Calm waters

Nifty50: 17,382 ▼ 6 (-0.05%)
Sensex: 58,298 ▼ 51 (-0.08%)

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• Markets snapped their six-day winning streak to close on a negative note.
• In all, 27 of the Nifty50 stocks closed in the red.
• The Bank of England raised interest rates by 0.5 to 1.75%, the biggest increase in 27 years

Among the Nifty sectoral indices, Pharma (+2.3%) and IT (+1.2%) gained the most, whereas PSU Bank (-1.7%) and Realty (-1.1%) were the top losers.

What’s trending

⭐ Adani Transmission’s profit drops

ADANITRANS (NSE): 3,520 ▲ 14 (+0.4%)

The power transmission and distribution arm of Adani Group reported a 61% year-on-year (YoY) drop in its consolidated net profit at ₹168 crore. Meanwhile, revenue saw a jump of 22% YoY. The rise in revenue comes on the back of high energy demand and commissioning of new transmission lines. The management said that amid the challenging macro environment, the company's growth trajectory stands firm, while the pipeline of projects will boost its nationwide presence.

⭐ 5G may drive tariff hikes

BHARTIARTL (NSE): 693 ▼ 0.05 (-0.01%), IDEA (NSE): 8.7 ▼ 0.3 (-3.8%)

According to the global credit ratings agency Fitch, Indian telecom players are likely to hike tariffs and set higher rates for 5G services to monetise fresh spending on airwaves. The agency said that the average revenue per user of telecom companies could go up by 12-15% over the next 12 to 18 months. In the recently concluded 5G auction, telcos bid for spectrum worth ₹1.5 lakh crore.

⭐ Dabur reports jump in revenue

DABUR (NSE): 574 ▲ 4.8 (+0.8%)

FMCG major Dabur India reported a marginal growth of 0.6% YoY in its consolidated net profit at ₹441 crore. Meanwhile, the company's revenue rose 8% YoY to ₹2,822 crore. The jump in revenue was due to a strong growth in its retail business. However, growth in its mainstay consumer care business remained flat.

⭐ Kalyan Jewellers back in the black

KALYANKJIL (NSE): 70 ▲ 4.0 (+6.0%)

Kalyan Jewellers reported a consolidated net profit of ₹107 crore in Q1FY23. The company had posted a loss of  ₹51 crore in Q1FY22. The bottomline was boosted by a robust momentum in footfalls and revenue across markets. Meanwhile, revenue from operations rose 103% to ₹3,332 crore.

⭐ OPEC nations agree to raise output  

OPEC and its allies have decided to raise oil output by 100,000 barrels per day in its meeting held on Wednesday. The production boost, which will begin from next month, is lower than that in the previous two months and is equivalent to 0.1% of global demand. US crude oil prices have fallen about 7% this week following a surge in the US crude stockpiles and the decision of OPEC+ to raise output.

In Focus

AMCs under the weather

Investment in mutual funds has become a sought after investment tool for retail investors. As per the latest reports released by Association of Mutual Funds of India (AMFI), the total assets under management of the mutual fund industry rose by 8.45% YoY to ₹36.98 lakh crore as of 30 June 2022.

Looking at this figure, it seems investors have taken the industry tagline “Mutual Fund Sahi Hai” quite seriously. However, the same tagline seems to be going out of flavour for asset management companies (AMCs) despite a steady inflow of funds. Wonder why? Let’s find out.

During the June quarter, listed AMCs reported a drop in earnings and profitability. For instance, HDFC AMC reported a 9% YoY drop in net profit at ₹314.2 crore. Meanwhile, net profit of Nippon Life and Aditya Birla Sun Life declined by 37% and 34%, respectively. 

Rising wage and marketing costs and rising competition within the industry and outside have impacted the margins. Further, the subdued performance of Indian markets (Nifty50 fell 9.9% in Q1 FY23) in the last quarter was a key reason for lower earnings. 

Besides this, a change in investment style of retail investors has also impacted the profitability of AMCs. In recent times, investors are shifting towards passive funds, which generally have a low expense ratio as compared to actively managed funds.  

Additionally, AMCs were not able to secure funds through the launch of new fund offers (NFOs) during the period because of a temporary ban on NFOs imposed by SEBI. The 3-month ban was introduced so that AMCs can put in place a new system that complies with SEBI new authentication norms and  discontinues the practice of pooling client money.

As a result, shares listed AMCs  are down by 16-19% YTD. Nevertheless, their stocks witnessed a rebound in July after the SEBI ban was revoked, rising 4-9% so far this quarter.

Does this mean the worst is over for AMCs? We’ll have to wait and watch.

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Good to know

What is a PE ratio?

The price-to-earnings (PE) ratio is a metric used by investors and analysts for valuing a stock. The PE ratio is calculated by dividing the current share price by the earnings per share. It is basically the price which investors are willing to pay for the company’s past or future earnings. Usually, a high PE ratio means that a stock is overvalued or the markets expect the company’s earnings to grow strongly.

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