The Theory of Interest Rate Parity says

If the interest rate in:

Country 1 = 2%

Country 2 = 6%


You can borrow money from country 1 at 2% and invest it in country 2 at 6% and make a 4% risk-free return (arbitrage) on borrowed money


if such a situation exists, every last capital in the world would exploit this situation,

this will increase the demand for currency 1 and increase the supply of currency 2,

thus, currency 1 must appreciate and currency 2 must depreciate until this 4% gap is fully exploited,

In other words, currency 2 must depreciate by 4% wrt currency 1


sounds logical, right?

but it doesn't always work linearly.

Telegram.me/AlliesFin

2021

USA interest Rate: 1%

India Interest Rate: 5%

USD/INR: 75


2022

USA interest Rate: 4%

India Interest Rate: 6%

USD/INR: 82



The interest rate differential has gone from 4% to just 2%

but INR has depreciated by 9%

shouldn't INR depreciate less wrt USD, since the interest rate parity has narrowed now?


Not really,

One major reason why INR is depreciating so rapidly is a rapid flow of USD out of India,



Think about this:

If Indian equity markets grow by 12%, US investors don't make 12% returns

they make: 12% (minus) currency loss

so if INR depreciates by 4%

they only make 8% return.


compare this to an interest rate of 4% in the US today

and PE ratio of 20+ in India (highest among its peers)

wouldn't you be much better off just parking the money in your USD bank account,

then invest in a foreign country trading at high valuations (vs emerging market peers) with its own set of economic risks and currency risks?

Is it worth the trouble for an extra 4% return in the best-case scenario?

I don't think so.



--

Now put yourself in the shoes of a US investor,

if you invested money in Indian Equities in 2021

equity returns : 0%
currency depreciation: 9%

total return: -9%


Interest Rates have risen by 3-4% in the western world since 2021

US govt bonds today are yielding 4%

UK govt bonds are yielding 5%


why would anyone sitting in US & UK take the additional risk of investing in a foreign economy (trading at 20-year high valuations) for just a 3-4% extra return?


--

So what is the solution?

RBI can increase Indian interest rates to increase the interest differential again,


but guess what?

this will increase Indian bank FD rates, Govt bond yields, even liquid MFs yields will increase to 7% or more

Given the high valuations of our Equity markets,

domestic investors will start shifting money from Equity to Debt (which is now giving 2% more returns than just a year ago)

Another negative for Indian equity markets.



--

An increasing cost of capital is never good for Equities.

India has a good long-term story, but in the short to mid-term if money keeps flowing out of Equities, they are bound to correct, it's only a matter of time.

Here's what you Learn

☝️ Wealth Creation through Equity
✌️Goal based Investment approach
🤟How to Over Come Wrong Financial Decisions

Online Presentation
Sat 01 Oct 2022
11 am to 12 noon

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Kindly note that w.e.f.30-09-2022, List of Scrips of BSE/NSE will be transferred from Settlement Cycle T+2 to T+1. Hence BTST (Inter Settlement) in these Scrips will not be allowed from Trade date-T+2-29-09-2022 to Trade date-T+1-30-09-2022 for one day only because payin of both Settlement on same day @10.30 a.m. & payout @12.30 p.m. @ALLIESFIN

Multiple Events Tomorrow:
@AlliesFin
1. RBI Policy
2. Putin Speech
3. FTSE Rebalancing
4. Weekly/Monthly/Quarterly/Half Yearly closing

India VIX melts down to 21. If this drops below 20 expect good bounceback in market.

29/9/2022
T.me/AlliesFin
BSE:-188(56409)
NSE:-40(16818)
MID:+75(24512)
SML:+176(28047)
*FII|FPI:-3599Cr*
*DII:+3161Cr*
B.Crude: 89
Gold$:1650=INR: 49850
Silver: 56075
$/Rs: 81.86
6.54 : 2032 G-Sec: 7.38
NSE PE: 20.08

MKT UPDATES :

SGX Nifty -100 pts (16750) from last trade 16850 ,

Nikkei -373 pts ,
Hangseng +1 pt ,
Around @ 6.52am .

