Rupee hits new record low; Yuan, pound and euro crack against dollar

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The rupee plunged sharply on Monday to hit a new low of Rs 81.6526 against the dollar amidst a severe weakening of several currencies, as investors sought the safe haven of the dollar. The dollar index traded above 113 levels for the first time since 2002 as deep tax cuts in the UK sent the sterling to a record low. The greenback has gained in value since the US Fed’s announcement last Wednesday it would be raising rates more than earlier indicated.

Also Read: Weakening rupee to make import of crude oil, commodities expensive, fuel inflation

Sterling made a partial recovery on Monday after crashing to a record low in the early trade as traders rushed for the exits on mounting concerns that the new government’s economic plan will stretch Britain’s finances to the limit. The British pound’s drop helped lift the US dollar to a new two-decade peak against a basket of major currencies, while the euro hit a fresh two-decade low against the greenback. China’s yuan finished domestic trading session at a new 28-month low against the dollar.

Lakshmanan V, senior VP & head – Treasury, Federal Bank, observed the rupee was bound to get impacted given how the markets had been spooked by the weakness in currencies like the pound and how investors were moving money to the safe haven dollar. “The theme of the strengthening dollar and weakening rupee could continue to play out. A lot will depend on how the RBI views the depreciation and how it chooses to act in the currency markets,” Lakshamanan said. The central bank has always maintained it does not target a level for the rupee but merely aims to smoothen volatility.

Abheek Barua, chief economist, HDFC Bank, believes the central bank should intervene to ensure that a weakening currency doesn’t eclipse India’s fundamentals. “While there might be some benefits of a depreciated currency in closing the trade gap, the damage to the capital account in terms of reduced confidence of investors will outweigh this benefit,” Barua wrote in a note. He believes more capital at this stage would help stabilise the rupee and enable the RBI to replenish its reserves chest.

Also Read: Rupee-Dollar Value: 5 things to know before investing or sending money abroad

Meanwhile, the yield on the benchmark bond rose to 7.417% in intra-day trade, a level last seen on July 21, before closing the session at 7.359%; on Friday, the yield had closed at a two-month high of 7.3926%. At the end of the June quarter, on June 30, the yield stood at 7.449%. While the markets have priced in a 50-basis points hike in the repo on Friday, when the MPC will announce its decision, bonds sold off in morning trades on Friday, as investors remain nervous. Retail inflation rose to 7% in August and has stayed above the central bank’s upper tolerance level for eight straight months to August.

Radhika Rao, senior economist, DBS Bank, expects the repo to be hiked by 50 bps given the MPC is more confident about growth than inflation. “Rate hikes and a gradual adjustment in the benchmark yields will help prevent further fall in the spreads between the Indian and US ten-year bonds, underpinning rate sensitive flows. The end-2022 repo rate could be 6.25% with upside risks,” Rao observed in a note. Federal Bank’s Lakshmanan pointed out yields on US treasuries were moving up. The RBI, he said, has been supplying liquidity to the markets through variable repo auctions thereby keeping a lid on short-term rates. The markets saw a shortage of liquidity on a couple of days last week. Soumya Kanti Ghosh, chief economist at State Bank of India, said on Monday that the government cash balances with the RBI could be as high as Rs 4 trillion, following the outflows from the system on account of advance taxes and GST.

Mahindra & Mahindra Financial Services Rating: Neutral; Loan recovery to feel the heat with RBI ban

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The RBI last week has banned Mahindra Finance (MMFS) from carrying out any recovery or repossession activity through outsourcing arrangements (third-party external agencies or collection agencies) until the ban is revoked by the RBI. We, note that the regulator has allowed MMFS to continue carrying out all such recovery or repossession activities through its own employees.

MMFS in the normal course of business, repossesses ~4K5K vehicles per month using a combination of third-party collection agencies and its own employees. However, since the company is now required to implement the RBI order with immediate effect, it expects the repossession activity to be impacted by 75-80% – which in our view is significant given that a large part of the asset quality resolutions are effected by MMFS through customer settlements or vehicle repossessions.

MMFS carries a PCR (provision coverage ratio) of ~58% on its Stage 3 assets (including the policy of making 100% provisions on contracts above the age of 18 months). Vehicles that need to be repossessed are usually classified under Stage 3 already and the ban will not have a material adverse impact on the financials or Net Stage 3. In our view, MMFS’ higher dependence on customer settlements is partly because of the relatively more vulnerable customer segment served by MMFS and also due to the significant proportion of captive business underwritten by the company.

