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Easing of risk weights on loans given to MFIs and NBFCs
Banking, Business, Market News, Markets - July 12, 2022

Loan growth, higher margins, and lower costs to drive bank bottom lines in Q1.

Loan growth, higher margins, and lower costs to drive bank bottom lines in Q1.

 

Indian banks are predicted to post strong core earnings growth in the June quarter. This is due to the improved margins and decline in credit costs. However, rising yields may affect the marked-to-market losses impacting the earnings. The analysts estimated that the credit growth for the banking system will increase by 12%, driven by private banks. Net interest margins may go up by 3%. This is due to better net interest income and an upward interest rate cycle. The treasury loss and lower fees may decline the other income by 27%.

 

The net profit of the overall banking is predicted to drop by 11.5% on QoQ basis. The margin outlook, guidance on deposit accretion for some banks and treasury loss have to be monitored.

 

State Bank of India (CMP Rs. 484.95) is expected to report strong PAT growth. HDFC Bank (CMP Rs. 1,391.80) may report a drop in net profit and NIM is expected to remain range-bound. Kotak Mahindra Bank (CMP Rs. 1718.95) could continue improvement in loan growth however net profit might decline on a QoQ basis. ICICI Bank (CMP Rs. 759.90) might maintain its loan growth momentum as retail continues to see traction while Axis margins are expected to improve. The banks that have a higher share of floating rate books, including mortgages, could have increased credit growth, and rising interest rates. Valuations have also been corrected. This provides a margin of safety. Additionally, asset quality is on the mend, with the risk of a fresh NPA cycle remaining low. This should lead to healthy profitability and return ratios for banks. The gross bad loans might ease up and the overall slippages, recoveries and provisions may return to normal.

According to analysts, the overall Gross non-performing assets ratio is estimated to decline by 20 basis points or by 5.2% in the June quarter. Further, there will be lower slippages reflecting a low EMI bounce rate at 22%, better recovery trends in retail and higher w-offs with banks sitting on excess provisions. Asset quality is expected to improve. As increasing interest rates and the end of the moratorium are building pressure, stress behaviour in the MSME segment needs to be monitored.

Loan growth, higher margins, and lower costs to drive bank bottom lines in Q1.
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NBFCs and HFCs securitization volumes almost doubled.

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

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AXISCADES Wins $1.2M Aircraft Cabin Interiors Contracts
Business, Market News, Markets - July 12, 2022

Indigo to "rationalise" salaries of technicians following mass sick leave.

Indigo to “rationalise” salaries of technicians following mass sick leave.

 

On 2nd July 2022, a large number of its cabin crew members took sick leave, to participate in the competitor’s Air India recruitment drive. As a result, 55% of Indigo’s domestic flights were delayed.

Indigo has decided to “rationalise” the salaries of its aircraft technicians and remove “anomalies caused by the pandemic”

On Friday, 22 out of 25 of the airline’s aircraft maintenance technicians went on sick leave in Hyderabad and Delhi. They skipped work to protest against their salaries and low increments. Continuous salary cuts during the pandemic added fuel to the employee’s already simmering anger. In April, Indigo suspended some of its employees due to the pandemic. This led to the mass sick leave of the employees indicating a protest. The DGCA ordered Indigo to compensate passengers for delayed flights.

Indigo expects higher attrition levels among its crew, as Air India is hiring aggressively and Akasa Air and Jet Airways are starting their operations this year. This has created a lot of opportunities in the aviation industry.

Indigo had cut down the salaries of its employees during the COVID-19 pandemic. Last week, the has increased the salaries of pilots and cabin crew by 8%. On the other hand, Air India has restored the salaries of its employees by 75 %.

On Monday, an email was sent to the aircraft maintenance technicians by SC Gupta the Vice President (Engineering) of Indigo. The email sent by him was accessed by PTI. He stated that, the Covid-19 pandemic severely affected the aviation industry over the past 30 months. He also mentioned that the technician’s commitment towards the company has remained consistent through difficult times. He further said that he is apprised of the concerns about salary increase and during the last two years the company have not been able to revise the compensation. He has shared that the company will “rationalise” the salaries of its aircraft technicians. This will come into effect from August 1, 2022.

