Wockhardt Ltd: Buy for superb returns!

Face Value: Rs.5

CMP: Rs.212.40.

Market Cap: Rs.3,012 crore.

Market Cap: Rs.3059.84 crore.

CEPS: Rs.2.22

Total Revenue in FY22: Rs.1,372.00 crore.

Introduction: Wockhardt is a leading, research-based global healthcare enterprise, with interests in pharmaceuticals, biotechnology, and has a network of advanced Super Speciality Hospitals.

Wockhardt is a true Indian MNC employing 8600 Associates from 21 different nationalities worldwide. It has 3 (three) research centers and 12 (twelve) manufacturing plants. Its products include pharmaceutical and bio-pharmaceutical formulations, active pharmaceutical ingredients (APIs), and vaccines. Photo: Moneycontrol.com

Wockhardt Hospitals, a subsidiary of Wockhardt Ltd, is an Indian tertiary care and super speciality healthcare network. These hospitals provide services in Cardiology, Orthopedics, Neurology, Gastroenterology, Urology, and other specialties. Photo: Live Mint.

Wockhardt is headquartered in Mumbai, India, and has full-service operations in the United States, United Kingdom, Ireland, and France. It also markets in Russia, Brazil, Mexico, Vietnam, the Philippines, Nigeria, Kenya, Ghana, Tanzania, Uganda, Nepal, Myanmar, Sri Lanka, Mauritius, Lebanon, and Kuwait.

Shareholding Pattern: The promoters hold 67.13%, while the general public holds 32.87%. Among the public shareholding, FPIs and NRIs hold 2.88% and 1.09% respectively, of the shares of the company. The big bull, Rakesh Radheshyam Jhunjhunwala holds 2.08% of the shares of the company.

Triggers:

🏵️Mumbai-based Wockhardt and Serum Life Sciences, a subsidiary of the Serum Institute of India (SII), have formed a collaboration to manufacture 150 million doses of SII vaccines in Wockhardt's UK facility. The vaccine is expected to be ready within 6 - months time. With repeated waves of Covid - 19 pandemic, the vaccine business will give steady income for the company. Photo: Medical Dialogues.

🏵️The company has bulk vaccine and fill-finish manufacturing facilities at Waluj and Shendra, Aurangabad, Maharashtra. The cutting - edge automated manufacturing facilities in Aurangabad are dedicated to producing world-class high-quality injectable products.

🏵️The debt of the company has now come down below Rs.1000 crore. One of the highly placed sources, who refused to be named, put the debt figure at around Rs.600/700 crore, which is nothing as compared to FY22, revenues of the company. The company recently sold 2.08% promoter's holdings to clear the debt of a group company or the money involved actually flew to cut down the debt of a group company.

🏵️Wockhardt Ltd recently came out with the rights issue of Rs.748 Crores at Rs.225 per share in the ratio of 3 rights equity shares for every 10 fully paid-up equity shares held by the eligible equity shareholders on the record date, that is on Wednesday, March 9, 2022. The proceeds of the rights issue, will be used to meet its financing needs for debt repayment, research & development initiatives, and general corporate purposes -- to make repayment of subordinated debt and company's borrowings including interest partially or fully, the allocated amount shall be Rs.590 crores and for general corporate purposes the allocated amount shall be Rs.152 crores.

🏵️The sudden crisis which arose in the Russian Vaccine front due to the Ukraine - Russia war is expected to calm down in the nesr future as the war is coming to an end. Once the war end, the Pharma basket is likely to be first on which restrictions will be removed.

🏵️Wockhardt Ltd in February, 2022 said it had received approval from the Central Drugs Standard Control Organisation (CDSCO) to export up to 10 crore doses of Russian COVID-19 vaccine Sputnik. As the war between Russia and Ukraine is in its final stages, the embargo by the EU might be lifted soon. Thus Sputnik vaccine is likely to generate good revenues for the company. Incidentally, more than half of its revenue is generated in Europe.

🏵️The loss in the March 2022 quarter was mainly due to the stoppage of manufacturing of Russian Covid - 19 vaccine.

🏵️The company basically caters to European and the US markets, which currently generates over 76% of its revenues. With current Rupee depreciation, this is likely to give a good additional revenue for the company.

🏵️The company at the end of June, 2022, sold some loss-making approved generic versions of certain over-the-counter drugs to Mumbai-based Glenmark Pharmaceuticals in the US for an undisclosed sum. The company sold ANDAs for Famotidine Tablets USP, 10 mg and 20 mg (OTC), Cetirizine Hydrochloride Tablets USP, 5 mg and 10 mg (OTC), Lansoprazole Delayed-Release Capsules USP, 15 mg (OTC) and Olopatadine Hydrochloride Ophthalmic Solution USP, 0.1 per cent (OTC) in the US to Glenmark Pharmaceuticals. However, the amount involved in the said deal according to the sources is very nominal and is not going to have a significant effect on its balance sheet. The move infact is expected to strengthen a little of its bottomline , as it is a part of the company's debt reduction efforts and give more focus to its profit making verticals.

🏵️The company is currently focussed on the business of new chemical entities (NCE), original new drugs in the pipeline, certain high value products, in-licensed drugs from other companies and biotech drugs like insulin. According to the sources, some new molecules developed in the last few years through in-house research and development are waiting for final approvals from the authorities. These will cater to both emerging and developed markets.

Conclusion: 

Wockhardt is a fully integrated pharmaceutical company with a solid research foundation in Generics, Biotechnology, New Chemical Entity (NCE), and Novel Drug Delivery Systems (NDDS). Its world-class manufacturing facilities follow strict cGMP protocols and are in compliance with international regulatory agencies such as the US FDA, the UK MHRA, ANVISA, and others.

The stock of Wockhardt Ltd fell from a high of around Rs.2100, made in 2013 to the CMP of Rs.212.40.

Technically speaking the scrip is ready for a bounce from the current levels. The medium term investors can buy the share for targets of Rs.341/406; considering that the company is likely to get compensated for its Sputnik fiasco, by the vaccine  made through collaboration with Serum Institute. It is also coming up with a few new medicines to bulwark its diabetic portfolio. 

Moreover, a couple of antibiotics are in the final stage of trials and will be ready for global markets within a couple of years. The company is also looking to strengthen its presence in the African continent. Wockhardt’s emerging market presence spreads across South-East Asia, Far–East Asia, Africa, Russia, CIS and Latin America countries.

The stock at the CMP is available at a dirt cheap price. This is a risk free investment at the current price.

 Winning Strokes

The Indian bourses have Surprisingly changed colour from a green to red once again, though there are as such not much negativite news Except that relentless FII selling.

The BSE Sensex is now trading at 53,165.64 down 126.82 points (-0.13%), while the Nifty is seen at 15,817.10 down 37.15 points (-0.12%). 

The BSE Sensex has come down from 600 - plus points up to the current, 100 - plus down, after the European markets showed red tickers in the opening trade.

However, there is not much negativite news as far as the India's stock markets are concerned. I feel the markets should bounce back, in laste afternoon trade.

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By the way, Google searches for the term *bear market* recently reached their second-highest level since the Covid outbreak. This indicates that market participants are concerned about the current state of the global stock markets.

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Meanwhile, according to a 2 July Wconomic Times report: When we look at the historical Nifty50 PE trend, we can see that whenever this ratio fell below 20x, the 1-year forward returns were also higher. 

When PE fell to 15x in January 2003, for example, benchmark delivered an average 51.80% return over the next year.

