🍿2022 market overview, Europe turns to coal, SEBIs new rules | Oh! What a Week

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Today we'll cover:

Market overview for 2022: How did India perform vs. global markets

How Europe's energy crisis is impacting coal usage

What do SEBIs new buyback norms mean for investors

Let's dive into this week's Oh! What a Week…

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Market Mood This Week

πŸ”»The bears were in full control this week. Indian markets witnessed the biggest fall in six months. Sensex is below the 61,000 mark and Nifty 50 has even erased 17,900 levels. The fall can be attributed to old fears related to the recession, US GDP data, and the spread of Covid in China.
However, FPIs were net buyers.

Sector-wise, Nifty Pharma was the top gainer (reminds me of the bad old pandemic days!), and Nifty PSU, Media, Realty, and Metal were the top losers. The BSE smallcap index shed 7.6%, the Midcap index lost 5%, and the large-cap fell 3%.

Global markets remained volatile. Brent crude oil price continues to trade around the $80 per barrel mark and the Indian rupee ended at 82.86 per dollar.

Key factors to watch out for next week: India’s macro data, Covid cases, monthly derivatives expiry, corporate actions, and two upcoming IPOs.

πŸš€2022 Market Overview

Markets this year were on a volatile ride full of ups and downs. Just as the global and Indian markets were recovering from the aftermath of the pandemic, the Russia-Ukraine crisis casts its shadow throughout 2022.

Consider this: The U.S. The stock market experienced its worst year in over a decade, with the S&P 500 index expected to end the year down 18.5%. This marks the first double-digit percentage loss for the large-cap index since 2008 when it saw a decline of 36.6% during the global financial crisis. 

How did Indian markets fare?

When it comes to the Indian markets, Foreign Institutional Investors (FIIs) constitute a significant portion of the overall stock market participants, and this year, they were net sellers. FII outflows in 2022 were a record $18 billion.

What happened?

Foreign portfolio investors have been selling Indian equities for nine straight months starting in October 2021, which is the longest stretch of outflows ever recorded, not even seen during the Great Recession of 2007-2009.

This is due to a combination of factors, including Russia's invasion of Ukraine, rising commodity prices leading to higher inflation in developed economies like the US and Europe, and central banks taking drastic measures to control inflation.

But there's a silver lining:

Despite huge selloffs by FIIs and global markets in crisis, Indian markets have positive returns in 2022. And that's mainly because of the confidence and investments by domestic institutional and retail investors.

Domestic institutional investors have pumped a record Rs 1.8 lakh crore of money into markets this year. The monthly flows through systematic investment plans (SIPs) for mutual funds hit a record Rs 13,300 crore last month, and the figures are expected to increase.

The IPO Market

The IPO market had its best year in 2021 where a total of 63 companies raised Rs.1.19 trillion. In contrast, in 2022. We only saw 33 IPOs which cumulatively raised Rs.55,145.80 crores. Investors are taking a cautious stance towards IPOs after seeing their capital erode in the much-hyped IPOs like Nykaa, Zomato, and PB Fintech.

Biggest stock winner of 2022:

A coal-supplying company that was not widely known, became the biggest multibagger of 2022 due to the energy crisis.

Shares of Hemang Resources Ltd, formerly known as Bhatia Industries & Infrastructure Ltd, have surged over 20X this year, beginning in 2022 at Rs 3, and the share price is now Rs 70. The company is into coal trading and infrastructure.

Talking about coal, Europe has been sneakily upping its coal usage. Check out the next story.

Further reading: What to expect in 2023

πŸͺ“Europe Takes A Step Back

European nations who always pointed their fingers at developing countries for using coal are now consuming record quantities of coal to meet their energy demand AND justifying their usage.

What's going on in Europe?

European nations depended heavily on Russia (about 40%) for their natural gas supplies which dramatically reduced to less than 9% following the sanctions against Russia. From 2023 onwards there will be no supplies from Russia to Europe.

How is this impacting Europe?

Energy prices have skyrocketed, supplies are limited, and Europe is importing record levels of gas. About half of European Union member states have debt exceeding the bloc's limit of 60% of GDP.

And this is just the start. As the supply gets completely cut off from Russia, the situation is going to get worse.

Where does India stand?