Also read: Telecom Bill: I&B Ministry objects to ‘encroachment’

Until such time that this ban is revoked, the repossession activities will be impacted adversely which could mean that the Gross Stage 3 (GS3) for MMFS would continue to remain elevated. This is even more important in the context of MMFS implementing the RBI NPA circular with effect from 1st Oct, 2022.

Buy these two shares for near term gains; Nifty’s intermediate uptrend remains intact

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By Subash Gangadharan

The Nifty has convincingly reversed the recent downtrend by moving up from a trend line support and convincingly closing above the 50 day SMA last Monday on the back of the Budget. With the uptrend intact, the Nifty now comfortably trades above the 20 day SMA. While there could be corrections in the very near term, we expect the index to make new life highs in the coming sessions.It is important that the Nifty does not move below the support of 14864 on any corrections for the short term uptrend to remain intact.The below picks are for the next 15-26 trading sessions

Technical indicators too are giving positive signals as the stock trades above the 20-day and 50-day SMA. Intermediate momentum readings like the 14-week RSI too are in rising mode and not overbought.

With the stock near its 52-week high of 385, we believe the stock is ready to continue the next leg of its underlying uptrend and has the potential to move higher in the coming weeks. Upside acceleration is likely to occur once the stock crosses the current 52 week high of 385.

We, therefore, recommend a Buy between the 355-375 levels. CMP is 369.9. Stop loss is at 330 while targets are at 470.

Buy Indiabulls Housing Finance

Indiabulls Housing Finance has broken out of the 210-227 trading range on Wednesday on the back of above average volumes.

Technical indicators are giving positive signals as the stock trades above the 20-day and 50-day SMA. Intermediate momentum readings like the 14-week RSI too are in rising mode and not overbought.

With the short term and intermediate technical setups looking attractive, we expect the stock to gradually move higher in the coming weeks. We, therefore, recommend a Buy between the 225-236 levels. CMP is 234. Stop loss is at 210 while targets are at 285.

(Subash Gangadharan is Senior Technical and Derivative Analyst at HDFC Securities. The views expressed are the author’s own. Please consult your financial advisor before investing.)

Reliance share price gains 1%, Mukesh Ambani’s RIL to acquire Shubhalakshmi Polyesters for Rs 1592 cr

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Shares of Reliance Industries gained nearly 1 per cent in morning trade on Monday after the company announced the acquisition of polyester chips and yarn manufacturer Shubhalakshmi Polyesters Ltd for Rs 1,592 crore. On September 10, Reliance Industries said the acquisition is part of the strategy to expand its downstream polyester business.

Shares of the company opened at Rs 2573.70, then gained 0.98 per cent to touch Rs 2593.80 apiece on the BSE. Similar movement was seen on the NSE where the company’s shares opened at Rs 2,570.55, then touched Rs 2,591.60, higher by 0.87 per cent over its last close.

“Reliance Petroleum Retail Ltd (under name change to ‘Reliance Polyester Ltd’), a wholly-owned subsidiary of the company, today executed definitive documents to acquire polyester business of Shubhalakshmi Polyesters Ltd and Shubhlaxmi Polytex Ltd for cash consideration of Rs 1,522 crore and Rs 70 crore respectively, aggregating to Rs 1,592 crore by way of slump sale on a going concern basis,” the firm had said.

Also read| Reliance acquires Shubhalakshmi Polyesters, SPTex

The acquisition will strengthen the textile manufacturing business of Reliance Industries.

Jubilant Foodworks under pressure; Should you buy, hold or sell the stock?

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The share price of Jubilant Foodworks, which operates Domino’s restaurants in India tanked 6.39% to Rs 495.25, a day after the company posted second-quarter profit at Rs 97.20 crore, down 26.1% in comparison to Rs 131.53 crore during the second quarter of FY23. It posted revenue from operations at Rs 1,368.63 crore, up 5.2% as against Rs 1,301.49 crore during the corresponding quarter of last year.

Jubilant FoodWorks’ stock price fell 4% in the last five days and 7.44% in the last one month, while it gained 13.71% in the last six months and marginally 0.05% year to date.