Dow -458.13 pts ,Nsdq -314.13 pts, S&P
-78.57 pts , Bovespa -786 pts , Ftse -123 pts , Dax -207 pts , Cac -88 pts , Crude @ $81.67 brl (+0.44), Brent @ $88.49 brl (+0.00) , Gold @ 1672.20 (+3.60), Silver @ $18.865 (+0.15), Euro @ $0.983, JPY @ $144.42, INR @ 81.465


*US GOVT. 10-YEAR YIELD : 3.78%*


*Today's Corporate Action, 30 Sep Ex Date :*

MAXIMUS
Stock  Split From Rs.10/- to Rs.1/-


*Today's Key Results/Board Meetings, 30-Sep-22 :*

HERITGFOOD
Right Issue of Equity Shares;General
INTETHR
A.G.M.   
MDRNSTL
Quarterly Results  
NAYSAA
A.G.M.   
SAGARSOFT
Quarterly Results  
SCANPRO
A.G.M.   


*SEC. IN F&O BAN FOR*
*30-Sep-22*

NIL


*Today's Alert :*

*RBI to Conduct Auction of GOI BONDS for INR 330 Billion*

*Business News Headlines*

*Economic Times :*

Ø Tata Industries to hive some startup businesses off to Tata Digital

Ø NSE index rejig to bring inflows of up to $189 million

Ø Sebi rolls out framework for credit rating agencies

Ø IT hardware PLI purse may zoom 2.5 times to Rs 19,000 crore

Ø Cognizant will focus on digital, stay away from “uneconomic” deals

Ø HCL acquires majority stake in vernacular edtech platform GUVI

Ø Sebi set to allow confidential pre-filing of IPO documents

Ø Govt to borrow Rs 5.92 lakh cr in H2 of FY23; plans to raise Rs 16,000 cr via sovereign green bonds

Ø Government aims to control natural gas prices to tame inflation, sources say

Ø Merger between LIC MF and IDBI MF in advanced stage: LIC Mutual Fund MD

Ø SBI files 'insolvency petition' against Jaiprakash Associates in NCLT

Ø Govt hikes interest rate on small savings schemes for Q3 of FY23


*Buisness Standard :*

Ø Reliance Retail's fashion-lifestyle store AZORTE to take on Zara, Mango

Ø ICICI Pru, 14 insurance firms evaded Rs 824 crore input tax credit

Ø Retail IPO applications down by over 50% in H1FY23, shows data

Ø India's Li-ion battery demand to grow to 70 GWh by 2030, says report

Ø Blue Dart Express' volume growth momentum likely to sustain in FY23

Ø Centre to relax rules, fast-track new measures for oil & gas exploration

Ø Export of rice consignments with limited quantity of broken rice allowed

Ø New funding mechanism takes wing for HNIs bidding Rs 2-10 lakh in an IPO

Ø Torrent group to make Rs 2,900-cr bid for Reliance Nippon Life Insurance

Ø Adani Enterprises secures funds to build Ganga Expressway at Rs 23,000 cr


*Financial Express :*

Ø Russia to annex seized Ukrainian regions: Putin to sign documents in grand ceremony tomorrow

Ø IPO mop-up plunges 32 pc to Rs 35,456 crore in H1: Report

Ø Sebi bans The Apex Global, its proprietor from markets for 4 years

Ø Transport Corp’s Vineet Agarwal bullish on both online and offline sales amid 2022 festivities

Ø Lupin launches generic Suprep Bowel Prep Kit in United States

Ø Former RBI deputy governor, Zomato chairman join BharatPe board

Ø Indifi disbursed loans valuing Rs 2800 crs to more than 30,000 MSMEs

Ø Offline food, grocery retailers to see 20% revenue growth

Ø Nykaa board to meet on October 3 to consider bonus share issuance

*September Auto Sales Estimates YoY_01.10.2022:*

*Ashok Leyland:* 155000 units versus 9533 units ( *Up 33.0%* )