 

Currently, the share price of Interglobe Aviation Ltd is Rs. 1701.35. The price increased by 6.70 points or by 0.40%. The opening price was Rs.1696.65 and closing Rs. 1694.65. The market cap of the company is Rs. 65,545.

 

Indigo to "rationalise" salaries of technicians following mass sick leave.
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Brent oil fell over 4% in a week amid economic crisis

Adani group to enter into 5G spectrum

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Fiscal Discipline in Focus: Government Plans Deficit Reduction by FY26
Business, Markets - July 12, 2022

NBFCs and HFCs securitization volumes almost doubled.

NBFCs and HFCs securitization volumes almost doubled to Rs. 33,000Cr. in April- June

The securitization volume originated by Non-Banking Financial Companies and Housing Finance Companies has doubled in Q1FY23 to Rs.33000Cr. as per a report, released on Monday. Securitization is the conversion of loans into marketable securities for fulfilling cash requirements to third parties many times described as collateralized Debt Obligations (CDOs).

The growth in volume is witnessed to be double 1.9 times in Q1FY23 compared to RS 17,200Cr. in FY22. During Q1FY21, volumes were significantly affected by pandemic and nationwide lockdown and dropped to Rs. 7,500 Cr. in March 2020. The volumes are forecasted to cross a mark of Rs. 1.5 Lakh Cr. in FY23 if there are no further Covid-19 disruptions in the country. The growth in demand for credit has been picked up which was partly met by loan securitization. Since securitization is one of the key tools for NBFCs and HFCs it will help them to diversify their portfolio and enhance their customer base.

The predominant use of securitization is to transfer the credit risk from one investor to a wide range of investors who can tolerate that risk and thus resulting in financial stability and providing an additional source of funding. Fund repayment has been stable over the past few months with the agency’s rate at 97% in April 2022. The total of Rs. 1,5 lakh crore volume in securitization is expected in FY23 compared to Rs. 1.3Lakh Cr. in FY22. It is done in 2 ways either by Direct Assignment (DA) or by Pass-through Certificate(PTC). In the past, DA has contributed around 60% share and 40% to PTCs. In FY23, DA and PTCs are in line with the past trend.

Securitization has dominated, with approximately 46% volumes followed by vehicle loans with around 26% and microfinance at 11%. Securitization of assets has increased sharply from 46% in Q1FY22 to 70% in Q1FY23. The ease in lockdowns and improvement in efficiency in the collection has majorly given the ease to investors to participate in securitization. Another reason for an increase in volumes is because the microfinance sector has been almost absent from this market and was able to restrict the decline and enhance investor interest in the securitization market.

Brent oil fell over 4% in a week amid economic crisis

Adani group to enter into 5G spectrum

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https://www.equityright.com/rbi-expects-inflation-to-cool-from-october/
Business, Equities, Market News, Markets - July 12, 2022

Adani group to enter into 5G spectrum

Adani group to enter into 5G spectrum:

 Gautam Adani, a led conglomerate to engage in a bidding clash with Reliance & Airtel for 5G spectrum. Adani Group’s entry into the 5G spectrum will result in intensified competition for revenue. Analysts believe Adani Group to engage in a battle for 5G airwaves auction. The auction will be on July 26, in both the coveted but expensive 3.3-3.67 GHz and the cheaper 26 GHz bands. Adani Group as the fourth bidder will increase sell off the spectrum. This will lead to more sales of the spectrum, which is good for the government. The price will rise 10% over the reserve price of Rs.317Cr. a unit.

Adani Group clarifies it doesn’t want to enter the consumer mobility space but would participate in the upcoming auction. Adani Group intends to provide private network solutions with enhanced security at its airports, logistics, power generation, distribution, and manufacturing units. They mentioned their plans align with their recent proposition of increasing the Adani Foundation’s investment in education, skill developments, and healthcare. Despite their current focus being on 5G private captive networks, they would target both 5G airwaves 26 GHz and C-band also called mid-band. As ecosystems are now developed around C-band and not much around 26GHz waves.