Nuvama Wealth: Hold – Target Price: 541

“We are downgrading Jubilant FoodWorks (JFL) to ‘Hold’ as the recent run-up does not dovetail with its performance. In fact, we are adjusting down FY24E/25E EBITDA by 5%/5%, factoring in the performance despite building in a robust LFL showing in Q3FY24 (7%). Longer term, JFL is targeting LFL of 5–6%. We ascribe the stock a PE of 50x, similar to its five-year pre-covid average (FY15–19 average SSSG/revenue CAGR of 6%/15% versus FY24–26E’s 4%/11%), and value Popeyes’ separately. This yields a Target Price of Rs 541 (Rs 549 earlier).”

Centrum Broking: Buy – Target Price: Rs 625

“Jubilant Foodworks in its rejuvenated approach to drive growth through portfolio expansion in Domino’s and chicken QSR segment (Popeyes), coupled with enhanced consumer experience in value segment and by reimaging store could achieve mid-single digit LFL growth. Though weak demand, incremental competition in pizza QSR, and rising inflation pose short-term challenges, we expect JUBI to defend its current margin. We cut FY24E/ FY25E earning by 6.5%/3.0% and introduce FY26E estimates and retain ‘Buy’ with a revised DCF-based Target Price of Rs 625 (implying EV/EBITDA of 20.0x avg. FY25E/FY26E). Key risks to our call prolonged weakness in demand, rising inflation in key RM/PM & severe competition in chicken portfolio from peers.”

(The recommendations in this story are by the respective research analysts and brokerage firms. FinancialExpress.com does not bear any responsibility for their investment advice. Capital markets investments are subject to rules and regulations. Please consult your investment advisor before investing.)

Review windfall tax on crude, says Oil ministry

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State-run ONGC and private sector firm Cairn are likely to benefit if the finance ministry accepts a proposal by the oil ministry to exempt hydrocarbon blocks, which were bid out to companies under the production-sharing contract (PSC) and revenue-sharing contract (RSC) mechanisms, from the windfall taxes on domestic crude. 

Agencies reported that the oil ministry argued that since these contracts, which have been awarded sine 1990s, have an in-built mechanism, whereby high prices as incremental gains get transferred in the form of higher profit share for the government, the one-off tax could be waived in such cases.

As for these blocks, royalty and cess is levied and the government gets a pre-determined percentage of profits.

The government has so far signed PSC contracts for more than 300 blocks and around 100 contracts under RSC.

While ONGC has so far got 31 PSC blocks and 58 RSCs under different contractual regimes, Cairn has got five PSC blocks and 62 RSC blocks.

On July 1, the Centre imposed special additional excise duty of Rs 23,250/tonne on crude and export taxes on petrol, diesel and ATF at Rs 6/litre, Rs 13/litre and Rs 6/litre, respectively. The tax on petrol was removed subsequently.

Also Read: ONGC wants govt to scrap windfall tax, USD 10 gas price 

The government’s rationale for introducing these taxes is to lay its hands on a chunk of the “windfall profits” reaped by some of the domestic firms, on the back of elevated global oil prices. The move is also aimed at addressing the crunch in the domestic fuel market, as private refiners neglected supplies to domestic retail outlets while tapping the highly remunerative export markets.

However, since then the government has reviewed the new tax for five times. In the fifth revision last week, the government slashed the windfall tax on domestic crude by 21% to Rs 10,500/tonne. It also cut the special levy on export of diesel by 26% to Rs 10/litre and trimmed the tax on jet fuel shipments by a steeper 44% to Rs 5/litre. In the fourth review on August 31, the government had raised the windfall taxes with the exports of diesel attracting a tax of Rs 13.5/litre, up from Rs 7 previously. Similarly, shipments of ATF were subjected to an impost of Rs 9/litre, up from Rs 2. The government has also raised the tax on domestically produced crude oil to Rs 13,300/tonne from Rs 13,000.

Mahindra Lifespaces introduces home buying experience on the Metaverse

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According to an official release, Mahindra Lifespace Developers Limited (MLDL), a real estate and infrastructure development arm of the Mahindra Group, introduced India’s first home-buying experience on the Metaverse with the launch of Bastion at Mahindra Citadel, which is Phase 2 of the project. This is expected to culminate in a QR code in the skies of Pune, which led the audience to the Metaverse experience.

