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Monday,27-June-2022

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Stock Outlook 2022: FMCG, pharma, IT sectors seen as ‘safe and satisfying’ bets

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 With uncertainties facing Indias equity markets next year, top analysts have termed sectors such as FMCG, pharma and IT services, along with real estate, power, infra, and telecom as ‘safe and satisfying investment options in 2022.

Factors such as growth potential, price as well as evolving economic recovery have made these sectors more attractive than others.

“Given the uncertainties, one can focus more on defensives (FMCG, pharma, IT services) till there is more clarity on economic growth and inflation across the globe. This is despite the fact that defensives may not be cheap,” said Deepak Jasani, Head of Retail Research, HDFC Securities.

“In case the markets continue to underperform, these sectors may provide downside protection as they may fall less than the market or other sectors,” he said.

According to Vinod Nair, Head of Research at Geojit Financial Services, strong outlook sectors like pharma have undergone decent consolidation.

“Similarly, FMCG and telecom look good. Long-term outlook of IT is robust and has undergone a phase of time correction. New growth and theme sectors like renewables, electronics, textiles, and chemicals look good on a long-term basis, which are settling from high valuations,” Nair said

Besides, other sectors such as real estate, power, infra, capital goods and banking will be eyed keenly by the investors.

“If I talk about the real estate sector, there is a turnaround story after 10 years of underperformance where the last five years were very painful due to demonetisation, NBFC crisis, RERA etc., but things are looking very bright now thanks to low-interest rates, stamp duty cuts, supportive government policies and consolidation in the industry due to RERA,” said Sunil Nyati, Managing Director at Swastika Investmart.

“Similarly, power, infra and capital goods are coming out of 14 years of ‘Vanvas’, and the market has started celebration for this, which is likely to continue for the next couple of years because there is valuation comfort as well as strong growth outlook,” Nyati added.

On the other hand, financials, auto, metals and aviation stocks might lose favour in the coming year.

“Markets around the world are already trading at all-time high, and most of the economies are trying to reach the pre-Covid levels. So, one can avoid auto sectors, as all over the world, the auto industry is struggling with chip shortage and supply may not meet the demand till the second half of 2022 or first half of 2023,” said Gaurav Garg, Head of Research, CapitalVia Global Research.

“Second is the aviation sector, which is still struggling to make a comeback, especially with many countries still imposing bans on other countries, which may be witnessed until there is a clarity on the new mutation,” Garg added.

Jasani pointed out that over-owned sectors like financials, auto, metals, among others, may keep underperforming for some time even as investors re-weight their portfolios in favour of emerging or safer stocks.

Business

Did Zomato buy Blinkit to offset its losses from online food delivery?

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Online food delivery platform Zomato, which saw its stock tumbling below its IPO price as India reopened and retail food industry came back on track, had acquired quick-commerce grocery delivery platform Blinkit for a whopping Rs 4,447 crore (about $568 million). Will this acquisition change its future prospects?

Zomato already owned more than 9 per cent stake in Blinkit (earlier Grofers). While the earlier Blinkit deal was valued around $700 million, the drop in Zomato’s share price reduced it to $568 million.

Zomato’s stock is hovering around Rs 70, after sliding to nearly Rs 50 (it opened at Rs 76 during its mega IPO last year).

According to market experts, Zomato is facing severe cash flow problems as its operational cost is running quite high.

Zomato Founder and CEO Deepinder Goyal said on Friday that he is not getting into the quick commerce market because growth in food delivery is now saturating.

“Food delivery has a long runway ahead. In FY22, our Adjusted Revenue grew by 109 per cent over FY21 and we expect healthy growth to continue going forward,” he noted.

According to him, quick commerce is a natural extension of Zomato’s food delivery business.

“How is it a natural extension? Because it is also a hyperlocal business, just like food delivery. And, because it also caters to a need for quick delivery of products for our customers. Quick commerce will help us increase the customer wallet share spent on our platform and also drive higher frequency and engagement from our customers,” he said in a company statement.

Zomato has grown at a CAGR of 86 per cent in the last four years to an adjusted revenue of $710 million “while the adjusted EBITDA margin has improved from (153 per cent) in FY19 to (18 per cent) in FY22”.

The acquisition came as the quick commerce (10-minute delivery) segment is brewing with new hope as people prefer groceries and other home essentials at their doorsteps within no time after making an online order.

Startups like Swiggy Instamart, Zepto and Reliance-backed Dunzo, among others, are trying to defy the current slowdown, as they add more goods and daily essentials to their kitty and deliver them to their customers.