Adani telco will include services in automation of factories, remote education centers or remote working facilities, and other 5G storage solutions. Spectrum leasing means one company leasing spectrum from telecoms for a fee to corporates keen to invest in such networks. The large corporates can be setting networks on their own or in a tie-up with a technology company. Adani group will have the facility to serve enterprise offerings which include the private network as a service. The entry of Adani Group could make difficult situations for cash-strapped Vodafone Idea. This would dampen future revenue streams for the current telecom companies. Vodafone Idea may either overbid or miss out on the opportunity to participate in the auction.

The Centre plans 72Ghz worth 4.5 lakh Cr. to be valid for 20 years at the base price in various low bands (600 Mhz, 700 Mhz, 800 Mhz, 900 Mhz, 1800 Mhz, 2100 Mhz, 2300, 2500 Mhz), mid (3.3-3.67 GHz) and high (26 GHz) frequency bands. However, the government expects telecoms to use both mid and high-band spectrum to roll out 5G services.

RBI expects Inflation to cool from October.

TCS profit misses estimates as recession fears hit IT spending.

Avenue Supermarts’ profit jumps 490% to Rs.680Cr. in Q1.

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Avenue Supermarts’ profit jumps 490% to Rs.680Cr. in Q1.
Equities, Markets, Result Updates - July 11, 2022

Avenue Supermarts’ profit jumps 490% to Rs.680Cr. in Q1.

Avenue Supermarts’ profit jumps 490% to Rs.680Cr. in Q1.

The operator of Dmart stores, Avenue Supermarts declared a PAT of Rs.679.64Cr. in Q1FY23. The company has shown a jump of 490% from to Rs. 680Cr. in Q1 from Rs.115.13Cr. YOY. The growth is however one-sided from a low base effect because of ongoing Covid-19 effects. The firm also recorded a 94% rise in its revenue from operation at 9,806Cr. which was Rs.5,301.74Cr in Q1FY22. EBITDA stood at Rs.1008Cr. which was at 221Cr. in previous year same quarter. EBITDA margin stood at 10.3% in Q1FY23 which was at 4.4% in Q1FY22.

For Q1FY23, Avenue Supermarts reported a consolidated Income of Rs.10067.21Cr. from Rs.8819.02Cr. in the prior year’s corresponding quarter. Net Profit of Rs.642.89 Cr. is recorded in the latest quarter compared to Rs.427Cr. in the previous quarter. The EPS is now at Rs.9.93 which was at Rs.6.59 in March quarter.

Dmart opened 110 new stores in the last three years, one of the largest additions in Q1FY23 and the largest since Q4FY20. They have added a total of 29 stores and are on target to meet 60 additions (over 2020-2022). These stores didn’t operate to their full potential because of the ongoing Covid-19 crisis. As per Noronha, CEO of Avenue Supermarts, the new stores have better design and high capacity to handle large-scale revenue. Since it was the first quarter without any pandemic disruptions, new stores have delivered good results in the current quarter.

Despite decent results, few analysts are bearish on the stock and have given a sell rating.  Due to slowdown in the economy, exchange rates volatility. Avenue Supermarts’ revenue continues to improve; the category sales remain below pre-pandemic levels. Based on the clarification by the managment, we forecast a more significant contribution from apparel & footwear.

The online portal of Avenue Supermarts, DMart-Ready is operational in 12 cities. They are assessing feedback from customers to enhance their quality and presence across the country. There is no additional update on the app.

The stock closed at Rs.3986.85 on Monday, after quarterly results were announced on 9th July 2022. The stock gained 45.15 points and was up by 1.15%. The Market Cap of Avenue Supermarts is at Rs.258213 Cr.

Adani Wilmar enters the coveted large-cap category by AMFI

TCS profit misses estimates as recession fears hit IT spending.

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India’s Data Center Doubling by 2026: What It Means for Infrastructure Investors
Equities, Markets, Result Updates - July 11, 2022

TCS profit misses estimates as recession fears hit IT spending.

TCS profit misses estimates as recession fears hit IT spending.

