There is mounting pressure on consumer-focused FMCG and durables companies. Most of the companies are finding it hard to offset soaring commodity inflation via price hikes. That did help for some time but it has reached a stage where they expect demand to be negatively impacted if prices are hiked any more. The pressure is evident in FMCG company numbers like in the case of HUL, Nestle and Asian Paints, where numbers are announced.

Apart from input cost spikes, there are also signals of slowing rural demand. For example, the growth in rural demand for HUL was just 2.5% in the Sep-21 quarter compared to 12.5% in Jun-Jul period. If you look at the specific case of Nestle, the raw material costs rose 20.4% on a month-on-month basis, leading to a 11% spike in total costs. Asian Paints has taken deep cuts on account of the spike in crude prices.

Interestingly, on Friday the Nifty was down for the fourth day and nearly 80% of the week marked the fourth consecutive day of losses on the Nifty although it took support at the 18,000 levels and closed above 18,100. The results during the week will hold the key to the market movement and that includes big names like Kotak, Bajaj Auto and Bajaj Finance.

While global inflation and US hawkishness is a worry, the real worry for the markets is the rising input costs putting pressure on corporate bottom lines. That is evident in the results of consumer goods companies and could soon spread to other sectors too. Consumer goods companies like HUL, Asian Paints, Nestle etc could just be the tip of the iceberg.

FPIs were net sellers of Rs.2,698 crore in equities on Friday while domestic funds bought stocks worth Rs.1,030 crore. FPIs have been net sellers in October till date. On Friday, Dow closed 21 bps higher while NASDAQ was 82 bps in the red. European markets were in the green but the SGX Nifty is absolutely flat in early trades on Monday.

For now, it looks like the Nifty may not really correct below 18,000 although any sharp rally from here does not look too likely. The worry is that the spike in input costs could hit a lot of mid cap stocks that are more vulnerable to such macro shocks. The safe bets will be the likes of IT, which is less vulnerable at this point of time.

The string of IPOs, many of them with strong OFS components, appears to be helping private equity firms to cash out at the fastest pace in recent times. In 9 months of 2021, PE funds and VC investors took IPO exits via OFS route to the tune of $2.6 billion. Just the quarter ending Sep-21 witnessed 13 PE backed IPOs collecting $1.3 billion.

With big budget IPOs on the anvil, this could gather more momentum. There is the mega IPO of Nykaa opening this week and Paytm, perhaps shortly after that. The biggest PE exit in this IPO run was Blackstone making a Rs.5,250 crore exit from Sona BLW. In addition, JP Morgan exited from CarTrade Tech and Temasek took an exit from KIMS.

The Indian government is planning to launch the third tranche of Bharat Bond ETF (exchange traded funds) by the end of 2021. The intent is to raise above Rs.10,000 crore, which should not be an issue considering the response in the first two occasions. The Bond ETF will be used to meet the fund needs of various CPSEs and that is currently being assessed. Based on the assessment, the government will finalize the amount and break-up of ETF bond issue.

For starters, the Bharat Bond ETF is an exchange-traded fund that invests in AAA rated debt issued predominantly by public sector companies. The first two tranches of the Bharat Bond ETF issued in December 2019 and July 2020 managed to raise a sum of Rs.12,400 crore and Rs.11,100 crore respectively. There has been a huge appetite especially among corporate and institutional investors. Edelweiss AMC will be the fund manager for the ETF.

Foreign portfolio investors pulled out Rs.3,825 crore in the first 22 days of October 2021. FPIs actually pulled out Rs.1,494 crore from debt and this was largely on concerns over narrowing spread between the US and Indian bond yields. Equities saw outflows of Rs.2,331 crore taking total outflows to Rs.3,825 crore in the month to date. The major concern of foreign investors centres around global inflation and Indian input costs.

The immediate question is how many of its directors can Dish TV reappoint in the midst of this standoff. After Yes Bank is the largest shareholder and holds 26% stake in Dish TV. This is restricting Dish from reappointing directors despite tenures coming to an end. According to proxy advisors, this could impact the ability of Dish TV to take on the tactics of Yes Bank, especially pertaining to the removal of Jawahar Goel from the top post at Dish TV.

Goel’s term will expire in March 2022 and the term of the CFO also expires next year. However, the new rules that come into force from January 2021 stipulate that reappointment of directors will have to be stamped by 75% shareholders. That is not going to be practically possible for the Subhash Chandra family since Yes Bank has 26% stake in Dish TV and would block any such move.

JSW Steel, part of the Sajjan Jindal group and among India’s foremost integrated steel manufacturers, is planning to levy a surcharge on sale of steel products. To begin, this surcharge will be limited to its OEM (original equipment manufacturers) customers. The idea of this levy is to partially offset the rising input costs. Global ore and coking prices have shot up sharply and Indian steel companies are bearing the brunt.

JSW Steel will be the first to introduce this concept of OEM surcharge in India, although this concept is quite common in Europe. According to Seshagiri Rao, CFO of JSW Steel, the cost of steel production has spiked up 19% during the September quarter by Rs.6,600 per tonne. Steel makers, therefore, are left with no choice. Coking coal, which constitutes 40% of the cost of steel, has shot up from $120/tonne to $400/tonne in 4 weeks.

If you look at the combined market capitalization of the 10 most valuable companies on the Nifty, then five out of these ten saw a drop in value of Rs.1,42,880 crore during the last week ended on 22-Oct. The big heavyweights lost market value and that pushed markets lower. Hindustan Unilever lost Rs 45,523 crore, RIL eroded Rs.45,127 and TCS saw erosion in market cap to the tune of Rs.41,152 crore during the previous week.

There were more stocks losing value. For example, Bajaj Finance lost Rs.8,891 crore during the week while HDFC Bank lost a more subdued Rs.2,187 crore. Interestingly, there some significant gainers too during the week. For example, Kotak Bank gained Rs.30,748 crore, while ICICI Bank stock spurted by Rs.22,248 crore. Two more stocks to gain value in the week were HDFC at Rs.17,015 crore and SBI which managed to add value of Rs.11,111 crore.