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History Repeats Itself in a Spiral

The PE was at an extremely low level during the 2008-09 crash, while the 1-year forward return was over 80%. 

During the 2020 Covid crash, the Nifty PE fell below 20x. A year later, the Nifty returned around 70%.

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The PE traded at an extremely low level during the 2008-09 crash, while the 1-year forward return was over 80%. During the 2020 Covid crash, the Nifty PE fell below 20x. A year later, the Nifty returned around 70%.

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According to history, whenever the PE fell below 15x, the benchmark delivered an average 51.80% return over the next year.

The average return when the PE is between 15 and 20x is 15.20%.

Conclusion: The PE of the Nifty has come down from 40.80x in February 2021 to current around 19.57x, which is an encouraging sign.

Moreover, FIIS have done with 80-85% selling. 

This suggests information suggests that from a medium to long-term perspective, this could be a profitable level for market participants to begin nibbling on good quality stocks.

Moreover, the US Treasury Secretary Janet Yellen, said in June that the tariffs on Chinese imports have hurt American consumers and businesses and are contributing to the fastest inflation in 40 years.

Probably to address such a concern, the Joe Biden’s administration is weighing options, about former President Donald Trump’s tariffs on hundreds of billions of dollars worth of imports from China, which is both its biggest trading partner and competitor.

The media reports suggests that the *US President Joe Biden might announce his decision to roll back some tariffs on Chinese imports as soon as this week. Dow Jones reports, the move might lessen domestic inflation and could also reduce pressure on Beijing.

#Adani Power Ltd (Rs.263.50) recently completed acquisition of 100% equity shares of Support Properties Private Limited ("SPPL") and Eternus Real Estate Private Limited ("EREPL") from their respective shareholders at Rs.609.40 crores. 

By acquiring the two companies, Adani Power plans to set up infrastructure facilities.

#I just now spoke with the sources in Wockhardt Ltd (Rs.206.05). The news is encouraging, except one point due to Russia - Ukraine war. I'll write about this on my blog. Please Stay Tuned! Photo: Express Pharma.

Morning newsletter to PREMIUM Members

Capitulation in the domestic bourses could be over or near the final stages: The BSE Sensex is now trading at 52,314.34 up 716.50 points (+1.39%), while the Nifty50 is seen at 15,568.05 up 217.90 points (+1.42%). From today's trading pattern in the domestic as well as in International Markets, it seems we have either crossed the capitulation phase or on the way to breast the red tape. Photo: Outlook

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Bull 🐂 Markets, always rise from the air of suspicion and/or cynicism. The things will get clear within this week -- whether we are in for charting a new upward trajectory, in the newly mapped macro - economic - domain contoured by the RBI's policy actions or the capitulation phase is still in progress. 

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Bottomline: If you have extra cash in hand, then I feel it would be prudent to pick up good beaten down counters, for a slightly longer haul -- say 4 to 6 months or till the Deepawali lights, enchants and hallows up, the night - sky. ============= 

At this crucial crossroad, the game is perhaps all set to flower in a new beginning; as market participants meticulously watch with intense interest, how FIIs once again fashion methods and shenanigans, to infiltrate the Indian Bourses, in herds.

 Tit - bits

#I've taken some shares of Indiabulls Housing Finance Ltd (Rs.112.15) on last Friday, for some of my clients/friends whose accounts I manage; basically on the premise that, when a transition happens from low interest rate regime to moderately high interest rate regime, the well known or well established NBFCs tend to perform better than Public Sector Banks (PSBs) due to their aggressive marketing policies.

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Indiabulls Housing Finance Ltd (Rs.112.15) is an established name in the house loan segment.

Financials:

The Net profit rose by 11.23% to Rs.307 crore for the fourth quarter ended March 2022 (Q4FY22) from Rs.276 crore in Q4FY21. 

However, for FY22 its Net profit remained flat at Rs.1,178 crore Vs Rs.1,202 crore in FY21.

The company posted reasonably good results, inspite of Covid - 19 related bottlenecks. Photo: www.nwishop.com

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Those who have a minimum portfolio size of Rs.1 lakh (Rs.50,000 offer has expired) can join my profit sharing arrangement. For this they should send me a mail at: suman2005s@rediffmail.com. 

They need to compulsorily open a Demat Account in my associate brokerage house. The earlier system of trading through any brokerage house has been withdrawn, due to foul play of some of the participants.

The money will be invested in delivery based safe calls and the risk will be minimum.

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#Equities benefit from higher inflation in the medium to long run

While theoretically inflation may be negative for bonds and equities, we must not forget a positive aspect of rising inflation. Normally, rising inflation is synonymous with improved growth in GDP. If you look at the last 1 year from the beginning of 2017, inflation has been on an uptick. During the same period, the GDP growth has shown signs of bottoming out, the corporate results have shown green shoots of recovery and the stock market indices are up by over 20% during the year. 

The positive takeaway from inflation is that it is an indicator of GDP growth. 

Even in the US and Japan, the big economic battle is all about reviving inflation back to the 2% level. That is supposed to be the cut-off level which will spur growth. In fact, if you look at world growth and even at India’s growth in the last 20 years, GDP has never grown substantially when the inflation was low. While obscenely high inflation can play havoc with purchasing power, certain threshold inflation is required to incentivize producers and businesses.

So inflation, beyond an acceptable limit is the real problem. Rising inflation has certain downside risks but it is also essential for growth. It is this balance that holds the macroeconomic key.

Source: Motilal Oswal Securities.

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#Consumer inflation in the United States reached its highest level in more than four decades in May, as rising energy and food prices pushed up prices.

According to the Labor Department, the consumer-price index increased 8.6 percent in May compared to the same month a year ago, the highest reading since December 1981.

The Wall Street Journal polled economists, who predicted an 8.3 percent increase in the consumer price index in May.

Stocks in the United States plummeted. In 4 p.m. trading, the Dow Jones Industrial Average fell about 2.70% or about 880 points. Technology stocks fell along with banks and consumer stocks, causing the S&P 500 to fall 2.90% and the Nasdaq Composite to fall 3.50%.

The narrative in most financial portals is: Inflationary pressures are likely to put pressure on the Fed to raise interest rates quickly in order to temper rising prices.

But this approach is totally wrong, as the inflation figures are for the month of May and not June, the current month. In anticipation of escalating inflation the US Fed had already raised rates. We need to look at June, 2022, Inflation figures to witness the impact of monetary tightening policy of the US Fed.

Besides, the US is taking measures to ease the supply bottlenecks. Hence, we might see the inflation getting capped in the coming weeks.

#The government of India should seriously think of slowly removing or reducing the Long Term Capital Gains Tax, to bring cheers in the market. 

 RattanIndia Power Ltd: Buy

CMP: Rs.3.85

Major Triggers:

💥Fall in the price of coal and rise in demand for power, post relaxation of Covid - 19 restrictions.

💥The widening of the consolidated loss in the December quarter was due to non-operation of Nashik Thermal Power Plant (Sinnar Thermal Power Ltd). 

That exposure has no bearing on parent RattanIndia Power Ltd, as Sinnar Thermal Power Limited (STPL), is a subsidiary of RattanIndia Power Ltd and is a separate SPV holding Sinnar Thermal Power Plant. Photo: Just Dial.

💥All units of Sinnar Thermal Power Plant at Nashik are commissioned, but not operational at present.

💥STPL's debt exposure is ring fenced and has no bearing on the parent RattanIndia Power Ltd. There are no obligations of RattanIndia Power Ltd on debt repayment of STPL in any manner whatsoever.