On 8th July 2022, TCS announced the financial results for April-June 2022 quarter.
Tata Consultancy Services reported net income of Rs. 94.8 billion . While analysts predicted a net profit of Rs. 99.04 billion. Revenue from operations increased by 16% to 527.6 billion rupees and up by 4.3% QoQ to Rs. 52,758 crore during Q1FY23. However the operating profit margin slipped by 23.1% as against 25% in the previous quater. This was due the wage hikes and and the continued rationalisation of employee costs amid high attrition. The company recorded 5.2% rise in consolidated net profit at Rs. 9,478 crore on YOY basis.
The company has declared dividend of Rs. 8 per share. It will be credited by August 3, 2022, and the record date for the is July 16.
The Indian shares fell on Monday, as IT services major Tata Consultancy Services reported weak results last week.
On 11th July 2022, TCS share price opened lower at Rs. 3,226.15, while the previous closing price was Rs.3,265.45 on the BSE. The stock hit a high of Rs. 3116.40 and dropped by 4%. Currently the stock price is Rs. 3119.70 and down by 145.75 points or 4.46%. The market cap of TCS is Rs. 1,141,514 crore.

Most of the analysts have now revised downward TCS’s earnings estimates, due to fear of potential U.S. recession, forex volatility, and continued supply-side challenges. On the other hand, the company’s management is optimistic about future growth. According to the management the demand for technology remains ‘robust’. And the company has also not seen any footprint of the recession on the demand side. According to the chief executive officer and managing director Rajesh Gopinathan the company is seeing steady demand from immediate conversations with the customers. And the company is constantly polling to see if there are any early indications of softening .

The shares of TCS traded over the counter worth Rs. 15.9 crore i.e 0.5 lakh shares , compared with a two-week average volume of 0.76 lakh shares. The BSE Sensex was trading 324 points lower at 54,158 levels.

The shares of TCS traded lower than its 5-day, 20-day, 50-day, 100-day, and 200-day moving averages. TCS has recorded negative return of 2.5% in the past one year. This led to the underperformance of the BSE Sensex by 6%. The large cap stock is 3% away from its 52-week low of Rs.3,023.35 touched on June 17, 2022. The IT major hit a 52-week high of Rs. 4,045.50 on January 18, 2022.

 

TCS profit misses estimates as recession fears hit IT spending.
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RBI expects Inflation to cool from October.

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Business, Expert Views - July 11, 2022

RBI expects Inflation to cool from October.

RBI expects inflation to cool from October:

Inflation in India is expected to slow down from October. The Central bank will minimize its aggressive action to cut down inflation, as per Governor Das.

As per RBI governor Shaktikanta Das, global factors should have more consideration while assessing inflation targets and current developments in Europe. The governor was focused on the importance of monetary policy. It will help in reducing inflation and inflation targets, despite fears that policy tightening could crease economic growth. He also added, after controlling inflation in the second half, there are chances of recession in India.

The Central bank on Friday eased its monetary policy to increase foreign investment and lift foreign exchange reserves. In India, inflation is above RBI’s target since the start of the year. This affected a hike in interest rates by 90 basis points in the last 2 months. All the central banks have been fighting against inflation driven by surging commodity prices, the Russia-Ukraine war, and supply chain disruptions. In June, RBI said expected inflation was at 6.7% and will cool down from October.

The impact of global factors on the domestic economy has increased over past years due to pandemics and war. So there should be greater recognition of global factors in local inflation and economic growth. This requires more coordination among countries to tackle problems. As per International Monetary Fund’s Latest projections, around 77% of countries have reported an increase in inflation, and this number could reach up to 90% in 2022.

Conclusion:

RBI governor suggested that not all tightening sessions have ended in recession.  He even mentioned that these measures won’t last long. The Central Bank and other major banks have revised GDP projections. It indicates a loss of pace in the growth of the economy rather than loss of a level. RBI governor mentioned many times that RBI plans to bring down inflation to 4% with a sensible slowdown in the economy. Inflation has also raised concerns about whether monetary tightening will end in a global recession or if there can be a soft landing. Global factors have difficult policy alternatives between price stability and economic activity.

How does interest rates affect equity markets

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Adani Wilmar enters the coveted large-cap category by AMFI

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Business, Editorials, Equities, Expert Opinions, Market News, Markets - July 10, 2022

Adani Wilmar enters the coveted large-cap category by AMFI

 

Adani Wilmar enters the coveted large-cap category by AMFI

On 5th July 2022, the Association of Mutual Funds of India (AMFI) declared its semi-annual categorization of stocks which takes into consideration data from January 2022 to June 2022.

