Dear Reader,
At the time of writing this newsletter, there were around a hundred confirmed cases of the B.1.1.529 variant of the coronavirus in South Africa, but the markets are already running for cover. It’s early days yet and it may turn out to be a scare, just like the much-feared Beta variant, but at these valuations punters prefer to sell first and ask questions later.
It’s a timely reminder that, as this FT story (free to read for MC Pro subscribers) tells us, the virus is always searching for its next move. While B.1.1.529 awaits its Greek name, the older Delta variant continues to wreak havoc in Europe. As Austria forced its population into another contentious lockdown, the health minister in neighbouring Germany scared everybody by warning that most Germans will be “vaccinated, cured, or dead” from the virus in a few months. In China, there has been another flare-up in Shanghai.
When will Covid end? Despite promising new drugs and better availability of vaccines, it is apparent that the virus will not be defeated any time soon. Back home, our herd immunity tracker warns about vaccine hesitancy, evident from the huge number of unused vaccine doses.
But the resurgence of the virus in Europe doesn’t seem to have had much of an impact on growth so far, with the Flash Composite Purchasing Managers Index for the Eurozone for November coming in at a high 55.8. The Composite PMI takes into account private sector activity in both manufacturing and services and a reading above 50 indicates expansion from the previous month. The US and UK flash composite PMIs also showed robust expansion and even the Japanese benchmark did well. But inflation pressures were marked and the survey said that firms in the US “increased their selling prices at the second-steepest pace in over 14-and-a-half years of data collection”.
It’s no wonder then that Mohamed El-Erian, president of Queen’s College, Cambridge, and an advisor to financial services behemoth Allianz, said it’s high time the Fed woke up to inflation. But with US inflation at 6.2 percent from a year ago and core inflation at its highest since 1991, why are bond yields in the US so low? Read this Ruchir Sharma piece to know why. Goldman economists say they expect the Fed to tighten monetary policy faster than previously anticipated next year, amid rising inflationary pressures. But of course, much depends on how lethal the new virus strain is.
Worried over the impact of high energy prices on inflation, this week a group of big oil consuming countries, including India, got together to take on the OPEC+ oil cartel, by releasing oil supplies from their strategic reserves.
India’s non-financial corporate balance sheets are now in much better shape, in aggregate, than they were before the pandemic and our economic recovery tracker map is a sea of green. Bosch MD Soumitra Bhattacharya, however, told us that the semiconductor crisis is likely to spill over to the first couple of quarters in 2022.
But all this and more is already baked into markets. Valuations of start-ups, in particular, continue to be exorbitant, fuelled as they have been by a post-lockdown shopping spree by investors. We discussed what investors should do with Paytm after its fall and subsequent rise. Our Start-up Street column this week tries to make sense of start-up valuations. But in spite of piteous pleas to protect the retail investor, we firmly took the stand that regulators must not mollycoddle them.
Although there’s a sword of Damocles hanging over crypto investors in India, our Crypto Conversation this week was a guide to investing in NFTs while our Crypto Learn section was on Bitcoin.
Frothy markets are a time for all kinds of mis-selling, insurance being an obvious candidate. In our Personal Finance section, we advised investors how to avoid being taken for a ride by glib-tongued insurance salespersons while we also looked at how smart investors have been using Systematic Transfer Plans.
Valuations continue to be the factor winnowing out our stock picks. For instance, we called for a reality check on Tata Power’s and Ion Exchange’s rich valuations. We advised investors to wait on the sidelines for a better entry point to the KFIL stock. On the other hand, especially in view of the current correction, we discussed whether the valuations of companies such as Gabriel India, Shriram City Union Finance, Bajaj Healthcare, Lemon Tree Hotels, Sapphire Foods, Repco Home Finance, Engineers India and CCL Products have turned attractive. And we discussed the likely basis of valuation for LIC’s forthcoming mega IPO.
Not everything is about valuations. We checked out the prospects of Burger King; wondered about the effect on Hindustan Unilever of the parent company opting to sell its tea business, except in India, Nepal and Indonesia; analysed the tariff hikes taken by Bharti Airtel; considered the impact of Kubota taking a majority stake in Escorts; looked at Reliance Industries’ transformational shift towards clean energy; gauged what it would take to clear the financial runway for the airline sector to take off; and analysed the pros and cons of RBI’s proposals on digital lending. We also did a story on the impact of the digital push on the pharma supply chain.
In political economy, we focused on what the repeal of the farm laws means while wondering just how rich the farmers in Punjab are. We explained how the India-US truce on the equalisation levy would benefit the tech giants.
We had a brilliant piece on Tesla’s outsized influence over the ebb and flow of the US stock market — the so-called ‘Tesla financial complex’. And in our Discovery series, we had a new stock recommendation of a hyper growth company.
We had two stories in our Eastern Window series this week — one on why it’s time we raised our voice against human rights issues in China and another on China’s intensifying Cyber Sword campaign against tech firms. As if on cue, China has now asked ride-hailing giant Didi to delist from the US markets.
Amid all the worries about a resurgence of COVID-19, the National Family Health Survey pointed out that 35.5 percent of our children are stunted, 19.3 percent wasted, 7.7 percent severely wasted and 32.1 percent are underweight. It’s a national shame.
Stay safe,
Manas Chakravarty