 💥The company's standalone net profit jumped three-fold to Rs 104.44 crore in the third quarter of FY22 from Rs 33.44 crore in the quarter ended in December 2020.

💥RPL has demonstrated excellent operating performance in current FY 2021-22 amidst COVID-19 and acute coal shortage in the country affecting coal based thermal power plants.

Hence, now when the coal prices are falling across board, we can expect excellent performance by the company.

 💥Amravati Thermal Power Plant has achieved the Plant Load Factor (PLF) of 74 per cent and Plant Availability Factor (PAF) of 85 per cent up to Q3FY22 and stands out as one of the best thermal power plants in Maharashtra.

💥The 1,350 MW Amravati Thermal Power Plant has been supplying its entire power to MSEDCL under 25-year term PPAs (power purchase agreement) based on long-term coal linkage from South-Eastern Coalfields Limited for the entire contracted capacity.

💥Pursuant to debt rationalization in December 2019, RPL has successfully paid back Rs.2,001 crore (principal and interest) in the last eight quarters (January 2020 to December 2021) including Rs.450 crore as prepayment.

💥 According to a report published in ET on 21 January, 2022, RattanIndia Power Ltd (RPL) expects to become debt-free in nearly 2 (two) years based on revenue from its thermal power plant at Amravati in Maharashtra and accumulated dues from power distribution companies.

💥The company is working on debt resolution with the lenders to its 1,350-Mw power project at Nashik in Maharashtra.

The company has Rs.4,000 crore regulatory assets and receivables from Maharashtra, some of which are at final stages of realisation, expected to accelerate the deleveraging process.

💥As on December 31, 2021, the external secured-term debt obligations of the company stand at Rs.1,953 crore on a networth of Rs.5,000 crore.

💥The ministry of power on May 5 notified that all imported coal-based plants must run on full capacity under Section 11 of the Electricity Act to meet rising electricity demand.

💥 According to a report published in the Financial Express on 15 May, 2022, plans for *Capital Infusion* in coal-based plants such as Rattan India’s Sinnar plant in Nashik and Reliance Power’s Vidarbha power plant are being worked out and operations may start soon.

💥The Power Ministry on May 11 directed PFC and REC to take necessary action to arrange short term loans for a period of 6 (six) months with adequate safeguards, for imported coal-based plants which are under stress or in NCLT, at the earliest.

💥Following the successful recast of debt for the 1,350 MW Amravati power plant, RattanIndia Power, backed by Aditya Birla ARC and Varde Partners, is in talks with a consortium of lenders led by PFC for the recast of around Rs.7,100 crore debt of its thermal power plant in Nashik, Maharashtra, according to a Financial Express report.

💥Aditya Birla ARC, which is backed by Varde Partners, has purchased a 15% stake in RattanIndia's Amravati power plant.

💥Furthermore, Q4FY22 standalone numbers only include the operational Amravati power plant and exclude the Nashik Plant, which is owned by Sinnar Thermal Power, a subsidiary of Sinnar. RattanIndia Power is not obligated to pay the Nashik power plant's debt. 

💥The company has paid Rs.2,000 crore in dues of the Amravati plant in the last two (two) years and has an outstanding due of Rs.1,950 crore, which the company expects to pay off in the near future given the annual Ebitda of around Rs.1,000 crore and the recovery of regulatory assets of over Rs.4,000 crore.

💥The India Express reported on June 10, 2022, that banks, taking cues from the Reserve Bank of India (RBI), are likely to decide against funding the working capital requirements of 13 imported coal-fired power plants — key to the Union power ministry's proposal to revive these units as part of a broader range of measures to address the country's ongoing electricity shortage.

Power Outages: As temperatures rise, demand for electricity reaches a new high of 209.8 GW (gigawatts) on June 8, surpassing the previous high of 207 GW set on April 29 this year.

This increase in demand has been met in part, owing to a 16% annual increase in domestic coal dispatches to thermal plants, as well as coal imports and increased hydro and wind power generation. While the demand spike has been managed thus far, demand is expected to peak at 220 GW between July and September, when the monsoon has an impact on coal mining and dispatches.

Financial Results (Year Ended FY2022) - YoY Comparison:

The company has reported total income of Rs.3669.16 crores during the Financial Year ended March 31, 2022 as compared to Rs.2634.16 crores during the Financial Year ended March 31, 2021.

The company has posted net profit / (loss) of Rs.(-)1981.45 crores for the Financial Year ended March 31, 2022 as against net profit / (loss) of Rs.(-)941.61 crores for the Financial Year ended March 31, 2021.

Conclusion: RPL is a turn-around story in the Indian power sector with superlative operating performance. The company has showcased how stressed thermal assets can be resolved efficiently and put to use in the service of the nation.

The Rs.10, Face Value shares are trading at a dirt cheap price of Rs.4. 

The prudent investors, need to accumulate the stock of RattanIndia Power Ltd, for good ROA in the next 3/6 months time frame.

 Winning Strokes

The S&P BSE Sensex is trading flat at 54,869.77 down 42.05 points (-0.04%), while Nifty was last seen at 16,343.55 down 13.25 points (-0.08%). Power, Oil & gas stocks are witnessing a buying trend. The negative global cue, continuous selling by the FIIs and US Inflation data, expected on Friday is keeping the upside capped.

However, one good point is the NSE's India VIX, a gauge of the market's expectation of volatility over the near term, fell 2.15% to 19.41. 

Stay away from consumer durables and realty shares in view of government of India going tough on the inflation front. 

The prudent investors should stay put in the sectors where the demand is somewhat inelastic: Food, Power, IT, Renewable Energy, Sugar, Textiles, etc. Therefore, accumulate the shares from this space instead of burning hands in Real Estate and consumer durables.

#My recent recommendation, Future Retail Ltd (Rs.7.70) at Rs.6.70/6.80 saw it hit another buyer Freeze. We can look for good targets going forward. 

The stock of Future Retail Ltd was recommended at couple of days back, after encouraging media reports surfaced, which stated that NCLT to hear Amazon’s petition not to initiate IBC proceedings against Future Retail, on June 10.

#Buy the shares of Reliance Power Ltd (Rs.13.60) and RattanIndia Power Ltd (Rs.3.95) at their respective CMPs. The power sector is expected to do well, post lifting up of Covid - 19 restrictions and also the power demand is expected to peak due to a hot summer ahead.

Moreover, Reliance Power Ltd has done massive reduction of Debt to the tune of Rs.2,537 Cr in FY22. Debt-to-equity ratio has improved further from 2.08:1 in FY21 to 1.84:1 in FY22.

Reliance Power Ltd is a leading power generation & coal resources company. It has one of the largest portfolios of power projects in the private sector, based on coal, gas, hydro and renewable energy, with an operating portfolio of 5,945 megawatts.

Net Sales of RattanIndia Power Ltd (Rs.3.95) came at Rs 823.23 crore in March 2022, down marginally at 4.51% from Rs.862.13 crore in March 2021.

Quarterly Net Profit was at Rs. 137.29 crore in March 2022 up 117.82% from Rs. 63.03 crore in March 2021.

EBITDA stands at Rs.333.99 crore in March 2022 up 22.56% from Rs.272.52 crore in March 2021. RattanIndia Power Ltd's EPS increased to Rs.0.26 in March 2022 from Rs.0.12 in March 2021.