*Tata Motors:* 82800 units versus 59156 units ( *Up 40.0%* )

*M&M Tractor:* 40500 units versus 40331 units ( *Up 0.4%* )

*M&M Auto:* 63600 units versus 28112 units ( *Up 126.0%* )

*Maruti:* 178500 units versus 86380 units ( *Up 106.0%* )

*Hero Motocorp:* 500000 units versus 530346 units ( *Down 6.0%* )

*TVS Motors:* 375000 units versus 347156 units ( *Up 8.0%* )

*Bajaj Auto:* 423000 units versus 390000 units ( *Up 8.5%* )

*Eicher Motors RE:* 77000 units versus 33529 units ( *Up 130.0%* )

*Escorts:* 9521 units versus 8816 units ( *Up 8.0%* )

Investors Meetings on September 30

Rossari Biotech: Officials of the company will attend Equirus Virtual Annual Conference.

Bharat Forge: Officials of the company will meet ICICI Prudential AMC.

Safari Industries (India): Officials of the company will meet IDFC Mutual Fund, and Mirae Asset Mutual Fund.

Gati: Officials of the company will meet Ambika Fincap, and Habrok Capital Management LLP.

Phoenix Mills: Officials of the company will interact with Mondrian Investment Partners.

Indian Energy Exchange: Officials of the company will interact with Ethos Investment Management.

Escorts Kubota: Officials of the company will interact with Toona Tree Capital.

Polycab India: Officials of the company will meet BlackRock Asia, Kotak Offshore, Nippon Offshore, and Wellington Management in Singapore.

Prudent Corporate Advisory Services: Officials of the company will meet Marcellus Investment Managers, and B&K Securities.

Meghmani Organics: Officials of the company will meet DAM Capital.

• India’s rate-setting panel headed by RBI Governor Shaktikanta Das may raise the benchmark interest rate by 50 basis points to 5.90%, according to 34 of 46 economists in a Bloomberg survey. 11 predict a 35 basis points hike and one for a 25 basis points increase.
o India Set for Third Half-Point Hike as Rupee Slumps: Guide
• UK Working ‘Intensely’ with India on Free Trade Agreement
• Modi Government Keeps Second-Half Borrowings Largely Unchanged
o India to Borrow INR5.92T in Fiscal Second Half; Est. INR6T
• India’s Current Account Deficit Swells to Near Decade High
o April-June Current Account Deficit $23.90B; Est. -$30.80B
• India Slightly Reduces Annual Bond Sale Goal on Buoyant Revenue
o India Plans Debut Green Bonds to Raise $2 Billion by March
o India to Sell 2.86T Rupees of T-Bills Oct.-Dec.: DEA
• CCI approves Buying Assets of Essar Group by ArcelorMittal Nippon
• India Postpones Six Airbag Rule for Cars Despite Deadliest Roads
• SURVEY: India Economy to Expand 6.2% in 3Q22; Prior +6.5%
• Indian Stocks Drop for Seventh Day as Risk-Off Grips Markets
• India Nifty Faces 30% Downside Risk on Bond Mean Reversal: CLSA
• India Foreign Travel Spending Up 195% in 2Q Y/Y
• Global Funds Sell Net INR36B of India Stocks on Thursday: NSE
o Domestic funds buy net 31.6b rupees of stocks
• Defence minister visits forward areas in Arunachal, interacts with troops at the LAC: PTI
• Zee-Sony merger hearing inconclusive Both Zee and Sony asked to make written submissions: CNBC- TV18
• Govt upgrades Mukesh Ambani’s security cover to Z plus: PTI
• 4:00pm: India Fiscal Deficit in rupees for April-Aug., prior -11,040
• 5:30pm: August Eight Infrastructure Industries, prior 4.5%
• 10am: RBI Bi-monthly Monetary Policy Statement for 2022-23
o RBI Benchmark Repurchase Rate, Est. 5.90% (prior 5.40%)
o RBI Cash Reserve Ratio Est. 4.50% (prior 4.50%)
• RBI to release weekly FX, bank credit data
• Adani Power (ADANI): CCI approves co.’s acquisition of share of Diliigent Power and DB Power: PIB
• Hero MotoCorp (HMCL): To Invest $60 Million in Zero Motorcycles for EVs
• Life Insurance Corp (LICI): Raises Deepak Nitrite holding to 5.028% from 4.977%
• Lupin (LPC): Gets U.S. FDA ANDA approval for Mirabegron extended- release tablet, a generic of Myrbetriq tablets
• Punjab National Bank (PNB): To sell entire 10% stake in ARCIL by Dec. 31 at an agreed price

