 54.20 per share (see it pls)
  • Early May: Elon announces plans to make Twitter the equivalent of China’s WeChat, while still ‘investigating’ the # of absolute bots, monetizable DAUs
  • Late May: Elon develops cold feet, in other words, highlights that the #’s published by Twitter is incorrect, with his estimates on the absolute # of bots way higher (around the 20% mark)
  • Now: Elon’s official announced plans to terminate the deal, not pay the break fee of USD 1 Bn, while Twitter has officially sued in court, calling Elon’s attempt to terminate the deal invalid
• The suit, filed in a local court, alleges that Elon developed cold feet as soon as the markets soured, with his personal wealth dropping by USD 100 Bn, and thus began finding ways to get out of the agreement
• Further, the agreement highlights multiple breaches by Elon, including disparaging Twitter employees in public, causing financial & operational damage to the company by repeatedly claiming inaccuracies in publicly listed data (bots)

Damn! So now? What next? And are there any precedents to draw from?

• The company’s prepared to hold a shareholder vote, as early as August, with Elon having to finalise the transaction within 2 days of the meeting, while Twitter has also asked for an expedited hearing of its lawsuit
• Elon’s lawyers have invoked the ‘Material Adverse Effect’ clause, in which a buyer must prove that a company’s actual business is materially different from what they agreed to buy, i.e. the bots are way higher and that changes the game
• According to initial reports, Elon Musk is up against it, with the past precedent of Tyson being forced into acquiring IBP Inc, after the foods company developed cold-feet
• A USD 1 Bn break-fee is huge for Twitter, and would represent more in Net Income for the company than what they’ve earned during their lifetime as a publicly listed company (Woah!!), and yet that’s the last thing both parties want

What else caught our eye? 👀

China does not want to clear its name

• Vivo – a China-based company- has been accused of money laundering and tax evasion  of nearly ₹4389 Crore after searches were conducted in its office
• The earlier freeze on Vivo India’s accounts were lifted by the Courts and Vivo was asked to provide a bank guarantee of $119 million
• Out of the total sale proceeds of ₹1,25,185 crores, it remitted ₹62,476 crores (almost 50% of the turnover) out of India, mainly to China

RBI taking matters in its own hands

• After RBI’s relaxation last week to shore up forex inflows, top banks (including SBI, ICICI Bank etc) have raised interest rates on foreign currency non-resident deposits
• For example, SBI has hiked the rate on one-year tenure FCNR USD deposits to 2.85 from 1.80% earlier with deposits of 3-4 years and 5 years being hiked to 3.10% and 3.25%  respectively
• In other moves – it raised overseas borrowing limits for companies +  liberalised norms for foreign investments in government bonds with the aim to boost foreign exchange inflow

Results Preview:

Thursday, 14th July: ACC, Tata Elxsi, LTI

Friday, 15th July: Federal Bank, Jindal Steel, LTTS

Educational Topic of the day

Cash Flow Drivers

Cash flow drivers are the components of a business evaluation model that drive a company’s cash flows.

Identifying the drives of a company’s profitability and free cash flow conversion is a critical step in understanding the business model, implementing operational changes in areas in need of improvement, and creating more accurate forecasts.

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