Multipie Weekly: June 13, 2021

Hey there!

A very good morning from Team Multipie! We present you another edition of Multipie Weekly, where we summarize market trends and interesting developments from the week gone by.
So grab a cuppa of your morning drink and let’s get started!


The Week (and month) Gone by…🗓

Indian markets had another green week with Nifty and Sensex closing at fresh highs.

We dissect the rally via a snapshot of Sector-wise returns over the last week and month.

IT, Power & Real Estate were the big gainers last week, while Financials are seeing some tiredness. Overall, all sectors were in the green, indicating continuing strength and optimism in the market.

Interestingly, the rally is moving towards small and micro caps over the last week & month as you can see in the chart below:

Note: Market cap – Microcap (<= ₹ 1,000 cr); Smallcap (₹ 1,001 – 5,000 cr); Midcap (₹ 5,001 – 20,000 cr); Largecap (> ₹ 20,000 cr)

We also went a step deeper and looked into sector wise-market cap bucket wise performance.

Here is what we found out:

Let us know what you think?

Buffett Invests in Brazilian Fintech Nubank

Last week, Berkshire Hathaway invested $500 Mn in the Brazilian fintech startup Nubank, valuing it at $30 Bn (INR 2.16 lakh crores). That’s equivalent to the valuation of Axis Bank and slightly higher than expected IPO valuation of Paytm!

Why we think this matters:

  • Warren Buffett has long been seen as a traditional, conservative investor. But with these new age investments, he seems to be making a gradual shift from his approach of targeting bluechip companies by making an investment of this stature in an ‘alternative’ bank.
  • This is Buffett’s second investment in a Brazillian fintech which is intriguing given Nubank and StoneCo, his other investment, are direct competitors. 
  • We find this interesting because it strengthens the global use case of challenger banks, which can reform the global outlook on financial services
  • Nubank’s co-founder and CEO, David Velez sees this as a validation for Nubank’s efforts to change in traditional banking by prioritizing the customer and making banking more accessible and transparent. 
  • While ‘challenger banks’ are big in UK and Latin America, the model is fairly nascent in India, given licensing of Digital only banks is not allowed by RBI. The players in Indian ecosystem such as Niyo, Open, Razorpay X, Jupiter, etc operate as Banking partners facilitating banking support functions.

The curious case of retail investors buying DHFL and why one shouldn’t – stock to be delisted!

The NCLT approved the resolution plan of Piramal Group, bringing the long standing insolvency proceedings of DHFL to near closure.  We found it shocking to see that ~2 crore shares exchanged hands on June 8th and June 9th, mainly transferred to clueless retail investors. This is more shocking given the resolution plan clearly states that the company’s entire share capital will be cancelled, a.k.a the value of equity is zero.
PS: Trading in DHFL will be suspended from Monday, June 14, 2021.

We draw attention to Section 53 of Insolvency and Bankruptcy code (IBC) that lays down order of payment under IBC resolutions. Equity owners stand last in the waterfall and any value accrues ONLY when all other stakeholders are settled off. You can read more on that here.

We explain the sequence of events at DHFL and the resolution below:


Apple dropped some interesting announcements!

So Apple wrapped up it’s flagship annual event, WWDC, earlier this week, and we couldn’t help but tell you about the barrage of new features and software updates it released. Thankfully, these won’t burn a whole in our pockets. 

FaceTime

  • Expect much crisper sound with machine learning based isolated and spatial audio. Users now don’t need a browser extension to stream and listen to music with friends either. FaceTime now allows screen sharing with synchronized play controls!
  • Android users can access FaceTime now: Yes you heard that right. You can share FaceTime links with your friends irrespective of their device.

Privacy: Freaked out every time you spoke to your friend about a product and immediately got an ad on Insta? Apple will now provide you with a report of which apps have used your phone to track your activity so you can decide to give permissions accordingly. Even Safari becomes safer with an iCloud+ subscription that completely hides your information from any third party websites or even Apple itself!

Endnote: These announcements are yet another addition to Apple building an unmatchable ecosystem around its products and software. Very soon, we might see a considerable shift of users from Android to Apple as the premium price might start justifying itself.


WazirX faces the Enforcement Directorate

This is for all the Crypto enthusiasts and skeptics – On Friday, 11th of June, the Enforcement Directorate served a show cause notice to Indian crypto exchange WazirX and its directors under the Foreign Exchange Management Act (FEMA), 1999 for transactions involving crypto worth Rs 2,791 crore.

Brief: WazirX, the largest Crypto exchange in India, is being investigated under FEMA as a part of ongoing investigations into money laundering through certain Chinese betting applications.

“During the course of the investigation, it was seen that the accused Chinese nationals had laundered proceeds of crime worth Rs 57 Crore approximately by converting the INR deposits into Crypto-currency Tether (USDT) and then transferring the same to Binance (exchange registered in Cayman Islands) Wallets based on instructions received from abroad”.

ED press release

ED also, notably, stated that failure on part of WazirX to collect required documentation was in clear violation of certain crucial crime financing prevention norms. 

This made it possible for users to “launder” money / indulge in illegitimate activities by transferring “valuable cryptocurrencies” without the risk of being tracked or audited. 

Response:  WazirX director Nishchal Shetty tweeted that WazirX did not receive the show cause and that they remain committed towards complying with all required laws and agencies. They also agree to fully cooperate if they were to receive an official communication for the investigation.

Implication: It will be important for crypto participants to keep a watch out for ED’s actions as it could have immediate effects on those using WazirX for crypto trading. Also, it could have a structural impact on the Indian Govt’s stance on crypto, and delay any possible hopes of statutory approval. Interestingly, WazirX is effectively owned by Chinese crypto exchange Binance.