The Association of Mutual Funds of India (AMFI) classifies all listed companies into large-cap, mid-cap, and small-cap, on a semi-annual basis. Active equity fund managers build their portfolios based on AMFI’s stock categorization on.

According to the stock categorization by the Association of Mutual Funds of India (AMFI), shares of the Life Insurance Corporation of India (LIC) and Adani Wilmar were classified as large caps. AMFI has also classified shares of Adani Power, Cholamandalam Investment and Finance, Bank of Baroda, Hindustan Aeronautics Ltd (HAL), and Bandhan Bank as large-cap from the mid-cap category.

 

New large-cap additions:

On the new listing, the market cap for the large-cap is Rs. 475,000 Cr. Stocks such as Adani Power, Cholamandalam Investment and Finance, Bank of Baroda, Hindustan Aeronautics, and Bandhan Bank have been upgraded from mid-cap to large-cap. Currently, the market cap of Adani power is Rs. 1,01,533 Cr. And its market price is Rs. 263. Additionally, Adani Wilmar is also added to the large-cap category with a market cap of Rs. 76,161Cr and CMP Rs. 582. LIC has been upgraded to a large-cap and recorded a market cap of Rs. 444,425 Cr. And the current market price is Rs. 702.65. The market cap of Cholamandalam Investment and Finance (CMP Rs. 643), Bank of Baroda (CMP Rs. 98.65), Hindustan Aeronautics (CMP Rs. 1759), and Bandhan bank (CMP Rs. 273.45) are Rs. 52,822 Cr, Rs. 51,015 Cr, Rs. 58,820 Cr, Rs. 44,046 Cr. respectively.

 

New mid-cap additions:

AMFI has moved IDBI Bank, HDFC AMC, Godrej Properties, Steel Authority of India (SAIL), Zydus Lifesciences, Jubilant Foodworks, and PB Fintech (Policybazaar) from large-cap to mid-cap category. The market cap for mid-caps is Rs 164 billion. The stocks that have been added mid-cap category are Vedant Fashions with market cap of Rs. 24,335 Cr. and CMP Rs. 1003, and Delhivery with market cap of Rs. 36,772 Cr. and CMP Rs. 507.55. Some stocks have been upgraded from small-cap to mid-cap category. These include Tata Tele Maharashtra, KPR Mill, Tanla Platforms, Poonawala Fincorp, Phoenix Mills, SKF India, and Chambal Fertilizers.

 

New small-cap additions:

Stocks that have been downgraded from mid-cap category are AGS Transact Technologies, UMA Exports, Veranda Learning, Hariom Pipes, Campus Activewear, Rainbow Children’s Medicare, Prudent Corporate Advisory Services, Venus Pipes, Paradeep are added to the small-cap category. Moreover, Nuvoco Vistas, Aditya Birla AMC, UCO Bank, Natco Pharma, GR Infraproejects, Indiamart Intermesh, Happiest Minds, Ajanta Pharma, and Sanofi India.

To make sure a consistent investment universe for equity mutual fund schemes, AMFI categorizes stocks into large-cap, mid-cap, and small-cap. However, a change in the category doesn’t need to result in inventory entries. The equity fund managers find the newly added and upgraded to large-cap stocks more attractive.

As per the AMFI, about 74% of newly listed stocks were classified as small-cap.

The market cap of the top 100 large-cap stocks declined to 68.8% from 71.4% in the July review. However, the market cap of mid-cap stocks which starts from 101 to 250, increased to 16.9% as against 16.2% in the last review. In the previous review, the market cap of small-cap stocks was 12.29% which increased to 14.3% .

 

After the stock categorization by AMFI, Adani Wilmar declined by 0.92% i.e from Rs. 582.05 to Rs. 576.70. Similary Adani Power also slipped from 262.75 to Rs. 262.70 which is 0.02%. However, stocks such as LIC, Bank of Baroda, Vedant Fashions have been increased by 0.04%, 0.81%, 1.16% respectively. Hindustan Aeronautics Ltd which is upgraded from mid-cap to large-cap fell by 0.68%. Even though some stocks have been upgraded by the AMFI there is a fall in the some stocks.

