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Reliance Loses Crown To HDFC Bank in the NIFTY 50

In other news, Reliance Industries Limited (RIL) has lost the first spot to HDFC Bank in terms of the weightage in the NIFTY 50. HDFC Bank stocks have been rallying despite an RBI report on a possible spike in Gross NPAs. What led to the events? Let’s find out. 

The NIFTY 50

The NIFTY 50 is a benchmark index of the National Stock Exchange(NSE). A benchmark index gives us an overview of the conditions of the market. The NIFTY 50 as an index is made up of 50 companies from 13 sectors, decided by India Index Services and Products (IISL) which is a subsidiary of the National Stock Exchange. A company’s relative position in terms of share price and market capitalization decides its weightage in the NIFTY 50. 

RIL took almost a decade to reach the top of the ladder in the NIFTY 50. However, HDFC was leading the crown at the beginning of 2020 till the COVID-19 pandemic struck. There was pessimism in the banking sector when almost all the banking stocks tanked. due to rising bad loans during this period and HDFC lost its position to RIL.

RIL vs HDFC

Meanwhile, Mukesh Ambani, the RIL-supremo, was busy getting investment for his companies and focusing on making Reliance Jio a net debt-free company. This brought RIL in the top spot yet again. Everything was going in favour of RIL, until the Amazon-Future Group-Reliance retail war began in November 2020. 

RIL lost its position to HDFC for three reasons:

  1. The Reliance-Future-Amazon retail war caused Reliance’s acquisition of Future Group to hit a roadblock. This did not go down well with the market. You can read more about it over here.
  2. There is a resurgence of the COVID-19 virus in Europe along with a new strain found in the UK. RIL’s primary source of income is oil and refining which took a hit as uncertainty regarding the second wave of the pandemic came around.
  3. Reliance Jio’s numbers took a hit as VI and Airtel have started gaining market share. Recently, VI was listed as having the fastest 4G internet speed in India leaving behind Airtel and Jio. The recent farmer’s protests have brought Jio into the limelight causing attacks on Reliance Jio towers and loss of users to Reliance Jio.

HDFC Bank on the other hand showed a pretty good Q3 result. It has gained 36.14% in the last 6 months. The reason behind HDFC Bank’s rally is an increase in Foreign Portfolio Investor(FPI) holding coupled with an increase in loan disbursements. The FPI holding has been increasing constantly for the last three quarters straight. As of now the FPI holding in HDFC Bank stands at 39.35%.

Why Stay Cautious?

As India rolled out its first vaccine, market sentiments are much higher than required, this might cause overvaluation of a stock, especially in the banking sector.  RBI has recently released a report where it states that some of the bank’s bad loans or NPAs could rise to 13.5% unless those banks manage to meet certain capital requirements. You can read the official report as given by the RBI over here.

In mid-November 2020, marketfeed came up with a writeup on how banks are sitting on an NPA time bomb and why the bank results are not as good as they appear to be. Considering this, you can expect an increase in NPAs of banks somewhere in the next two quarters. Read: Banks are Sitting On A Bad Loan Time Bomb!

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LIC Ups Stake In 68 Stocks, Enters into 14 Stocks in September Quarter

lic

The Life Insurance Corporation of India (LIC), the biggest Domestic Institutional Investor (DII) which is also planning an initial public offering, made a lot of changes in its portfolio in the September quarter this year. 

During the first half of FY2021, the value of LIC’s holding surged over 40 percent, or by USD 22 billion (~Rs 1.6 lakh crore) to USD 77 billion (~Rs 5.7 lakh crore), and LIC is said to have pumped Rs 55,000 crore into the equity market since April, as against Rs 32,800 crore in the same period during the previous year.

LIC took new positions in 14 stocks – Alkem Laboratories, Bajaj Finance, Bandhan Bank, Berger Paints, Birla Tyres, Central Bank Of India, Eicher Motors, HDFC Asset Management Company, Jaiprakash Associates, Lux Industries, Shriram Transport Finance Company, Indian Hotels Company, Ramco Cements, and UTI AMC.

On the other hand, they exited their positions in Alok Industries, Amtek Auto, Arvind Fashions, Bank of Baroda, Bayer CropScience, BEML, and Bombay Wire Ropes.