RBI Monitory Policy Snapshot 30-09-2022

1) Repo Rate increased by 50 BPS at 5.90%
2) Inflation is projection at 5.7% in 2022-23
3) SDF stands adjusted at 5.65%
4) Stance - Withdrawal of Accommodation

Simple Definition to understand the Term Better @AlliesFin


Repo Rate: It is the interest rate at which the Central bank of a country lends money to commercial banks ( RBI give loan to bank )


Reverse Repo Rate it is the rate at which the Reserve Bank of India (RBI) borrows money from banks ( Rbi takes loan From Banks )


Cash reserve ratio (CRR) is the percentage of a bank's total deposits that it needs to maintain as liquid cash. ( Bank Has to Keep cash in to bank as per RBI Ratio )

Here's what you Learn

☝️ Wealth Creation through Equity
✌️Goal based Investment approach
🤟How to Over Come Wrong Financial Decisions

Online Presentation
Sat 01 Oct 2022
11 am to 12 noon

Join Whatsapp group
https://chat.whatsapp.com/GzgmMBBIq5NCPFHgbtFz2Z

Register to give yourself the Edge
Its Free :)
https://wa.me/919869958999

LINK TO SHARE THIS MSG
https://telegram.me/AlliesFin/12121

BULLS ARE BACK 😊
NIFTY ABV 17100 + 323
BANK NIFTY ABV 38700 +1111

Desh badal raha hai
Mkt pahele FED ki sunta tha
Ab RBI ki sunta hai😊
#rbi #fed #alliesfin

MKT. UPDATES :

*SGX Nifty -250 pts (17856) from last trade 17106 ,*

Nikkei -76 pts ,
Hangseng -173 pts ,
Around 6.52am .

Dow -500.10 pts ,Nsdq -161.81 pts, S&P
-54.85 pts , Bovespa +2372 pts , Ftse +12 pts , Dax +138 pts , Cac +85 pts , Crude @ $82.12 brl (+2.63), Brent @ $87.96 brl (+2.82) , Gold @ 1672.20 (+0.20), Silver @ $19.135 (+0.09), Euro @ $0.9798, JPY @ $144.81, INR @ 81.515


*US GOVT. 10-YEAR YIELD : 3.80%*


*Today's Corporate Action, 3 Oct Ex Date :*

JONJUA
Bonus issue 4:23 
MAXIMUS
Stock  Split From Rs.10/- to Rs.1/-MOTHERSON
Bonus issue 1:2 
SUZLON
Right Issue of Equity Shares 
YUG
Bonus issue 1:2 


*Today's Key Results/Board Meetings, 03-Oct-22 :*

ANURAS
General  
DHANADACO
General  
GETALONG
General  
HDIL
Audited Results;Quarterly Results
NYKAA
Bonus issue 
ROJL
General  
SARDAPPR
General;Preferential Issue of shares
SKIFL
Issue Of Warrants 