Chart of the week

Our chart of the week is called – “Refining: In Transition to a Golden Age”

As per Morgan Stanley, India’s Gas market is poised for the next up-cycle, as connectivity, mobility and availability of domestic gas rise. Strong chemicals demand, consolidation in global refining, fuel price hikes and refinery upgrades bode well for oil marketers.

In Other News

  • China adopted a new data security regime which enables it to shut down or fine Tech companies to gain control of their data reservoirs.
  • Tata Digital is set to acquire 60% of Indian healthtech startup, 1mg at a valuation of $450 Mn. With this, the company adds to its portfolio of CureFit and Big Basket, acquired in the past month. 
  • Indian forex reserves at all time high of $605 Billion making it the joint 4th highest with Russia.

    Multipie Note: Given India runs a Current account deficit, which is generally financed through external borrowings, it limits the potential use case of such forex reserves.
  • Adani Group has entered Cement business and has incorporated a wholly-owned subsidiary namely Adani Cement Industries Ltd (ACIL) on June 11
  • The US FDA has rejected the emergency use application for Indian origin vaccine, COVAXIN by Bharat Biotech.
  • Petrol & diesel prices saw record highs across the country after fresh hikes were announced. In Mumbai, petrol crossed Rs. 102/L.
  • Don’t forget to catch Novak Djokovic vs Stefanos Tsitsipas for the French Open Finale today. 

Please share with your friends if you found this helpful and subscribe at multipie.co to start receiving these as a weekly digest every Sunday!

Multipie Weekly: June 6, 2021

Hey there!
A very good morning from Team Multipie!

We are starting our weekly newsletter digest called Multipie Weekly and going forward, it will start hitting your inbox every Sunday morning with handpicked recommendations to watch, read and summarize the week gone by.

Grab a cup of tea or coffee and let’s get started!


🗓 The Week (and month) Gone by…

Markets have been in green territory over the last week and month. We prepared a snapshot of industry wise returns over recent time periods.


PLI scheme paving the way for EV Infra 🔋🔋

Recently, a PLI scheme of ₹18,100 crores was notified to incentivize infra for EV batteries. Given the higher share of battery in cost of a car under EV ecosystem compared to fuel cars, there have been deliberations on in-house production versus outsourcing by OEMs. Powerhouses such as RIL, Tata, Adani have shown interest in setting up Lithium Ion plants.

We read a note from Morgan Stanley on their outlook for battery players under PLI. Here are our key takeaways:

  • The approved PLI scheme for EV batteries aims to achieve manufacturing capacity of 55GWh with an outlay of ₹181 Bn.
  • For an EV penetration of 5% in PVs and 10% in two-wheelers, India requires ~13GWh of battery storage capacity (outlay planned is 55GWh). 
  • Localization of battery production will lead to sharp decline in prices of Electric Vehicles and will increase affordability, thus boosting adoption
  • If OEMs such as Maruti, Tata and Toyota look towards developing battery capacities on their own, the majority of demand will be taken up by them. 
  • Globally, MS is less optimistic on battery companies due to high competition 
  • Indian companies such as RIL, Maruti and Tata Chemicals have shown interest in the Lithium-Ion battery market in India. While RIL has decarbonization at the forefront of its energy strategy, Maruti is investing in India’s first cell-level lithium battery manufacturing unit, and Tata Chemicals – who has the capability of building a circular economy around such batteries –  has partnered with global players for R&D and has invested in a plant site, indicating strong intent. 

While end outcomes are yet to be seen, Indian automotive segment is clearly heading into exciting times.. 


Have the rules of investing changed? 📈

Does the classic investment philosophy of buy right, sit tight still work? Have the rules of investing changed forever? Many have questioned this recently, given the rise of meme based investing. We found this article on the topic by @ReformedBroker quite relevant and interesting.

Multipie view: Digital era doesn’t alter the laws of supply & demand. It just shortens the cycle, squeezing into higher peaks & troughs. In short, we believe the classic rules of investing are timeless.

Can you play the long game in investing? 

Moving from one extreme of meme based investing, @VJ_Rabindranath wrote this fascinating story about his father’s investing journey called “The next Warren Buffett”. It talks about the other extreme, of playing the long game of investing. This is a must read.


Takeaways from RBI’s Annual Report

We read through RBI’s Annual Report that was released last week and here are some summary takeaways:

This is clearly not a replacement to reading the original Annual report document, which has great insights.


The Adani Group demerger and wealth creation story 

Gautam Adani is now the second richest Asian | GQ India

Adani Group is THE most successful demerger story in India Inc. From a market cap of ~68,000 cr for Adani Enterprises pre demerger, the group market cap now stands at over 9.5 lakh cr, ~14x in 6 years. Here is the break-up across group companies:

We found this post on Gautam Adani’s life story and some trivia interesting.

Modern Retail: Large opportunity size + consolidation 

Morgan Stanley is bullish on the outlook for modern retail format and especially Avenue Supermart (DMart). It expects its EPS to rise from 18.1 in FY21 to 42.2 by FY23E. Here are key takeaways for you:

  1. Grocery forms ~60% of India’s retail market
  2. Expects growth in grocery @ 7% and modern format grocery @17% CAGR
  3. Expects consolidation & duopoly with Reliance Retail
  4. Here is how their industry growth outlook adds up:

That’s all for this week. Please share with your peers if you found this helpful and subscribe at multipie.co to start receiving these as a weekly digest every Sunday!