LIC also increased its stake in 68 companies. It includes Amara Raja Batteries, Ashok Leyland, Bajaj Auto, Bata India, Bharat Dynamics, Bharat Forge, Bharti Airtel, Bharti Infratel, Coal India, Colgate-Palmolive, Engineers India, Exide Industries, GAIL (India), Glenmark Pharmaceuticals, Havells India, and Sun Pharma.

LIC reduced stake in 68 stocks including ABB Power, ACC, Aditya Birla Capital, Apollo Hospitals Enterprise, Asian Paints, Bank Of India, Bank Of Maharashtra, Century Textiles, Cipla, CRISIL, Dabur India, Dr. Reddy’s Laboratories, GTL Infrastructure, Gujarat State Petronet, HPCL, Indian Overseas Bank, Infosys, M&M, Maruti Suzuki, MSTC, Oriental Carbon & Chemicals, Spencers Retail, and Tamil Nadu Newsprint & Papers.

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The $113 Billion Tata Group faces Tough Decisions Over Their Airlines

Tata Airline

Tata Group’s two airlines – AirAsia India and Vistara, were struggling before the coronavirus pandemic. Tata Sons owns a 51% stake in each airline. 

“The Tata’s are caught between a rock and a hard place,” said Mukund Rajan, a former member of the group’s executive council who’s now the chairman of an investment advisory firm focused on the environment, social, and governance issues. “The only option to run a successful airline is to seek scale. This would require the Tatas to deploy significantly more capital than they have done this far. Absent ambition and scale, the prospects for success are probably very remote.”

The airline was founded by J.R.D. Tata, named as Tata Airlines in 1932. In 1953, the Government of India passed the Air Corporations Act and purchased a majority stake from Tata Sons. The company was renamed as Air India International Limited and the domestic services were transferred to Indian Airlines as a part of a restructuring.

In 1994, the group came up with an ambitious plan to start an airline with 100 planes in partnership with Singapore Airlines, but the government refused a foreign entrant, and the project was rejected. Later in the year 2000, Tata again teamed up with Singapore Air to bid for a stake in Air-India, but the plan was dropped due to political opposition. 

Tata Group is concentrating on making an airline work at any cost. Vistara and AirAsia India have never made money and have lost around $845 million (~Rs 8,450 lakhs), according to estimates from the Centre of Aviation. They have to make a decision on whether to sell the loss-making business or to further scale it up and make it a profitable one. 

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Yes Bank and 4 more stocks to be converted from Mid Cap to Large Cap

Market Capitalization

By 5th Jan 2021, AMFI (Association of Mutual Funds in India) is expected to release a fresh list for categorization of stocks into large caps, midcaps, and small caps. Large-cap refers to a company with a market capitalization of more than Rs 20,000 crores. Mid-cap is denoted to companies with a market capitalization between Rs 5,000 crores and Rs 20,000 crores. Small-cap is a term used to classify companies with a market capitalization of less than Rs 5,000 crores. 

Here is the list of stocks according to ICICI Securities that have the potential to switch from mid-cap to large-cap:

  1. Yes Bank (NSE: YESBANK, Mkt Cap: Rs 38,459 crore)
  2. Adani Enterprises (NSE: ADANIENT, Mkt Cap: Rs 49,046 crore)
  3. PI Industries (NSE: PIIND, Mkt Cap: Rs 35,923 crore)
  4. Hindustan Aeronautics Ltd (NSE: HAL, Mkt Cap: Rs 28,177 crore)
  5. Jubilant Food (NSE: JUBLFOOD, Mkt Cap: Rs 33,747 crore)

Here is the list of stocks according to ICICI Securities which are to be moved from large-cap to mid-cap:

  1. MRF (NSE: MRF, Mkt Cap: Rs 33,377 crore)
  2. NMDC (NSE: NMDC, Mkt Cap: Rs 32,715 crore)
  3. United Breweries (NSE: UBL, Mkt Cap: Rs 32,715 crore)
  4. Container Corporation of India (NSE: CONCOR, Mkt Cap: Rs 25,142 crore)
  5. General Insurance Corporation of India (NSE: GICRE, Mkt Cap: Rs 24,465 crore)
  6. Bank of Baroda (NSE: BANKBARODA, Mkt Cap: Rs 27,284 crore)

This change in classifaction may result in funds flowing in and out of the stocks, as mutual funds re-arrange their portfolios. Do keep watch of it.

