Teji Mandi: Three things investors should know on December 2, 2020
Teji Mandi

RBI's MPC meeting likely to be a non-event:

RBI's six-member Monetary Policy Committee (MPC) will meet for two days starting December 2.

In its last MPC meeting, the RBI kept policy rates unchanged. The recovery in the economy has also been better than expected. Hence, there is no compulsion either to ease the rates further.

The RBI is likely to maintain the status quo this time. Heightened retail inflation is serving as a hindrance for a further rate cut.

High inflation usually requires RBI to suck excess cash from the system. A rate hike is a potent weapon to achieve this goal. But, growth requires more attention right now. This requires more cash in the system to persist.

The current high rate of inflation is due to elevated food prices. It is most likely to come under control by December. Hence, the market knows that RBI is not going to make any change to the current rate.

Huge appetite for Burger King's IPO:

The initial public offering of Burger King India is 55% subscribed around 12 AM on the first day of bidding. The issue will remain open between 2-4 December.

The issue has received bids for 4.17 crore equity shares against an IPO size of 7.45 crore equity shares. The retail investor part is oversubscribed 3 times so far on Day 1. The non-institutional quota is subscribed by 2.8%. Qualified institutional investors are yet to put in their bids.

The IPO is available at an attractive valuation. Most brokerages have recommended a subscribe rating. At 2.7 times the Price/Sales, Burger King is priced attractively as compared to 10.4x price to sales for Jubilant Foodworks and 6.32x for Westlife Development during their IPOs. However, the company is incurring significant losses due to the high investment required to grow their network. Hence, profitability is in question.

In our estimate, the company's bottom line will continue to remain in the red for at least the next couple of years.

Consumption: Positive trend sustains post-Diwali

Diwali festivities have continued for top brands and retailers. The demand in discretionary space continues to remain upbeat post-Diwali period. Television sets, appliances, laptops, smartphones and apparel are the in-demand items.

Top retailers, like Reliance Retail and Vijay Sales, expanded sales 10-20% in the first 15 days after Diwali. Smartphone and electronics companies are maintaining production at the same pace after Diwali.

Historically, sales have dipped immediately after the festive season. In this season though, persistent pent-up demand and improving supplies have driven higher sales.

The Discretionary space was the worst hit in the pandemic. Consumers opted for necessity-based purchases. But, with improving sentiments, discretionary consumption is also making a comeback.

(To download our E-paper please click here. The publishers permit sharing of the paper's PDF on WhatsApp and other social media platforms.)

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