The world's three largest coal producers - China, India, and Indonesia - are expected to reach record levels of production in 2022. This may lead to an increase in coal prices if Europeans return to the coal market, as there has not been much investment in new coal mining projects (also known as capital expenditure or "Capex") by major mining companies.

The International Energy Agency (IEA) predicts that India will see the biggest increase in coal demand this year, with a 7% increase, followed by the European Union, with a 6% increase, and China with a 0.4% increase.

The demand for coal in India is driven by a combination of rising fuel costs, a rapidly growing economy, and a longer summer season, which has resulted in an increase in electricity consumption, with 73% of it being met by coal-fired power plants in 2022.

Bottom line:

If demand for coal increases, prices will also increase due to limited options for increasing supplies. This will benefit coal producers, such as Coal India, in the spot market in India, but it will negatively impact industries that rely on coal for power generation, such as the power and metal industries.

A sliver of hope:

Not all is gloom and doom. While the demand for coal has increased, it is also expected to reach a high and then slowly decline by 2025, as renewable energy will fill nearly 90% of electricity demand globally. We hope this prediction comes true.

πŸ“œ New Buyback Rule

Last week, we talked about Paytm's share buyback. So, I'm assuming you have a brief idea about buybacks.

What has changed?

Buybacks earlier were done through the open market route and now they are being shifted to the tender route. SEBI has also reduced the maximum limit for buyback and lowered the time available to complete the buyback from 6 months at present, to 66 days and 22 days respectively.

So what's the fuss about the new tender route vs. the open market route?

Open market route: The company buys back its own shares from investors on the open market. This is done through a broker, who executes trades on behalf of the company.

Tender route: The company makes a formal offer to purchase a specific number of shares at a predetermined price. Investors have the option to sell their shares back to the company at the offered price.

Why the change?

The main reason for this change is to avoid favoritism and give everyone an equal playing ground. In the open offer, promoters could theoretically do some partiality so that the top investors may get the maximum benefit and get an exit at a higher price.

Tender buyback is a neutral process that is more beneficial for retail investors. The buyback is offered at a predetermined price and the offer price can be increased up to one day before the date.

All hail SEBI!!πŸ™‡

🀏One Liners

Argentina crisis: While we all cheered for Argentina as they lifted the FIFA World Cup, there is an economic crisis we’re ignoring. The country is battling hyperinflation with the inflation rate touching 92.4% in November.

πŸ‘‰Masterstroke: Budweiser couldn't sell beer in Qatar despite being the undisputed sponsor for the last 26 years, but covered up by selling its alcohol-free beverage.

πŸ‘‰New Twitter CEO?: Elon Musk conducted a Twitter poll asking people if he should resign as Twitter CEO and the majority said yes! Well, he never fails to entertain us.

πŸ‘‰GST Meet: 8 out of 15 agenda items were discussed including decriminalization of certain offenses, tax relief on the husk of pulses and ethyl alcohol, etc.

πŸ‘‰Digital makeover: Next year will be crucial for the banking industry to use digitization to turn it into a more experience-oriented industry.

πŸ‘‰Warning bells: India needs to prioritize disaster risk reduction, climate change adaptation, and building climate resilience, particularly for its poorest and least equipped citizens, in order to prepare for potential negative impacts on the environment, economy, and population and transition to clean energy as it becomes the world's most populous country in 2023.

πŸ‘‰Global slowdown: The IMF has projected a slowdown in global growth from 6% in 2021 to 3.2% in 2022, and 2.7% in 2023.

πŸ’ŽHidden Gem

OTP - naam toh suna hoga?

It's a form of multi-factor authentication that protects your personal information when accessing a web-based service.

What would happen if you don't receive an OTP instantly? Well, you wouldn't be able to access the service, right?

In today's hidden gem, we have a company that makes sure you receive your OTP instantly.

The stock is Route Mobile.

They reach more than 1+ Billion mobile phones in India! They manage OTPs for companies ranging from banks like HDFC and ICICI to e-commerce companies like Flipkart and Myntra.

In essence, everyone uses this service!

CMP - ₹ 313.6

Market Cap - ₹ 7,172.76 Cr

5- year Sales growth - 34%

5-year Profit growth - 22.3%

That’s all for this week, Learner

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Happy Learning!

Manish Thole

Team Alpha2Sigma




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