*SEC. IN F&O BAN FOR, 03-Ocr-22*

*NIL*


*Today's Alert :*

*RBI to Conduct Auction of SDLS BONDS for INR 195 Billion*

India Rings in 5G as Debt-Laden Carriers Gird to Spend Billions

o PM Modi kicks off service in video call to school students

• Ambani Plans 5G Services in India With Most Affordable Tag (1)

o Reliance will invest 2T rupees in providing 5G service

• India Sept. Gross GST Revenue Collection at 1.48T Rupees

• India Cuts Windfall Taxes on Diesel, Aviation Fuel and Local Oil

• India’s September Diesel Sales Rebound Ahead of Major Festivals

• Coal India Allays Shortage Concerns on Improving Fuel Supplies

• Indian Households Expect Inflation to Rise, RBI Survey Shows

o India’s RBI Delivers Half-Point Hike to Rein in Inflation

• India Increases Natural Gas Price for 6 Months From October

• India Aug. Key Industries’ Output Rises 3.3% Y/y

• India April-Aug. Fiscal Deficit at 32.6% of FY23 Target

• India’s Market Regulator Tightens Disclosure Norms for IPOs

• India Allows Companies to Sell Bonds in Smaller Denominations

o Move to boost individual investor participation: Buch

• Rain in South India Seen Normal in Three Months to Dec.: IMD

• Air India Is Said to Weigh Raising $1 Billion for Expansion

• India Forex Reserves Fall $8.13B to $537.5b in Week to Sept. 23

o India Official Reserves Drop to Lowest Since August 2020

• Citigroup Hikes India RBI Peak Rate Forecast by 50 Basis Points

• India Stocks Outperform Asia as Banks Rally After RBI Rate Hike

• India Cumulative Monsoon Rainfall 6% Above Normal as of Sept. 30

• Cotlook Raises 2022-23 Surplus Outlook on Dwindling Demand

• India Credit Card Loans Rise to Record in August

• Global Funds Sell Net INR15.7B of India Stocks on Friday: NSE

o Domestic funds buy net 32.5b rupees of stocks

• India’s unemployment rate drops to 6.43% in Sept.: CMIE: PTI

• IAF to formally induct indigenously-built Light Combat Helicopter on Monday: PTI

• Zimbabwe Power Firm Secures Funds From India, State Media Says

• 10:30am: S&P Global’s India Manufacturing PMI for Sept., prior 56.2

• Adani Ports (ADSEZ): Incorporates Wholly-Owned Unit Adani Aviation Fuels

• Coal India (COAL): Sept. production climbs 12.3% Y/y to 45.7m tons; Sept. sales rise 1.1% Y/y to 48.9m tons

• Delta Corp (DELTA): Delta Corp, Coffee Holding Merger Sees EV of ~$655m

• Gokaldas Exports (GEXP): Clear Wealth Consultancy Services LLP sold 1.5m shares of GEXP to ADIA at INR349.75/shr: BSE Bulk Deals

• Graphite India (GRIL): To stop German Electrode production, as energy cost unviable

• HDFC (HDFC): HDFC Increases Retail Prime Lending Rate by 50BPS From Oct.

• Hero MotoCorp (HMCL): Sept. vehicle sales 519,980 vs. 530,946 a year ago

• Maruti Suzuki (MSIL): Sept. sales 176,306 units vs 86,380 Y/y

• NMDC (NMDC): Sept. sales grow 6.6% Y/y to 2.91m tons; Production +1.5% Y/y to 2.73m tons

• NTPC (NTPC): April-Sept FY23 generation increase 15.1% Y/y to 203.5 BU: PIB

• Srei Infrastructure (SREI): Says AM Mining added in final resolution applicants list

• Tata Motors (TTMT): Sept. local sales rise 44% Y/y to 80,633 units

• TVS Motor (TVSL): Sept. Vehicle Sales rise 9% Y/y to 379,011 Units

• Veranda Learning (VERANDA): To consider Fund raising plan on Oct. 5

• Zydus Lifesciences (ZYDUSLIF): Gets U.S. FDA nod to market Sildenafil for oral suspension