Tata Motors is hungry for chips

Nifty50: 15,818 ▼ -16 (-0.1%)
Sensex: 52,861 ▼-18 (-0.0%)

After a strong opening, the markets faced selling pressure in the second half of the day and nose-dived into the red. Of the Nifty50 pack, 31 stocks declined.

Amongst the Nifty sectoral indices, Bank (+1.0%) and Financial Services (+0.9%) were the top gainers whereas Auto (-1.7%) and PSU Bank (-1.2%) were the weakest. 

Here are the top stories of the day.

Tata Motors skids after JLR update

• Shares of the auto major slipped over 8.5% after the company released an update on JLR sales in Q1. According to the exchange filing, retail sales of JLR rose 68.1% YoY, while wholesales (excluding its China JV) grew 72.6%.
• However, the company said that wholesale numbers were 30% lower than demand would have permitted due to the semiconductor supply issues affecting the global auto industry. The company expects the chip shortage to be greater in Q2 as compared to Q1. Interestingly, the stock was near its 52-week high earlier in the day on reports that the company may hike prices of its passenger vehicles.

AU SFB expects strong Q1 growth

• Shares of AU Small Finance Bank rose by 8.2% today after it released its June quarter update. Its gross loans rose by 31% year-on-year to ₹34,688 crore in Q1. 
• The bank’s current account saving account (CASA) to total deposits ratio improved to 26% in June 2021 from 14% in June 2020. In the same period, its borrowing cost reduced to 6.3% from 7.2%. Nonetheless, despite the second wave, the lender’s collection efficiency continued to improve in all three months of Q1.

Wonderla Holidays rises after resort reopens

• The amusement park chain has reopened its Bengaluru resort for guests from 5 July, albeit at 50% capacity. The resumption of resort operations has triggered investor interest in the stock, which is up 18% this week. Meanwhile, the amusement park adjacent to the resort still remains shut. 
• Of late, the prospect of improving demand has led to a rise in travel-related stocks. So far this week, Easemytrip (+10%), IRCTC (+5%), EIH Hotels (+5%), Chalet Hotels (+6%) and Indian Hotels (+3%) are outperforming broader indices.  

Cement stocks spike on improved demand outlook

• Shares of cement makers were upbeat today as the street expects a demand recovery on the back of relaxed curbs and a pick-up in construction activity post-monsoon. While on the one hand, there is pent-up demand and on the other the government’s focus on infra spending continues to remain strong. 
• The street also expects per unit prices to be higher in the June quarter, to cover the rise in input costs. Shares of cement majors such as Ultratech, Shree Cement and Ambuja were up about 3% today. 

Closing bell

Today, the markets were in cruise mode in the first half, and the Nifty50 was just inches away from its lifetime high. However, the brakes were slammed when Tata Motors’ wholly owned subsidiary JLR announced that it expects semiconductor chip shortage to aggravate in the September quarter. Further, it also expects 50% lower than planned volumes due to this issue. The chip issue is not new. However, it is going to worsen in the coming months, which came as a surprise. Meanwhile, crude oil prices continue to rise and threaten to fan the inflation risk. 

Good to know

What is sectoral rotation?
Sectoral rotation refers to the movement of money from one industrial sector to another based on sectoral and macroeconomic factors. For instance, during an economic boom, investors may prefer to invest in sectors such as banking and metals, which tend to outperform the overall markets. Similarly, in a downturn, banks are typically the worst affected, and investors may choose to move money out of banks to sectors such as FMCG or pharma, which have relatively stable demand. To benefit from sectoral rotation, investors need to develop a good understanding of economic and market cycles.

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Investment in securities markets is subject to market risks; please read all the related documents carefully before investing. The securities quoted are exemplary and are not recommendatory. Past performance is not indicative of future results. Details provided in the above newsletter are for educational purposes and should not be construed as investment advice by RKSV group. Investors should consult their investment advisor before making any investment decision.