 

 

 

 

 

Stock Categorization by the AMFI
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Investing in Real estate.

 

 

 

 

 

 

 

 

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Tarsons Products earned Rs. 29 crores in net profit.
Commodities, Currency, Equities, Market News, Markets - July 7, 2022

Market update: 07th July 2022.

Market update: 07th July 2022. 

Overall performance:

Today as the market closed, SENSEX was up by 427.49 points or 0.80%, closing at 54178.46 and NIFTY was up by 143.10 points or 0.89%, closing at 16132.90. While the S&P BSE small-cap index closed at 25,568.55 and increased by 328.87 points or 1.30%. NIFTY Bank increased by 1.74% or by 596.05 points and closed at 34920.30. Similarly, Nifty IT also surged by 0.67% or 188.70 points and closed at 28196.30

The most active stocks traded today were Reliance, Titan Company, HDFC, and Tata Steel closed at Rs.23,88.10, Rs.127.50, Rs.1395.80, and Rs.900 respectively.

 

Global Indices and Commodities:

When the Indian market closed, DAX was trading at 12,776.97 up by 189.246points or 1.42%. NASDAQ was trading at 11361.85 and up by 39.61 points or 0.35% and CAC was trading at 4,5998.95, increased by 1.53% or 90.70 points. Currently, Gold is trading at 50,651 and increased by 151 points and 0.30%, and Silver is trading at 57,247 and gained 0.92%. Crude oil is trading at 7900, increasing by 1.73%.

 

Currency:

Currently, USD is trading at Rs 79.17, declining by 0.13%. EURO was trading at Rs 80.79 and increased by 0.36%. 

Sector-wise performance:

Today, almost all other sectors ended on a positive note. The IT Services & Consulting Service sector increased by 0.81%. However, some stocks in this sector fell, which are Affle India and Bartronics. Sectors such as Finance, Households, Paints, and Pharmaceutical increased by 7.57%, 9.93%, 4.79%, and 2.49% respectively. The oil exploration and production sector fell by 3.12%.

Top 5 gainers:

The top 5 gainers today were Titan Company, Tata Steel, Larsen, and Induslnd Bank, M&M. Titan Company (CMP Rs.2127.50), and Tata Steel (CMP Rs.900) increased by 5.66% and 4.88% respectively. The current market price of Larsen is Rs. 1611.10 and gained 3.53%. IndusInd Bank was up by 2.92% and closed at Rs.861.00. M&M gained by 2.60%. The CMP of the company is Rs.1133.30

Top 5 losers:

Today, the top 5 losers were Dr Reddys Labs, Nestle, Bharti Airtel, Reliance, and Bajaj Finance. Dr Reddys Labs (CMP Rs. 4,338.35) declined by 1.29% and Nestle (CMP Rs. 18,187) by 1.14%. Bharti Airtel closed at Rs. 686.65 and slipped by 1.05%. Reliance decreased by 1.01%. The closing price was Rs. 2387.65 as against the previous closing price of Rs. 2411.95. Bajaj Finance closed at Rs. 5859.90 and fell by 0.98%

Stock in news: 

Titan Company’s first-quarter sales jumped by 205% year on year basis. The closing price of Titan Company was Rs.2127.50 as against the previous closing price of Rs.2013.55. The price increased by 5.66%. The board of PBA Infra approved the voluntary delisting of shares of the company from NSE. The company’s share price fell by 2.61% and closed at Rs. 13.05. Deep IND received a Letter of Awards from ONGC. The company’s share price rallied from Rs.188.45 to Rs.198.50. The price increased by 5.33%.

Market update: 07th July 2022. 
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Adani Wilmar enters the coveted large-cap category by AMFI

 

 

 

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Avantel Soars 6% with ₹25 Crore DRDO Deal!
Commodities, Markets - June 28, 2022

Why do commodities Exchange Exist?

What are commodities Exchange?

