Dark cloud over Indian auto industry
On Tuesday, Society of Indian Automobile Manufacturers or SIAM announced the industry performance for Q1 FY21. Considering, this is the quarter which has seen the harshest lockdown of most of our lifetimes, the report is all in red with drops that we haven’t seen in decades.
Can you be more specific? Sure, I was coming to it anyway. SIAM said that domestic car and SUV sales saw a sharp year-on-year drop of 78% in the quarter overall, whereas the drop was lower at 50% in June (Maruti and Hyundai mirror these numbers very closely with Maruti registering a 50% drop and Hyundai registering a 49% drop). Even two wheelers which are being hailed as the go-to purchase considering the rush for private vehicles saw a 74% drop for the quarter and 39% drop in June. Of course the numbers are terrible, but then the same numbers for April 2020 were a forced big, fat zero. Another factor adding to the drop in sales will be the reduced attraction of diesel vehicles considering how competitively the fuel has closed in on it’s gap with petrol prices during this lockdown. As per an ICRA report, diesel passenger vehicle share is expected to decline from 29% in FY2020 to 15-18% in FY 2022.
Do not expect a V-shaped recovery: Since we did one better than China when it came to coronavirus infections, expectations were ripe that the same trend will follow suit in terms of automobile sales pick-up as well. Once the lockdown was lifted, car sales in China registered a 2% year-on-year increase for May with a negligible 6.5% drop in June. ICRA squashed any such hopes forecasting a 22-25% decline for the industry in FY21 stating the difference between India and China’s disposable income levels. Even auto component sector is expected to register a 14-18% decline in FY21. An interesting statistic? Each lockdown extension by 15 days ends up downwardly impacting industry sales by 3-5%.
Yes Bank launches Rs. 15,000 Crore FPO
Starting today, for the next three days, Yes Bank is in the process of raising Rs. 15,000 capital through the issuance of fresh equity in it’s round of FPO or Follow-up Public Offering. The capital will be used to enhance it’s solvency and capital adequacy ratio which are critical aspects for a bank.
What are the different parties to this FPO? Of this amount, shares worth Rs. 200 Crores have been reserved for employees. This issue is being done through the book-building process with certain defined allocations of up to 50% to QIB (Qualified Institutional Buyers) and minimum 35% to retail individual buyers. Of this, Rs. 4,100 Crores has already been raised from anchor investors including Tilden Park and HDFC Life.
Does that mean all funds have been recovered from Rana Kapoor and Wadhwas? No, not yet. That is a long-drawn process continuing simultaneously. These funds are expected to infuse life and help good quality management (now led by ex-DMD and CFO of SBI Prashant Kumar) lead the bank back to sustainability. However, the market is not particularly kicked about the 55% discount to the 10th July market price in pricing the FPO at a price band of Rs. 12-13.
China’s trade continues to grow
China snuck up a surprise with official figures suggesting a 0.5% year-on-year growth in exports as compared to a 3.3% decline in May. On the back of reviving demand, imports also saw an increase of 2.7%, much higher than the 16.7% shrinkage in May. Consequently, June saw trade surplus reduce from $62.9 Billion to $46.2 Billion from May to June 2020.
What is happening? Amid all the tensions that China seems to be brewing with it’s data and 5G infrastructure wars, the world remains dependent on the manufacturing hub even in these dire times. Imaginably, pandemic related industries have soared year-on-year in the January-June period with textile exports (including masks) rising 32.4%, medical equipment by 46.4% and medical material & medicine by 23.6%.
Bottomline: On Thursday, China is expected to release figures for overall economic numbers in the April-June quarter. Looking at these numbers, it is expected to be a substantial overturn of the -6.8% registered in the Jan-Mar quarter. The lesson from China? Create dependencies. You can then ruffle all the feathers you want with minimal repurcussions.
Blue jeans with Bharti Airtel and Verizon: Blue jeans is the obvious name of the enterprise level video conferencing service launched through a partnership between Bharti Airtel and Verizon. Although, our bet is that Airtel and Verizon may really need a rabbit out of the hat to grab market share from the likes of Zoom, Microsoft Teams, Google Meet or the latest challenger Jio Meet.
S&P makes a bold but not beautiful claim: S&P global revised it’s outlook and estimates to forecast that the emerging markets (except China) GDP for FY 21 will contract at an average of 4.7% this year with attributed to have the largest gap at a whopping 11% fall from FY 20 levels. This is by far the highest GDP contraction forecast for India.
American investors continue to find value in India: Heating up the ecommerce market in India, Walmart announced a funding round of $1.2 Billion for Flipkart, which recently surpasses 1.5 billion monthly visits. So the new funding amounts to almost 80 cents for a monthly visit, eh?
Nokia rolls out software upgrade to 5G: Finnish giant Nokia announced the launch of software that allows mobile operators to update their 4G radio stations to 5G, without a site visit or replacing equipment, hoping to be taken seriously once again in the telecom market. No wonder, they along with Ericsson have raised their hand to fill in the vacuum left by UK’s ban of Huawei for 5G adoption in the country.
Luckin coffee CEO replaced: After a scandal of $300 Million fake annual sales, China based Luckin coffee has replaced co-founder and chairman Charles Zhengyao Lu with acting CEO Jinyi Guo.
Sensex and Nifty both ended on the worst tumble in a month shedding whereabouts of about 1.8% each. Some of the factors troubling investors and traders alike were weak global cues, rising coronavirus cases in a backdrop of WHO warning, continued India-China tensions and increased retail inflation for June. All eyes will be on the Reliance AGM today.
Arizona based tech firm Zero Mass water will extract moisture from the air for parched desert nations in the Middle East to create bottled water at a plant 20 Km from Dubai. If it is successful and scalable, it could provide an alternate to the desalination processes used by other countries that end up exhausting fossil fuel supplies.