Subsidiaries of RATTANINDIA POWER LTD (Rs.4): 

💥Rattanindia Solar Private Limited.

💥Sinnar Thermal Power Limited.

💥Indiabullsnergy Limited.

💥Elena Power and Infrastructure Ltd.

💥Diana Energy Limited.

Meanwhile, there's a report in Financial Express that stuck power units are to resume generation soon as banks agree to extend loans. As a corollary to that plans for domestic coal-based plants such as RattanIndia Power.Ltd’s Sinnar plant & #Reliance #Power’s Vidarbha power plant are being worked out and operations may start soon. Photo: Telecom Talk.

#Today, the  shares of Vodafone Idea Ltd (Rs.9.15) made a high of Rs 9.35. Accumulate the shares as 5G Auctions are tentative for June - July period.

#The shares of Suzlon Energy Ltd (Rs.8.45) moved to Rs.8.55 during intraday. The company is expected to do well in view of the fall in Steel prices and also due to demand escalation in the power sector.

#Exit call was given in Trident Ltd (Rs.43.20) yesterday on Twitter at Rs.44.90. The stock made a low of Rs.43. Accumulate, when the price stabilises. I feel it will test Rs.37/39 ranges on the downside.

#Book profits in the shares of Coffee Day Enterprises Ltd near Rs.52.35.

#Accumulate the shares of 3i Infotech Ltd (Rs.47) near the CMP for targets of Rs.71/72.

#Accumulate the shares of Indowind Energy Ltd (Rs.14.20) with a SL of Rs.13.60.

There is an interesting bit of Information, which says: Investment in renewable energy in India reached a record $14.5 billion in the last financial year 2021-22, an increase of 125% as compared to 2020-21 and 72% over pre-pandemic 2019-20, according to a new report by Institute for Energy Economics and Financial Analysis>

Investment in renewable energy in India reached a record $14.5 billion last financial year 2021-22, an increase of 125 per cent compared to 2020-21 and 72 per cent over pre-pandemic 2019-20, according to a new report by Institute for Energy Economics and Financial Analysis.

 Winning Strokes

The BSE Sensex is now seen at 55,768.65 up 387.48 points (+0.70%), while the Nifty was last trading at 16,608.75 up 86.00 points (+0.52%). The Nifty is likely to travel towards 17700 in the coming days, as China eased Covid - 19 restrictions.

#The stock of Coffee Day Enterprises Ltd (Rs.49.70) hit the Buyer Freeze in the mid afternoon trade. Accumulate for targets mentioned earlier.

#Those who have a minimum portfolio size of Rs.1 lakh (Rs.50,000 offer has expired) can join my profit sharing arrangement. For this they should send me a mail at: suman2005s@rediffmail.com. 

They need to compulsorily open a Demat Account in my associate brokerage house. The earlier system of trading through any brokerage house has been withdrawn, due to foul play of some of the participants.

The money will be invested in delivery based safe calls and the risk will be minimum.

#Another of my old favourite Shriram EPC Ltd (Rs.9.20) is up around 7% today.

#The stock of Canara Bank Ltd (Rs.111) moved to Rs.113, intraday. Hold for targets mentioned earlier.

#Buy Trident Ltd near Rs.46.80/46.90, for short term targets of Rs.55/56. SL: Rs.41.

Trident Limited, is the flagship Company of Trident Group, a USD 1 billion - plus Indian business conglomerate and leading global player in home textiles. The company has been on an expansion spree, opening exclusive showrooms across the country. The tally of Trident’s exclusive showrooms across India till April last year was  18. Company further plans to take the count of exclusive showrooms to 45 by the end of 2022.

This retail division of Group Trident has been into existence since 1996. Starting the retail division with Tanishq jewellers (TATA Group), the company has now expanded wings in several segment like Siemens, Miele, Hafele, Bora home Appliances, Hacker Kitchens German made, Eternal Gandhi, Fabindia and Pantaloons.

Headquartered in Ludhiana, Punjab, Trident Limited is vertically integrated textiles (Yarn, Bath & Bed Linen) and Paper (Wheat Straw-based) manufacturer and is one of the largest players in the Home Textiles space in India.

Supplying national, captive, and retailer owned brands; the organization is highly decorated with awards from its customers, vendors, and various government entities in recognition of advancing the highest standards in product quality, social responsibility, and environmental stewardship.

The Company operates in two major business segments: Textiles and Paper with its manufacturing facilities located in Punjab and Madhya Pradesh

#Vodafone Idea Ltd (Rs.9.55) is a sure shot buy for a target of Rs.11/12/15.

#RBL Bank Ltd (Rs.108), may not move up till the case of CMD is sorted out. You can partially (say 40%) of your holdings.

#Suzlon Energy Ltd (Rs.9.70) is also doing well today. 

#Indowind Energy Ltd (Rs.15.40) is consolidating at the current price for the next the next level of upmove.

#My yesterday's recommendation 3i Infotech Ltd (Rs.48.10) touched Rs.48.25, intraday. Accumulate for targets mentioned earlier.

 Winning Strokes

The BSE Sensex today closed at 55,566.41 down 359.33 points (-0.64%), while the NSE's Nifty was seen closing at 16,584.55 down 76.85 points (-0.46%), after yesterday's whirlwind 🌪️ rally. Today's FPIs were net sellers of Rs.1036.56 Cr, while the DIIs lapped up shares worth Rs.1845.15 Cr. However, FIIs were net buyers of Rs.4469.15 Cr in the Futures Segment. The India Vix was at 20.48.

In an encouraging development, the recent media reports suggest that India's economy grew by 4.10% in the January-March quarter of 2021-22, pushing the annual growth rate to 8.70% on account of better performance by manufacturing, mining and construction sectors. In the previous fiscal 2020-21, the economy had contracted by 6.60% due to the disruption of business activities due to the Covid-19 pandemic. This should bring cheers 🥂 to the BULLS 🐂 tomorrow.

#Today, I recommended (on Twitter) the stock of my old favourite, Coffee Day Enterprises Ltd (Rs.45) at Rs.45.10, for a target of Rs.71/72/85. SL: Rs.41.

Coffee Day Enterprises Ltd (Rs.45) has reported a consolidated net profit of Rs.58.67 crore for the fourth quarter ended March 2022. The company had posted a net loss of Rs.272.09 crore in the January-March quarter a year ago.

Post lifting of Covid - 19 restrictions, the restaurant sector is expected to do well. This is a huge company. 

Those who bought the shares of Coffee Day Enterprises Ltd (Rs.45), today, hold on for the targets mentioned earlier.

#The shares of my recommended Canara Bank Ltd (Rs.205) broke Rs.207, post touching Rs.210.40, intraday. It seems there is a problem in the counter, which the market might have figured out. For the time being if Rs.202.70 is broken then Exit the counter.

I'll again recommend if Rs.203.50 holds. At the moment it looks a little shaly

#The shares of Vodafone Idea Ltd (Rs.9.60) buoyed by the news that the government is going to take stake in the company, touched Rs.10.20, Intraday. With 130 crore plus population of India and debt burden temporarily removed, this Aditya Birla group company stock could become a multibagger going forward. The company is also looking for a  fresh investment of Rs.20,000 crore, if the recent media reports are to be believed. Accumulate!!

#The stock Steel Authority of India Ltd (Rs.75.95) made a high of Rs.76.70, intraday. The demand for the commodity would continue to remain high, as the Indian economy grows further.