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Walmart prepares for $10 Billion Flipkart IPO

Walmart is reportedly getting ready to float a $10 billion (~ Rs 73,000 crores) Flipkart IPO in the US. Walmart has hired Goldman Sachs to carry out the works for the IPO, which could value Flipkart at $40 billion (~Rs 2,92,000 crores). This would make it the largest IPO by any Indian company on an overseas exchange. 

Walmart plans to sell a stake of 25% in Flipkart. They now own an 82.3% stake in Flipkart, with US-based hedge fund Tiger Management, China’s Tencent, Accel Partners, and Microsoft Corp, among the other key investors. 

Earlier in July this year, Flipkart had raised $1.2 billion (~Rs 125 crores) in a fresh round of funding, valuing the company at $24.9 billion (~Rs 1,82,500 crores). Flipkart has also made investments in Virat Kohli’s Wrogn, Aditya Birla Fashion Retail, and Arvind Fashions. 

Walmart’s plan to take Flipkart public could have been helped by the recent surge in e-commerce sales during COVID-19 lockdowns. Flipkart witnessed a ten-fold increase in its shipments during its festival sale this year.

Flipkart has also increased its availability in new pin codes and improved the supply chain logistics to boost up the sales. They are also offering many payment discounts through PhonePe which is a subsidiary of Flipkart.

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Reliance – Future Retail Deal: SEBI waits for more clarification

Reliance

SEBI asked for some clarification on Rs 24,713 crore rupees deal between Reliance and Future Retail, where Reliance will acquire the assets of the Future Group. In an update on November 27, SEBI said that they are waiting for a reply on the scheme of arrangement between Future Group and Reliance Group companies. Scheme of arrangement is a court-approved agreement between a company and its shareholders or creditors. 

According to sources, there are many complaints registered on SEBI’s platform which are yet to be resolved and a clarification is needed to solve their complaints. SEBI can give approvals only after getting a resolution from investors. 

Reliance aims to boost and grow its retail business. E-commerce giant Amazon opposed the deal as Amazon bought 49 per cent stake in one of Future Group’s unlisted firms. Later, Competition Commission of India (CCI) approved the Reliance – Future Group deal. The share price of Reliance is down by 1%.

To know more about the Reliance – Future Group deal, click here.

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What is Digital 2.0 initiative by HDFC Bank which was recently halted by RBI?

HDFC Bank, India’s leading private sector bank is coming up with a program under its new CEO Sashidhar Jagadhishan, aiming to provide seamless banking experience with its facilities. 

Digital 2.0 is essentially about re-imagining our digital platforms providing the customer with a frictionless financial experience. The objective is to move the customers from a single transaction to a complete financial solutions journey. It means that they provide various services such as loan disbursement, payments, investing, insurance, etc sitting at home.

HDFC Bank has partnered with online platform players such as Flipkart, Amazon and fintech players such as Paytm, PhonePe, Mobikwik to provide value-added benefits to its customers such as cashback offers and No Cost EMI.

They are developing new technologies like Robotic Process Automation (RPA), Machine Learning (ML), Artificial Intelligence (AI) and BlockChain to further boost their current financial service experiences and also increase the security of the transactions. 

As we all know, HDFC Bank has a great future ahead. Let’s look forward to the company’s growth and innovations in the financial and fintech space in the coming years.

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RBI keeps Repo Rate Unchanged at Record Low of 4%

rbi

The RBI’s Monetary Policy Committee (MPC) decided to keep the repo rate unchanged at 4%, which the lowest in the record. It has so far slashed the policy rate by 115 basis points this year. 