The project is expected to have been launched at Pimpri-Chinchwad, with drones showing visuals of ecotone design, home automation features and unveiling of the Metaverse experience. It is believed users can also interact with elements within the homes and design interiors to their liking.

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Infosys signs 5-year deal with smart Europe GmbH

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Infosys on Thursday said it has signed a five-year partnership with smart Europe GmbH, a premium EV maker, to improve the latter’s direct-to-customer (D2C) business model in Europe. Infosys will help the EV maker boost digital sales and improve customer experience.

In a filing with the BSE, the company said it will provide enhanced customer experience, data-driven personalisation and engagement for the existing EV models like smart #1, smart #3 and other upcoming all-electric models from the iconic brand.

Through this strategic collaboration, Infosys will help smart Europe GmbH redefine the online EV buying experience and apply state-of-the-art machine learning (ML) models to accurately forecast sales and after-sales demand.

Infosys was chosen to assist the premium EV maker in this transformation for its deep expertise in enabling consolidation across automotive sales and e-commerce processes and systems. Infosys will also help smart Europe GmbH to efficiently sell electric vehicles across 15 European countries with a D2C sales approach and secure engagement across lead generation, prospect conversion, sales and aftersales channels, supplemented by end-to-end ownership and accountability.

Dirk Adelmann, CEO, smart Europe GmbH, said, “We are pleased to have Infosys as our partner in this journey. Infosys’ strong leadership commitment backed by its ability to drive end-to-end application development and maintenance with efficiency and effectiveness, will help us boost our operational performance and user experience.”

Jasmeet Singh, EVP and global head of manufacturing, Infosys, said, “We are delighted to deliver our cutting-edge technologies to innovative companies like smart Europe GmbH to help ramp up their competitiveness in the European market.”

Singh added: “Leveraging a blend of our expertise in the domain and strong regional presence, we will help smart Europe GmbH fast-track the adoption of cutting-edge digital solutions. The success of this engagement will be a real game changer for both smart Europe GmbH and Infosys in the electric mobility era.”

IPO mop-up falls 32% in H1, muted response from retail

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Fourteen companies raised Rs35,456 crore through main-board initial public offerings (IPOs) during the first half of 2022-23, 32% lower than Rs 51,979 crore raised through 25 IPOs in the corresponding period last year, figures collated byprimedatabase.comshow. Of this, Rs 20,557 crore, or 58% of the amount, was raised from the LIC IPO.

Overall public equity fundraising dropped 55% to Rs 41,919 crore from Rs 92,191 crore in the year-ago period.

The overall response from the public, according to primedatabase.com, was moderate. Of the 14 IPOs, four issues got subscribed more than 10 times, while 3 IPOs were oversubscribed by more than 3 times. The remaining seven IPOs were oversubscribed between 1 and 3 times. The new HNI segment saw an encouraging response, with 5 IPOs receiving response of more than 10 times.

Also Read: IPO mop-up plunges 32 pc to Rs 35,456 crore in H1: Report

The response of retail investors was subdued. The average number of applications from retail dropped to 0.75 million, compared with 1.55 million in 2021-22 and 1.24 million in 2020-21. The highest number of applications from retail were received by LIC (3.27 million), followed by Harsha Engineers (2.38 million) and Campus Activewear (1.72 million).

The amount of shares applied for by retail by value was Rs 23,880 crore, 32% lower than the total IPO mobilisation, showing lower enthusiasm from retail during the period. The total allocation to retail was Rs 9,841 crore, which was 28% of the total IPO mobilisation.

The average listing gain fell to 12% in the first half from 32% in 2021-22 and 42% in 2020-21. Of the 14 IPOs, six gave returns of over 10%. Eleven of the 14 IPOs were trading above issue prices as of September 26.

Only 4 out of the 14 IPOs that hit the market had a prior PE/VC investor who sold shares in the IPO. Offers for sale by such PE/VC investors at Rs 3,349 crore accounted for just 9% of the total IPO amount. Offers for sale by promoters at Rs 2,206 crore accounted for a further 6% of the IPO amount. On the other hand, the amount of fresh capital raised in IPOs was Rs 8,641 crore in 2022-23.

Anchor investors collectively subscribed to 31% of the total public issue amount. Domestic mutual funds played a more dominant role than FPIs as anchor investors, with their subscription amounting to 18% of the issue amount, followed by FPIs at 10%.