The Commodities exchange allows traders to buy and sell goods. It includes both simple goods and manufacturing goods. The function of Commodity exchange is to provide a centralized marketplace where commodity producers and commercials can directly sell to those who want them for consumption or manufacturing. Commodity future exchange connects buyers and sellers easily. It helps businesses to enhance while there is a buyer for every seller. It makes the economy much more efficient with standardized prices for a commodity. Commodities are into two broad categories: hard and soft. Hard commodities consist of natural resources that must be mined or extracted, whereas soft commodities are agricultural products such as grain, meat, dairy, and livestock. Investors use these commodities to diversify their portfolios. Commodities are considered a risky investment class.
It is affected by many uncertainties and risks, such as epidemics, natural calamities, or other unpredictable circumstances. Individuals can invest in commodities through futures, options, exchange-traded funds, and contracts. There are six major commodity trading exchanges in India:

1. Multi Commodity Exchange (MCX)
2. National Commodity and Derivatives Exchange (NCDEX)
3. National Multi Commodity Exchange (NMCE)
4. Indian Commodity Exchange (ICEX)
5. Ace Derivatives Exchange (ACE)
6. The Universal Commodity Exchange (UCX)

Types of commodities:

1. Metals Commodities – This includes the trading of precious metals such as gold, silver, copper, and platinum. Gold is traded by investors as it is the safest way to diversify their portfolios against any uncertainties like inflation or currency devaluation.

2. Energy – This includes commodities like gasoline, natural gas, heating oil, and crude oil. Normally, oil price fluctuates due to the increasing demand for energy commodities. However, individuals entering energy commodities should be aware of economic reforms, a shift in production by OPEC, and new advances in technology.

3. Agriculture commodities – Commodities such as soya, rice, wheat, coffee, corn, cocoa, sugar, and cotton come under agriculture commodities. These commodities are bought by the wholesaler or a firm that uses them as a raw material. 

4. Meat and livestock – This includes commodities like feeder cattle, pork bellies, lean hogs, and live cattle. The trading of livestock is not popular in India. It is mostly done in the US, UK, China, etc.

 

Ways to Invest:

A derivative Contract (Financial Instrument) is a contract between two parties for deriving value from any underlying assets. As the Price of underlying assets changes, the value of underlying assets also fluctuates.

 

The types of Derivative Contracts:

Options – Options are contracts where the buyer has a right to buy or sell a particular security at a predefined price. It is commonly known as a strike price. However, they don’t have obligation to buy or execute the option. One who executes the contract is known as the option writer.
Forwards – It has an obligation in the contract, which is unstandardized and not traded on stock exchanges. Forwards are available over the counter only and cannot de traded directly on market. However, forwards can be customized according to the parties involved. Forwards contract has third party risk. There are chances that the other party defaults in the payment or delivery of the product are not done as there is no regulatory party involved.  
Futures – This is the same as forwards, but futures are standardized and allow holders to sell or buy security at a specified price and date. Futures can directly be traded on market.
Swaps – It involves swapping of obligations between the two parties depending on cash flows which are depended on the rate of interest and agreed upon at the period while entering into the contract. Here, one cash flow is fixed and the other depends on the market interest rate and usually, these rates are swapped.

The best way to trade in commodities is through futures contracts. An agreement to buy or sell a commodity in the future agreed on a date at a pre-determined price.

 

Role of commodity market:

1. Food security – Farmers can use the future market more effectively by selling at a future price by fixing the price. This will ensure that they are not susceptible to future fluctuation in price. Hence, food security can be achieved using the commodity market. Many times commodity markets help farmers in hedging the commodity which is prone to uncertainties and risk. 
2. Agricultural ecosystem – Substantial amount of food grains are lost in the transmission process. The commodity market helps farmers, brokers, middlemen, and customers. If the food gains are not stored properly they get attacked by rats and pests.  
3. Aggregation – Currently, the middleman acts as an aggregator which is not a transparent mechanism. So, commodity exchange provides an organized and guaranteed mechanism for all the essential commodities.
4. Hedging and risk – One important role and function of the commodity market is to hedge and distribute the risk in the market.
5. Speculative excess – The commodity market absorbs speculative excess risk in the market, especially in the spot market. It helps various retail investors to participate in the new asset class.

 

What are Gold funds and what are the benefits?

 

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