Meanwhile, there is news that the price of seaborne premium hard coking coal from Australia fell on Tuesday May 31, while the Chinese domestic coke market was relatively stable, with sentiment partly supported by the impending removal of Covid-19 restrictions in Shanghai.

This is likely to push down the manufacturing cost of Steel, improving the Bottomline of SAIL. Accumulate, for targets of Rs.95/97/103/111.

#Those who have a minimum portfolio size of Rs.1 lakh (Rs.50,000 offer has expired) can join my profit sharing arrangement. For this they should send me a mail at: suman2005s@rediffmail.com. 

They need to compulsorily open a Demat Account in my associate brokerage house. The earlier system of trading through any brokerage house has been withdrawn, due to foul play of some of the participants.

The money will be invested in delivery based safe calls and the risk will be minimum.

#The shares of my recently recommended Suzlon Energy Ltd (Rs.8.55 made a high of Rs.8.70. The price of Steel are likely to come down by 10/15% by the ICRA. Steel is a major component of Wind Turbines.

Union Minister for Power and New & Renewable Energy, RK Singh has recently said that India plans to have a capacity of 30,000 MW of offshore wind power.

However, the current NDA government headed by Narendra Modi is responsible for almost killing the golden goose of wind power. 

Why the BJP can't find a better Prime Minister among 130 crore population, makes me wonder!! 

India's achievement of good GDP growth is due to the unflinching efforts of India Inc and also due to pragmatism of some of the ministers in the NDA government. 

The Announcement King, Narendra Modi should not take credit; he has Infact ruined everything on the economic front, while institutionalising Fake News and Bluffs, through his foot soldiers in the cyberspace.

Meanwhile, India’s aim to achieve 500GW renewable energy by 2030 faces several obstacles with global challenges, such as the Russia-Ukraine war. 

At present there is a sort of Policy Paralysis in the wind energy sector.

It is therefore imperative that the Finance Minister, Nirmala Sitaraman take the initiative herself and see that the good days return to the wind energy sector.

Winning Strokes

The Indian bourses staged a come back today after positive report flow from the US. The BSE Sensex was seen tradi g ar 54,036.35 up 287.09 points (+0.53%),.while the Nifty is was last seen at 16,100.50 up 74.70 points (+0.47). With bank interest down and real estate in doldrums, the money would continue to flow in the Indian Equities. Keep buying good stocks at reasonable valuations. Photo: Patel Engineering Ltd

#Buy the share of Patel Engineering Ltd at Rs.23.40, T: 31/32, SL: Rs.17. The company came out with excellent set of numbers for the March, 2022 quarter.

Construction company Patel Engineering Limited on Monday reported a Rs.33.58 crore consolidated net profit in the March quarter, boosted by higher income.

The company had reported a loss of Rs 145.95 crore in the January-March quarter of 2020-21 fiscal.

Its total income jumped to Rs.1,153.04 crore, from Rs.776.42 crore in the year ago quarter, the company said in a regulatory filing. The expenses during the said period were at Rs.1,082.13 crore as compared to Rs.791.13 crore in the March quarter of the previous fiscal.

In a statement, Rupen Patel, Chairman & Managing Director, said, ''We expect to continue the momentum going forward in coming quarters.'' The focus of the government towards infrastructure growth would enable the company to get more orders, he added.

#Accumulate the share of SAIL near Rs.72/73, for targets of Rs.11/117. Company's new plant at Rourkela, Orissa is doing excellently well. The stock has become almost half from its 52 - week high price.

#Buy the shares of Indiabulls Housing Finance Ltd near Rs.111, for targets of Rs.12/122. SL: Rs.107. This is a speculative, very short term call.

#Accumulate the shares of Wockhardt Ltd near Rs.261.95, for short term targets of Rs.281/289. SL: Rs.256.

#Accumulate Canara Bank Ltd near Rs.187, T: Rs.221. The company has an superb set of fundamentals.

Question - Answer Session

Q. Should you buy the shares of Vodafone Idea Ltd (Rs.8.95)?

Ans: There is no doubt that at the present it is more of a speculative counter than a fundamentally strong scrip. However there is a silver lining in the ☁️ cloud. Photo: The Economic Times.

Recently, there are media reports that the government of India might be announcing a package for the company. According to a report published in Mint: "The Union government is set to become the biggest shareholder of Vodafone Idea Ltd as early as next week, an official aware of the development said, as it converts dues owed by the country’s third-largest telco into a shareholding of about 33%".

In January, this year, Vodafone Idea Ltd (Rs.8.95) agreed to convert its dues of ₹16,133 crore into equity as part of the financial relief package offered by the government. After the equity conversion, the shareholding of Vodafone Group and Birla groups will drop to 50%, and a proportionate reduction will take place for the publicly held shares, according to Live Mint report on 20 May, 2022.

Moreover, on 13 May, 2022, there was a report in CNBC that On Friday, Vodafone Idea Ltd (VIL) and Ericsson stated that they had achieved a technological milestone in their continuing 5G testing, reaching a peak download speed of 5.92 gigabits per second. This is a great news for the shareholders.

Elaborating on the achievement, Jagbir Singh, Chief Technology Officer of VIL said, Given the growing consumer demand for immersive media and video streaming services, 5G speeds that we have demonstrated will help us prepare for the mobile broadband speeds and greater network capacity requirements of customers, as we ready for ’5G for a Better Tomorrow’ in India.

Besides, Vodafone Idea Ltd (VIL) has managed to sail through the March quarter (Q4FY22) with losses narrowing sequentially and the drop in subscribers being contained. VIL’s reported consolidated net loss of ₹6,563 crore is lower than Bloomberg’s consensus estimate. In Q4, subscriber loss was 3.4 million compared to 5.8 million in Q3. Tariff hikes in November have helped average revenue per user (Arpu) rise sequentially to ₹124 from ₹115 in Q3. This is quite encouraging.

Also, Vi’s plans to monetise ₹7,600 crore worth of assets is on the backburner on account of funding plans and government of India's much anticipated package.

In 2021, the company hoped to sell its fixed-line broadband subsidiary, along with its data centre businesses and optic fibre unit, to pay debt, spectrum and AGR dues.

Therefore, buy the shares of Vodafone Idea Ltd (Rs.8.95) near the CMP for short term targets of Rs.11/12.

 Question - Answer Session

I have received numerous responses, from the Free Blog Readers, Facebook Groups and

from my Twitter Followers as to why the shares of Canara Bank Ltd (Rs.191.90) and RBL Bank Ltd (Rs.111.70) falling inspite of having excellent fundamentals?

My Take:

There is no 2nd opinion that these two banks from the PSB and the Private Sector Banking space have superb fundamentals, with a steady growth trajectory. Both these banks are well managed with good CAR.

However, the market might be feeling that the banks might not be able to hold on to the NIMs (Net Interest Margin) due to RBI's hike in Repo rates by 40 bps.

The Paradox: Though there could be a dip in credit offtake due to the inflation factor, however, too much speculative fear on this front is uncalled for, because, credit offtake is dependent on PLR and GDP growth and NOT on the Repo rate. If the banks continue with the old PLR, then what? The credit offtake continues at the earlier pace, right?

2ndly, the loss in credit offtake might get balanced by high interest rates in PLR (if any in Future). 

Moreover, the RBI governor has not indicated a steep rise of Repo/Reverse repo rates in the near future. 

Regarding the hike in the CRR -- yes it might have an effect on the overall scheme of things. But then there is the option of Call Money, to mitigate the situation (provided the rates don't shoot up to some gigantic levels).

