Daily Market Update – Nov 13th 2020

unnamed Daily Market Update   Nov 13th 2020

Jubilant Food Works numbers came under pressure during the quarter. But what really caught the eye of investors was that the company opted to shut down a total of 105 stores. While 100 Domino’s Pizza outlets will be shut down, another 5 outlets of Dunkin Donuts will also be shut down. The pizza franchise business, which Jubilant runs for Domino’s Pizza in India, tends to be profitable only if they are able to increase same-store sales. Normally, the practice in these kinds of businesses is to shut down stores where the repeat business does not grow to the extent anticipated. COVID did have a major impact.

A day after the Bihar victory, the government laid out an elaborate Stimulus 3.0 package worth Rs.265,000 crore and is expected to add up to 0.6% to the overall fiscal deficit as a percentage of GDP and take it closer to 8% of GDP as against the budgeted target of 3.5%. Nirmala Sitharaman announced 12 new measures to stimulate the economy. However, economists estimate that if the impact of the product linked incentives or PLIs are excluded, the total fiscal impact would only be around Rs.120,000 crore. The markets were expecting a stimulus package of around Rs.150,000 crore so it must be seen as a very solid attempt to boost the fortunes of the economy. These include additionally outlays to PMAY, R&D for COVID Vaccine, export stimulus, fertilizer subsidy, employment program and Garib Kalyan.

Reliance industries is likely to invest up to $50 million into Bill Gates’ Breakthrough Energy Ventures. This is a venture into futuristic sources of power and their viability for most emerging markets like India. The contribution of $50 million will constitute 5.75% of the total fund corpus. The overall investment will only be made in tranches over the next few years. The fund seeks to find solutions to the energy crisis by investing in breakthrough energy and agriculture technologies. RIL sees this investment adding value to investors as the aim of Reliance is also to tweak its O2C business into an eco-friendly business.

Eicher had a tough quarter with net profits down 40% on a yoy basis at Rs.343 crore. There was a sales decline in both its business lines viz its two-wheeler business as well as its commercial vehicles joint venture with Volvo of Sweden. However, overall revenues were only down 3% at Rs.2134 crore in the Sep-20 quarter. Both the top line and the bottom line were above street expectations. In its motorcycles business, its volumes fell by 9% at 149,120 units. It incurred a small loss of Rs.4 crore on its CV joint venture with Volvo. However, construction, mining, agri and ecommerce have been driving demand.

Grasim of the Birla group announced the sale of its fertilizers business to Indo Rama for a consideration of Rs.2649 crore. The fertilizer business of the Aditya Birla group housed under Indo Gulf will be sold by way of slump sale to Indo Rama. Grasim has been looking to unwind its non-core business so that the value generated by the monetization can be used to invest in the core businesses. Indo-Gulf has a 1.2 MTPA capacity so it offers perfect value addition to the long term plans of Indo-Rama. While the deal has been signed, it would be subjected to necessary regulatory approvals including the CCI and NCLT.

On a day when two macro data points were announced, IIP for Sep-20 gave some hope but Oct-20 retail inflation went up further. The good news was that the IIP turned positive after a gap of 7 months. While manufacturing was just about flat, mining and agriculture showed good traction. It broadly indicates that industrial output is gradually getting back to pre-COVID levels. But there were some worries over CPI inflation which went higher to almost 7.7% in October. Needless to say, it was food inflation that set the trend with vegetable inflation playing truant. However, what is also disconcerting is that the core inflation has also inched up further to 5.8% and that is worrisome as it is considered to be the stickier component. Clearly, rate cuts are ruled out for now, but RBI may now have to consider rate hikes too.

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