Qualified institutional buyers (including anchors investors) as a whole subscribed to 57% of the total public issue amount. FPIs, on an overall basis, as anchors and QIB, subscribed to 17% of the issue amount, much lower than MFs at 25%.

The first half of FY23 saw 41 companies filing their offer documents with Sebi for approval, compared with 87 last year.

“IPO activity will be impacted by volatility in the secondary market, mainly because of recessionary fears and rising interest rates. IPO is a once-in-a-lifetime event for a company, and as seen several times in the past, companies would prefer to let their approval lapse rather than launching IPOs in a volatile market,” said Pranav Haldea, managing director, PRIME Database Group.

UK Government Publishes Landmark Report on Frontier AI Risks and Opportunities

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The UK Government has made history by officially releasing a comprehensive report that sheds light on the capabilities and risks associated with frontier AI. This report, which draws from sources including intelligence assessments, marks a significant step in addressing the challenges posed by the rapid advancement of AI. The insights contained in this report will be pivotal in shaping discussions at the forthcoming AI Safety Summit scheduled to be held at Bletchley Park.

For the first time, the UK Government has made public a paper dedicated to frontier AI, emphasizing the global obligation to confront these risks head-on while harnessing the immense potential that AI promises. As Prime Minister Rishi Sunak prepares to deliver a speech on the worldwide responsibility to manage AI’s risks and rewards, this report underscores the necessity for a coordinated approach.

A fundamental objective of the AI Safety Summit, the world’s first global gathering focusing on AI safety, is to establish a shared comprehension of the emerging risks. This understanding will, in turn, guide nations in effectively managing these risks and reaping the substantial benefits offered by frontier AI. The report unveiled today will play a vital role in shaping the discussions during the summit, emphasizing the UK Government’s commitment to making strategic, long-term decisions for a brighter future and leading the global charge in AI safety.

According to an official statement shared with the media by the British High Commission, New Delhi, in his forthcoming address, Prime Minister Rishi Sunak is expected to state:

“AI will usher in new knowledge, fresh opportunities for economic growth, unprecedented advances in human capabilities, and the potential to tackle challenges we once deemed insurmountable. However, it also introduces new threats and apprehensions. Therefore, my duty is to confront these concerns head-on, ensuring your safety while securing the opportunities that AI brings for you and your descendants. Doing what is right, not what is easy, means being forthright about the perils linked to these technologies.”

The report is divided into three parts:

Capabilities and Risks from Frontier AI: This section serves as a discussion paper, emphasizing the need for further research into AI risk. It addresses the current state of frontier AI capabilities, their potential for enhancement in the future, and the risks they presently pose, encompassing societal harms, misuse, and loss of control.

Safety and Security Risks of Generative Artificial Intelligence to 2025: Drawing from sources including intelligence assessments, this report underscores that generative AI development can offer significant global benefits while concurrently amplifying safety and security risks by enhancing the capabilities of threat actors and the effectiveness of attacks.

Future Risks of Frontier AI: This report, presented by the Government Office for Science, examines key uncertainties in the development of frontier AI, the potential risks that future AI systems might present, and an array of potential scenarios for AI through 2030.

The AI Safety Summit will be primarily focused on the risks arising at the forefront of AI, particularly concerning the misuse of AI by non-state actors for activities like cyber-attacks or the design of bioweapons. Additionally, it will scrutinize the dangers related to the loss of control over AI, where AI systems may autonomously act in ways that are misaligned with human intentions and values.

Recognizing that AI’s impacts extend beyond these specific concerns, the Summit will also encompass discussions about the societal implications of integrating frontier AI, such as disruptions to elections, biases, increased criminal activity, and online safety. Furthermore, a substantial volume of work is ongoing at both international forums and national levels to address various other AI-related risks.

Technology Secretary Michelle Donelan expressed: “This marks a pivotal moment as the UK takes the lead globally in formally summarizing the risks posed by this influential technology. There is no doubt that AI can and will revolutionize the world, from simplifying everyday tasks to enhancing healthcare and addressing global challenges such as hunger and climate change. However, we cannot fully harness its benefits without addressing its risks.

No single nation can undertake this task in isolation, which is why we are extending a warm welcome to governments, scholars, civil society organizations, and businesses to Bletchley Park next month. Together, we aim to forge a collective comprehension of the risks while contemplating how we can develop and deploy AI safely and responsibly, thereby ensuring that it transforms lives for the better.”