Fortunately, most banks even after the massive repo hike of 40 bps by the RBI has not gone in, for a significant rise in PLRs. This is music 🎵🎶 to the shareholders.

In such a situation the banking sector will continue to look robust in view of the current GDP growth projections, both by the RBI and World Bank.

Bottomline: Stay invested in both the Blue 🔵 chip Bank stocks with occasional SIPs in dips.

The NDA Government's recent moves on Export Duty Front and Steel Stocks

The Union government's move to reduce import duty on some raw materials and put export duty of 15% on a range of finished steel products (accounted for almost 95% of India’s overall finished steel exports in FY21 and FY2) amid tepid demand during the seasonally weak monsoon quarter could lead to 10-15% correction in  domestic steel prices in the coming months, according to the ratings agency ICRA. But this is seasonal demand slackness is natural and normal. Photo: India Infoline.

However, the point is whether the steel companies will be able to offset the expected loss of export gains with domestic leverages. 

The market sources say that, the demand for steel would continue to rise in the domestic market, which would somehow balance the recently imposed Export Duty on finished steel products. In addition, lower cost of raw materials would be positive for steel companies,. especially in the iron ore space.

Besides, the fall in Steel price (if any in future) doesn't automatically indicate a fall in the net margins of steel companies.

Buy the shares of SAIL (Steel Authority of India Ltd) near 52 - week low price of Rs.71.70, at the CMP of Rs.73/Rs.73.45 for short term targets of Rs.91/97.

 Winning Strokes

The Indian bourses are getting sold off strangely due to American Flue. 

The BSE Sensex was last trading at 52,692.68 down a whopping 1,460.19 points (-2.80%), while the Nifty was last seen trading at 15,781.60 down a massive 444 points. But I feel the fall is absolutely unnecessary. The SEBI should look into this issue and see if it is a case of market manipulation in collusion with the media.

In another significant development in the US, a few companies have reported lower earnings because of inflation effect, and this spooked Dow Jones and Nasdaq. The companies said that they are witnessing a fall in consumer demand due to spike in inflation. Fine! However, what is important to note is that India has a domestic economy which is showing high growth. Moreover, if demand destruction is really seen in the US, this means demand - push - inflation is coming down, which is a good sign. This further means that, the US Fed will refrain from going for agressive rate hikes in the near term. Hence, today's selling in India bourses simply doesn't make any sense, especially when the FIIs are buying in the F&O Market.

#Those who have a portfolio size of Rs.1 (one) lakh (Rs.50,000 offer is Fully Subscribed and no more quota is left) can join my associate brokerage house and get my guidance to maximize your returns from the stock market investments. 

Also, if you want me to play in the stock market on your behalf, on 70:30 profit sharing basis through the #Crorepati #Scheme, it can also be done, provided you compulsory have a Trading Account in my associate brokerage house. 

That facility of having trading account of any brokerage house to avail of this facility has been removed, from this month, due to foul play by some of the participants. You may send me a mail at: suman2005s@rediffmail.com or sumanm2007s@gmail.com.

Today's recommendation: Buy the shares of Vodafone Idea Ltd near Rs.8.90/8.95 for short term targets of Rs.11/13. The company is coming with a preferential issue at Rs.13.20. Hence, it is now certain that the stock will invariably touch Rs.13/14 by September, 2022. Moreover, there are talks of government of India, taking stake in Vodafone Idea Ltd. Also, the 5G launch will further sweeten the deal. Hence, Buy the shares of Vodafone Idea Ltd near the CMP (in BULK) and keep holding. This is now the golden goose of Indian telecom sector.

#Average the shares of RBL Bank Ltd (Rs.113.75), Canara Bank Ltd (Rs.186.20), Wockhardt Ltd (Rs.269.25), Indowind Energy Ltd (Rs.15.20) and Suzlon Energy Ltd (Rs.9.10). You will benefit in the near future, from June onwards the markets is likely to show a definitive trend. 

Moreover, you should buy stocks, whose stories you know. And therefore, this kind of massive fall gives opportunity to buy good stocks at reasonable valuations, with the SIP method.

#By the way, A2Z Infra Engineering Ltd hit another Buyer Freeze at Rs.12.75. Those who have entered early should think of booking partial profits and hold the rest with a SL of Rs.12.30.

 Winning Strokes

Indian markets are selling off as if there is no tomorrow. The BSE Sensex is last seen trading at 53,075.53 down 942.82 points (-1.87%), while the Nifty was last seen at 15,845.75 down 298.95 points (-1.99%). The Nifty is looking highly oversold here and a bounce is expected soon. 

Moreover, the share markets will continue to rise as long as people puts their fund into it.... There's a very little correlation with Sensex crash and monetary tightening, except some knee jerk reactions.

#Meanwhile, the US is getting stronger, with each passing day. Today, $1 = Rs.77.46. This is gives us the ammunition to cheer for those companies like Wockhardt Ltd (Rs.231.80), who gets a substantial part of their revenues from export. Wockhardt Ltd will get benefited , apart from Covid - 19 triggered Diabetes and Vaccine Therapy. Buy the shares of the company in all dips. Wockhardt Ltd has a good Diabetes Drug basket.

#The banking sector looks good for stronger players, according Saurabh Mukherjea, Marcellus Investment Managers.

“When the economic cycle begins and the money market is flush with liquidity, the gap in funding cost between strong banks and weak banks isn't as high as it should be. What happened (rate hike) is terrific for high-quality lenders,” Saurabh Mukherjea.

By India has to retain its fastest growing economy status, then banks and other FIs invariably have to do well.

Fortunately, the credit offtake from both the PSBs and Private Banks have been hereto satisfactory in FY23.

The RBL Bank Ltd (Rs.102) is coming up with 4th quarter results, today.

-----------------------------------------

Central Bank Ltd (Rs.16.65) came out Excellent Q4FY22 results. 

The Net profit of Central Bank of India came as Rs.310.31 crore in the quarter ended March 2022 as against net loss of Rs.1349.21 crore during the previous quarter ended March 2021.

Total Operating Income rose 18.64% to Rs.5787.33 crore in the quarter ended March 2022 as against Rs.4878.02 crore during the previous quarter ended March 2021.

For the full year, net profit came whopping: Rs.1044.83 crore in the year ended March 2022 as against net loss of Rs.887.58 crore during the previous year ended March 2021. 

Total Operating Income rose 0.31% to Rs.22801.65 crore in the year ended March 2022 as against Rs.22730.23 crore during the previous year ended March 2021. way, I've already recommended 3 - high quality Banks: Canara Bank Ltd (Rs.193.30), RBL Bank Ltd (Rs.104.30) and Central Bank of India Ltd (Rs.16.55). Buy good banking shares and keep holding.

#The Hospitality firm Mahindra Holidays has come up with excellent Q4FY22 results, which shows the business has started to travel and tourism sectors.

Taking cues from this development, you can accumulate the shares of Global Vectra Helicorp Ltd near the CMP of Rs.41.90 for at least 30% appreciation from here.

Winning Strokes

Yesterday's market sell off was brutal especially among the small and mid cap space. It seemed this happened due to triggering of the margin calls. Anyway, the things are expected to get calm within a short time as the US inflation data suggests that probably the worst is over. Photo: Motilal Oswal Securities Ltd

The US Labour Department report showed that the CPI rose 0.3% (against expected 0.2%) from the prior month and 8.3% from a year ago, easing from March's 8.5% inflation rate. The core CPI, which strips out volatile food and energy categories, rose 0.6% from March. The annual core inflation rate fell to 6.2% from the prior month's 6.5% reading, which was the highest since August 1982. 