In December 2021, Swiggy announced to pour $700 million into Instamart.

Last month, 10-minute delivery platform Zepto raised $200 million, taking its valuation to around $900 million.

India’s quick commerce market is all set to witness 15 times growth by 2025, reaching a market size of nearly $5.5 billion, according to Bengaluru-based market research firm RedSeer.

The total addressable market for quick commerce in India stands at $45 billion, and urban areas are driving this market on the back of mid-high-income households.

According to Akshant Goyal, Chief Financial Officer, Zomato, their food business is trending towards profitability faster than what they hadAthought at the time of the IPO last year.

“The timeframe for overall Zomato profitability does not change in our minds. In fact, we believe we will now get to profitability within the same timelines (as we thought last year) but with a much larger addressable market. We are also not envisaging any furtherAcapital raise to get to profitability in this timeframe,” he said.

Goyal said that as a food company, “we are already tapping into the large food delivery opportunity in India”.

“Customers (and data) are clearly signalling the macro trend that people are moving to unplanned and spontaneous purchases. To add to this, monthly order frequency on Blinkit app was 3.5x in May 2022, which is higher than that of food delivery on Zomato,” informed Goyal.

Blinkit’s gross order value (GOV) is fast catching up with Zomato’s GOV in some key markets, therefore indicating that quick commerce will add a significant new addressable market to our business in the long term.

“In a sample market like Gurugram, Blinkit GOV is already 63 per cent of Zomato’s food delivery GOV,” Goyal added.

Quick commerce naturally extends across multiple categories including beauty and personal care, electronics, OTC pharma, stationery and other gift items, among others.

The company said it will keep the Blinkit app and brand separate from Zomato.

“We will explore ways in which Blinkit can benefit from Zomato’s large customer base (and vice versa in the long term). Post the deal closure, we are going to start experimenting with various ideas that we have and see which all bear fruit, including having the Blinkit tab on the Zomato app,” the company said.

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Investor group acquires SaaS firm Zendesk for $10.2 bn

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Software-as-a-service (SaaS) platform Zendesk has been acquired by a group led by global investment firms Permira and Hellman & Friedman in a $10.2 billion all-cash deal.

Under the terms of this agreement, Zendesk shareholders will receive $77.50 per share. The offer represents a premium of approximately 34 per cent over Zendesk’s closing stock price on June 23.

Zendesk will become a privately held company upon completion of the transaction.

“This is the start of a new chapter for Zendesk with partners that are aligned with the strength of our agile products and talented team, and are committed to providing the resources and expertise to continue our growth trajectory,” said Mikkel Svane, Founder, Chairman and CEO, Zendesk.

Zendesk started the customer experience revolution in 2007 by enabling any business around the world to take their customer service online.

Today, Zendesk connects more than 100,000 brands with hundreds of millions of customers over telephony, chat, email, messaging, social channels, communities, review sites and help centres.

The company employs more than 6,000 people across the world.

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Bitcoin heading to zero, China warns investors

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As cryptocurrencies reel under the global downturn, Chinese state-run newspaper Economic Daily has warned investors that the price of leading cryptocurrency Bitcoin is “heading to zero”.

The warning came as the cryptocurrency market continued to face meltdown with Bitcoin hovering around $21,000 per digital coin on Saturday — a substantial drop from its record high of $68,000 in November last year.

“Bitcoin is nothing more than a string of digital codes, and its returns mainly come from buying low and selling high,” the newspaper said.

“In the future, once investors’ confidence collapses or when sovereign countries declare bitcoin illegal, it will return to its original value, which is utterly worthless,” it added, reports South China Morning Post.

The Chinese government banned Bitcoin mining in July last year.

It has plans to launch its central bank digital currency (CBDC) called the digital Chinese yuan (e-CNY).

The country banned all cryptocurrency transactions last September and barred foreign crypto exchanges from operating within the country in 2018.

The Economic Daily earlier justified China’s ban on cryptocurrency trading by taking examples of the collapse of stablecoins terraUSD and luna whose value reached zero.

The price of Bitcoin tumbled to a new low of $17,958 this month, before recovering to over $20,000 this week.

According to analysts, Bitcoin may hit a grim $14,000 this year.

The likely bottom range at $14,000 would represent a drop of around 80 per cent for Bitcoin from the $68,000 all-time high.

According to Coindesk, Bitcoin has historically experienced periods of asymptotic price run-ups followed by steep crashes, “typically played out over several months to two years”.

Cryptocurrency watchers refer to these periods as “cycles”.

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