Highlights of the Committee Meeting :

  1. RBI sees a GDP contraction of 7.5% for the Financial Year 2021.
  2. Recovery in rural demand to be strengthened further.
  3. MPC decides to maintain the policy rate as long as necessary at least during the current financial year and into the next financial year, to recover growth. 
  4. MPC is of the view that inflation is likely to remain sustained. The rate of inflation is standing at 7.6 per cent in October 2020.
  5. MPC will monitor closely all threats to price stability to make broader macroeconomic and financial stability.
  6. 2020 will be recorded as a defining year in modern civilization marked by Covid-19 pandemic, with economic losses exceeding The Great Depression of 1930s, says RBI Governor.
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HDFC Bank share price falls after RBI restricts digital launches and issuance of credit cards to customers

The Reserve Bank of India (RBI) has asked HDFC Bank to temporarily stop sourcing new credit cards and also stop the launch of its digital business generating activities planned under Digital 2.0 and other proposed business generating IT applications. The restriction comes after facing a series of technical issues at the primary data center of the bank.

The current supervisory action will not materially impact the bank’s operations and has taken careful measures and steps to sort out the issue that happened with the data centre, HDFC Bank said. 

The bank has 15,292 ATMs across 2,848 towns. The number of cards issued by the bank includes 14.92 million credit cards and 33.8 million debit cards. The bank has always attempted to provide seamless digital banking services to its customers.

The share price has fallen by 2% after the order from RBI.

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Good News for Indian IT firms, US Court stays change in H-1B Visa Rule

H-1B Visa

US Court has ruled against two H-1B visa regulations proposed by the Donald Trump administration that restricted companies from hiring foreign employees. The rule which had been thrown out by the court includes restricting employees from other countries to work in their country, limiting the qualification criteria for H-1B visa workers and also reducing the validity period of H-1B visa. 

According to data, US issues 85,000 H-1B visas every year and Indian IT firms accounted for a significant share in those visas. Indian IT firms such as TCS, Infosys and Wipro said that they have reduced their dependence on H-1B visas to a large extent. Now, the IT companies are hiring young talent from India itself to boost their growth. 

During the times of Covid-19, the employment rate in the IT sector has remained the same as in the previous quarter. Biden’s presidency might also help in liberalising economic policies of the United States. Reports say that it will be a great benefit for developing countries like India, which are aiming to create significant economic value in the technological industry by 2025. IT firms are dynamically adjusting to the changes in US regulations, and this ruling may not create an immediate short-term impact.

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Pfizer-BioNTech Vaccine Gets Approval in UK

UK has become the first country to license a vaccine against Covid-19. Pfizer’s vaccine had a 95% efficacy rate from their clinical trials and it has now been authorised for emergency use by the Medicines and Healthcare Products Regulatory Authority (MHRA). The MHRA in UK was given the power to approve the vaccine by the government under special regulations. The vaccine will be available in Britain as early as next week, according to a government statement. 

Britain’s vaccine committee will decide which priority groups will get the first shot such as health care staff and workers, and people who are in high-risk of contracting the virus. However, it is not much news to cheer for India as the vaccine would not be available in India because Pfizer’s vaccine require an ultra-cold chain of minus 70 degree, currently India has no such facilities available.

There could also be an outflow of money of Foreign Institutional Investors from India to European markets. So be cautious while entering into trades. To know more about the stocks that could gain from the approval of vaccine in India, click here.

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Vodafone Idea increases Postpaid Tariffs

VI - Vodafone idea

Vi has increased their prices of Rs 598 and Rs 749 postpaid plans. The third largest telecom company in India has increased their prices of two postpaid plans by Rs 50. Considering their financial condition it is necessary for them to increase their Average Revenue Per User (ARPU). The ARPU of Vi is Rs 119 which is very low when compared with ARPU of Airtel and Jio, Rs 162 and Rs 140 respectively.

Vi is also trying hard to increase the users of their network but unfortunately they are losing more and more users as per the report by the Telecom regulatory Authority of India (TRAI). This might be the reason why the share price of Airtel is going up. There could also be a similar move from Bharti Airtel, they are also in need of funds to pay off their obligations.

The Q2 results of Vi has reduced its loss to Rs 7,203 crore from Rs 25,467 crore. The company is reeling from trying to pay off AGR dues. They are trying to get funds to expand and develop their network services and also to pay off their huge debt. The company had also announced that they would not be bidding in the upcoming 5G spectrum auction. There are also reports that claim Vi has become the fastest 4G telecom provider in India.