Right now, the market is indicating that inflation is expected to average 2.86% a year for the next 10 years, according to data from the St. Louis Fed on the so-called 10-year Treasury note break-even rate. That might sound low, given that the consumer price index rose at an annual rate of 8.5% in March.

This reinforces the belief that the US Fed in all likelihood is likely to go slow on the monetary tightening measures in the near future.

#Today the shares of Canara Bank Ltd (Rs.202.20) touched a low of Rs.193.85 and a high of Rs.203.70, before settling with a gain of 1.25% from the previous day's closing price. The EOD candle stick chart is showing some trends of reversal pattern. Accumulate!

#The RBL Bank Ltd, one of the finest private sector banks, fell sharply to Rs.104.70 (New 52 - week low), ahead of the Q4FY22 results. The quarterly results are likely to be inline with expectations. Use dips to accumulate!!

#I have a festive offer: Those who have a portfolio size of Rs.50,000 (Fifty thousand only) can join my associate brokerage house and get my Premium Information Service and Guidance FREE. This offer is valid till Deepawali.

#The stock of Wockhardt Ltd corrected to Rs.229.20 (new 52 - week low) during the intraday trade. However, the stock recovered at the end of the day and closed at Rs.237 in the NSE. Accumulate!!

#I am expecting that it will take some time for the Indian bourses to stabilize, due to twin headwinds: Russia - Ukraine war and the threats of inflation. But those who have spare cash should accumulate the shares of good companies at reasonable prices.

You need to have patience apart from skills for making money from the Equity Market. Coming and thinking to become billionaire within days, doesn't happen in stock market.

Winning Strokes

The barometer index S&P BSE Sensex dropped 364.91 points or 0.67% to settle at 54,470.67 while the Nifty closed at 16,301.85 down 109.40 points or 0.67%. NIFTY Midcap was down 1.78%, while the NIFTY Smallcap was down 2.12%.

The good point is that Nifty recovered as the session progressed and hit the day's high of 16,403.70 in mid-afternoon trade. This gives some hope to the Bulls that for the time being selling is probably over in Indian bourses.

Meanwhile, as the report is being prepared, Dow Jones industrial average was trading at 32,378.37, down 521.00 points (1.58%). The US markets are reacting too much after that 75 bps rate increase even though the Fed Chair has said that there is less possibility of another 75 bps rate hike in the near future.

I feel the Nifty is likely to rebound tomorrow, overcoming too much (unnecessary) pessimism surrounding rate hike. 

Moreover, since the interest rate is still too low in both US and UK, the liquid money is bound to flow either in Real Estate or in Equities. Since, the real estate is in doldrums, the best option left at the moment is Stocks.

By the way the equities will rise as long as people continue to pump funds, whether there is inflation or no inflation. 

Another important feature to be remembered is that increase in repo rate doesn't automatically lead to monetary draught. If investors think that it is better to stay put in share market rather than getting palty 7/8% interest income in Bank/FIs, especially when the CPI inflation is around 6%, then no force in the world can stop stock markets from moving up. It is a myth that when interst rate rises, Equity market crashes.

The FIIs are soon to return to the Indian bourses as net buyers, as India still remains among the fastest growing economies of the world.

#Today, I had given a sell call on ABB Ltd neer Rs.2332/2337, for intraday targets below Rs2330. The target was achieved and the call closed.

#I have a festive offer: Those who have a portfolio size of Rs.50,000 (Fifty thousand only) can join my associate brokerage house and get my Premium Information Service and Guidance FREE. This offer is valid till Deepawali.

#Today, a buy call was initiated in the shares of Canara Bank Ltd (Rs.201.35) at Rs.202.50, for short term targets of Rs.237/241. The company came out with excellent Q4FY22 numbers. Also, the ace Rakhesh Jhunjhunwala holds stake in the bank. Photo: Sify.com

Many Brokerage Houses are bullish on both the RBL Bank Ltd (Rs.112) and Canara Bank.

#Today, the shares of Indowind Energy Ltd (Rs.16.55) hit the Buyer Freeze. With the crude oil above $100 per barrel, I'm expecting a hike in tariff in renewable energy. We can look forward for targets of Rs.29/31/37 in the coming days.

 Key Factors

An interest rate hike is pushing up the USD.  The Dollar ($) and the risky assets such as emerging markets are inversely proportional. 

But companies like Wockhardt Ltd (Rs.257.05) which gets major export revenues stands to benefit. The Net debt-equity ratio of Wockhardt Ltd as on September 30, 2021, stood at 0.54 -- this is likely to improve further.

[Exports accounts for major portion of Wockhardt Ltd's revenue --- revenue from exports stood at Rs.2,282 crore (approximately 83% of total revenue) in FY21 compared with Rs.2,329 crore (approximately 73% of the total revenue) in FY20]. Photo: Live Mint

Unfortunately, in these kinds of pessimistic environments, no trigger generally works.

The Chief Causes of Market Fall:

🌟The rise in interst rates in US and UK to highest levels in the last one decade.

🌟The Bank of England giving a future inflation projection of 10%.

🌟The rise in Repo rate and the CRR in India.

🌟High crude price is pushing up manufacturing Cost.

🌟 Uncertainties surrounding Russian Oil and Gas.

🌟The impending threats of a nuclear war as EU prepares fresh sanctions against Russia.

------------

There is an old adage:

Sell in May and Go Away.

The month of May is generally challenging for the Bulls. But at the end of the day, markets generally follow fundamental.

---------

However, these are just temporary issues and is expected to wither out slowly, by next month. 

The markets at the moment across the world is reacting to the sovereign governments' inflation tackling measures.

The prudent investors can use SIP, to make their portfolios more attractive.

 Dollar, Ruble, INR and Indian Markets

The RBI on Wednesday raised its key lending rate by 40 basis points to 4.40% with immediate effect. The central bank also hiked the cash reserve ratio by 50 basis points. The decision was taken by the monetary policy committee (MPC) in an off - cycle meeting with the central board held on May 2-4, 2022.

The  RBI governor Shaktikanta Das said the decision was taken in view of rising inflation, geo-political tensions, high crude oil prices and shortage of commodities across the globe, which have impacted Indian economy

As a response to the repo rate high, the S&P BSE Sensex dropped 1,306.96 points or 2.29% to 2.29% to 55,669.03. The Nifty 50 index lost 391.50 points or 2.29% to 2.29% to 16,677.60. The NSE's India VIX jumped to 7.86% to 21.88.

[Update: Expectedly, the domestic bourses have opened in positive note. The BSE Sensex was last seen trading at 56,119.924 up 50.89 points (+0.81%) while the Nifty was seen at 16,816.20 up 138.60 points (+0.83%)]

In MPC's view, monetary policy response at this juncture would help preserve macro-financial stability amidst increasing volatility in financial markets.

The latest surprise hike by the RBI completely reverses the Covid-support off-cycle rate cut in May 2020.

However, most analysts believe that improved home buyer attitude, preference for owning a house and strong wage growth will continue to support the housing and other markets. This move will also help stem, the flight of hot money from Indian shores.

Meanwhile, the US central bank has announced its biggest interest rate increase in more than two decades as it toughens its fight against fast rising prices.

The Fed hike was the largest since 2000 as policymakers urgently tried to clamp down inflation. But later at the press conference, Chair Jerome Powell said Fed members aren't actively considering 75-basis-point moves in the future. The US dollar index toppled from a five-year high and fell 0.9% overnight to 102.450, as a post event reaction.

The euro rose nearly 1% and last bought $1.0606. The yen fought its way back to the stronger side of 130 per dollar for the first time in a week, last trading at 129.26.

Sterling rose more than 1% to $1.2605 and swaps markets are fully pricing a 25 bp hike from the Bank of England later in the day.

The RBI governor said the monetary policy stance is still accommodative and with the receding pandemic and economic growth, it expects that consumer demand will remain buoyant in the near term.

-------------

Fed’s more aggressive rate path continues to be the main driver behind the robust bullish stance in the dollar, which also appears reinforced by the current elevated inflation narrative and the solid health of the labour market.

US Dollar Index relevant levels according to FXstreet.com:

Now, the index is retreating 0.02% at 103.57 and faces the next support at 99.81 (weekly low April 21) seconded by 99.57 (weekly low April 14) and then 97.68 (weekly low March 30). On the upside, the breakout of 103.92 (2022 high April 28) would open the door to 104.00 (round level) and finally 105.63 (high December 11 2002).

US Fed's rate hike spree:

With inflation running around 40-year highs for some time now in US, the Fed has already hiked its key benchmark rates by 25 basis points in March and this 50 - basis points hike is in like with market speculation, which helped the US dollar index to broke past the 101 mark on Tuesday, the first time that level was breached since March 2020.

Why the dollar index rose?

The prospect of higher US interest rates has pushed up yields on the country's bonds, making those instruments' returns more appealing to global investors and, as a result, increasing demand for the dollar.

The intensifying conflict between Russia and Ukraine has also contributed to the dollar’s strength as the global economic upheaval caused by Moscow’s invasion has sent investors rushing to the safety of the greenback. Typically in an environment of risk aversion, investors prefer debt instruments over equities as the former are considered to be safer.

Justification of the RBI's move:

The depreciation of emerging market currencies, including the Indian rupee, is a clear example of how a stronger dollar index affects domestic financial markets.

A weaker rupee reduces the returns that foreign portfolio investors earn from investments in Indian debt and equity instruments, and thus the possibility of the US dollar index strengthening raises the risk of further outflows.

Though the RBI’s large foreign exchange reserves provide protection from excessive volatility in the exchange rate, the RBI's rate high will support the INR and could provide it with some cushion as the US Fed starts hikes in earnest.

Another by product of the global dollar strength is that it makes imports of dollar-denominated commodities such as crude oil more expensive.

As it stands, crude oil prices have risen to multi-year highs in the aftermath of the Ukraine war, and a strengthening dollar would only add to India's trade deficit, given the country's reliance on oil imports.

Oil companies and other import-oriented firms stands to lose in this situation. For domestic stock markets, the steady rise in the dollar index is one amongst several headwinds.

Overseas investors, who from October 2021 to March 2022, had embarked on their largest sales of Indian stocks since the Global Financial Crisis of 2008, may now tentatively begun to show signs of interest again in May, with net purchases.

It is not only equity markets that have borne the brunt; higher US bond yields have also wreaked havoc on the sovereign bond market.

With investors fearful of an outflow of foreign funds from Indian bonds to US bonds, the yield on the domestic 10-year benchmark bond had risen in 2022. Bond prices and yields move in opposite directions.

As government debt yields are the benchmarks for a wide range of credit products, rising sovereign bond yields raise the cost of borrowing across the economy, including corporate borrowing.

Hence, the rate hike might stem the continuous selling by the FPI in Indian bourses. It's unfortunate that the market took it in negative strides.

Appreciation of Ruble:

The ruble has recovered most of its losses and is now the world's best-performing currency. It has continued to rise and is now up more than 60% against the US dollar since its lows in the first week of March.

The ruble rose to 67 to the dollar intraday on Thursday, from a low of 139 on March 7. Because of the recent rally, the ruble is more stronger than it was before Russia's invasion of Ukraine on February 24. According to Bloomberg data, the ruble was trading at around 76 before the invasion.

Analysts believe the ruble's post-invasion depreciation is modest, given the severity of European and American sanctions against Russia. Photo: The Borgen Project.

Sanctions against Russia:

The United States and the European Union froze nearly half of the Russian central bank's $640 billion in foreign exchange reserves held in banks outside Russia as part of the sanctions.

Russian companies and individuals have been barred from transacting in dollars and euros, and nearly 400 Western companies have closed their operations in Russia.

The majority of Russian banks have been disconnected from the Society for Worldwide Interbank Financial Telecommunication (SWIFT), which facilitates financial transactions and payments between banks around the world. These actions have resulted in a reduction in Russia's financial and trade transactions with Western countries.

--------------

Ruble as a Reserve Currency?

Though the Russian Ruble has gone for a stupendous appreciation during the last few weeks, but it hardly complies with any of the arduous demands for a reserve currency for international trade, having become convertible as late as July 2006.

Inspite of Kremlin hubris of the summer of 2008, Moscow needs many years of serious reforms to achieve this task.

Headwinds:

First, a reserve currency must be characterized by low inflation and macroeconomic stability, but Russia has had persistent double-digit inflation.

Inflation in Russia at the end of the current year may reach as high as 20%, Accounts Chamber chairman Alexei Kudrin said.

A reserve currency should preferably have a stable or rising exchange rate. At least, it should be freely floating. Yet the ruble exchange rate policy remains erratic.

4thly, only the world's biggest economies can produce a global reserve currency. Both the US economy and the eurozone are still 10 times larger than the Russian economy. In 2020, Russia's share of global GDP (in relation to PPP dollars) amounted to about a meagre 3.11%.

Lastly, the criterion of a reserve currency is what economists call network externalities, which include various international uses, for example, for pricing, invoicing, or transactions outside the country. But the ruble is not used for any purpose outside of Russia, except now.

The hyperinflationary ruble zone that collapsed in 1993 remains a bitter memory. Repeated Russian attempts to revive it have failed.

Dollar as a reserve currency:

The dollar survived even three years of double-digit inflation around 1980 as the dominant reserve currency because it had no competition.

Today, the euro has become a realistic alternative to the dollar, and the renminbi might eventually do so, if China changes many policies. But the ruble is disqualified.

If Ruble becomes a reserve currency, will it benefit Russia?

It'll NOT be beneficial for Russia if the ruble became a reserve currency, because higher demand for the ruble would drive up its exchange rates and reduce Russia's competitiveness.

For such reasons, Japan, Germany, and Switzerland have actively opposed their currencies being used in national reserves, and the European Union remains skeptical.

Dollar Hegemony:

The progress of the Russia-Ukraine war and the flurry of international actions increasingly bring to the fore the challenge being offered to the dollar hegemony.

India and Russia are trying to establish rupee-ruble trade settlement and this topped the agenda during visit of the Russian Foreign Minister Sergey Lavrov to India and his parleys with External Affairs Minister S Jaishankar and Prime Minister Narendra Modi.

Similarly, China and Saudi Arabia are exploring trade settlement opportunities in their respective currencies. If such trade settlement negotiations materialise, it would change the face of global trade where the US dollar and euro dominate presently.

According to a report, from 1999-2019, the dollar accounted for ~96% of trade invoicing in the Americas and ~79%  in the rest of the world. About 60% of the international and foreign currency liabilities and claims are denominated in USD ($). This share has remained relatively stable since 2000 and far exceeds that of the euro, which is at 20%.