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Multipie Weekly #9: Curated reads for investors

In this edition of our weekly newsletter, we explain the commodities boom and how it impacts downstream industries, decode China’s clampdown on the Tech sector, share insights on Indian agriculture, highlight select results from the week gone by, give you curated reads and more.

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Let’s get started!

1. The Week and Month Gone By 

Markets closed in green, led by IT and Industrials. The sectors that closed the week in red were Energy/Oil & Gas and Consumer Staples – down 3.7% and 0.4% respectively. 

For the month of July, markets gained ~5%, led by IT and Telecom . Power/ Utilities alone saw a contraction, mainly due to weakness in Adani group stocks.

Market cap wise, all buckets closed in green for the week and month, with continued outperformance in small cap and microcap stocks.

2. So what’s really happening in China?

Author: Rajkumar Singhal

Prominent China Tech stocks are down between 2% to 93% (yes you read it right!) for the year. China Internet ETF is down 33% while the Shanghai CSI 300 index is down ~8% YTD. Moreover, Education tech related stocks are down ~ 90%. They have significantly underperformed global markets and are majorly responsible for underperformance of broader Emerging Markets (EEM) as we see below: 

The whole intervention situation started with the cancellation of Ant Financial IPO In November last year. Jack Ma, then CEO of Alibaba ( who owns Ant Financial) chided Chinese regulators for stifling innovation. That angered the authorities and led to cancellation of the IPO after they had collected the money (had to refund later). He is not the only one and there are others as well. Recently China changed the policy and required all tuition companies to turn into non profit organizations.

Why is all this happening? 

One of the reasons has been that while other countries have intervened deeply through both fiscal and monetary expansion, China has done neither. China policy rate is 2.2% vs zero or negative in developed markets. On the other Policy front, China being opaque, no one surely knows what is happening. But some themes are emerging which look credible. 

While the Chinese Community Party (CCP) is regulating internet companies built on the American model, they are not going hard tech companies, rather they are supporting companies such Huawei that fuel their semiconductor aspirations. There is an element of anti-trust, which is a way to make sure big companies are not growing more. There is also an element of fear emanating from what happened in the US when Twitter and FB banned the sitting President. 

We are seeing elements of increasing regulation, socialism and strong intent to tackle their biggest woes in the future – it’s aging demographic and lack of children. And it reflects in their last 5 year Plan. In this, China didn’t list a target for GDP growth, but said they needed to increase population. 

The tweet below from Lillian Li captures the regulation aspect in China. More on all of these next week when we write a long form.

3. The Super Commodity Boom of 2021 – Winners and Losers

Global recovery from the coronavirus pandemic has sent prices for energy, metals and food soaring, helping big commodity exporters, while hammering the downstream industries and adversely impacting countries that largely import their raw materials (India being one). For the likes of Russia and Saudi Arabia, the world’s biggest energy exporters, it heralds good times. For others, it puts huge strain on their balance of payments and currencies, leading to higher inflation.

Let’s see how we reached here, the impact on sectors, and the outlook.


Commodity prices started rising in Jan-Mar 2021 after their 2020 lows (remember negative Oil!?). Metal prices average 30% higher in 2021 than 2020. As per reports, this rally was lead by two factors:

  1. Global economic recovery and improved growth prospects post pandemic
  2. Supply-side issues in copper, crude oil and certain food commodities

Impact on India Inc:

  • As per industry bodies, commodity price inflation has made raw materials costlier by 50-100% (Eg: Maruti is seeing highest cost inflation in a decade! – details later in the post)
  • Prices of 5 key commodities – Steel, Aluminium, Nickel, Copper and Crude Oil has doubled on an average since June last year
  • As automobile makers increase prices, other steel-consuming sectors are worried about the impact of increase in raw material prices on the end user demand
  • As per FIMI, the issue is that Indian steel producers are taking international prices as base even though high grade iron ore is available at cheaper prices from domestic sources
  • Unsustainable prices have kept domestic per capita steel consumption low
  • FIMI also approached the govt requesting price regulation stating that the “artificial price rise” is crushing the MSME players, as they are unable to compete at rising prices and demand for expensive exports decreases
  • India is also losing its market share in value-added segment of engineering exports as a result of the price rise

    Metal-wise Impact:
  1. Copper: Indian smelters depend on imports of copper concentrates – no wonder the price rise has severely impacted manufacturers and exporters
  2. Iron: India is self sufficient in terms of iron ore. As per FIMI, export of low-grade ore (not used by domestic steel producers) can help liquidate stagnant inventory and earn foreign exchange


  • India needs a roadmap for value added exports, and the government needs to step in to incentivize and support downstream industries
  • A policy shield is needed to protect industry from Steel price volatility (FIMI)
  • The commodity boom can be a tremendous opportunity for India if necessary support is provided, given our natural resources endowment

3.1 Maruti’s Valuation sees Multiple Headwinds

Auto majors such as Maruti are seeing the impact of commodity inflation. As per Q1 results, Raw Material cost to Revenue (a measure of how much raw material impacts earnings) increased to a 9 year high of 74.8% (cost inflation impacted margins by 3.5%). An article by ET Prime highlights that Maruti needs to handle multiple cost inflation which may hurt its operating margins. Operating profit margins fell to 4.6% in the quarter (multi year low) as a result of:

  1. Lower output
  2. Commodity inflation
  3. Wage settlement
  4. Increased overheads & commissioning of new lines in Gujarat
  5. Ability to increase prices is limited as a result of slow demand recovery

4. Agriculture value chain set to boom – Highlights from Rural Connect 2021

agriculture working GIF by Hilde Buiter

Agriculture is the backbone of rural India, supporting over 70% of the rural households. Health of this sector thus becomes key to assess the outlook for Indian economy. Axis Capital conducted a series of panel discussions on July 15-16, to understand the health of the rural economy. And it’s positive!

Key takeaways:

  • High agri-commodity prices and fallback options such as MGNREGA helps rural India
  • Discretionary spending is likely to recover slowly as Covid induced healthcare expenditures have forced many to dip into their savings
  • Key macro challenge for India is import substitution – shift excess production of cereals to oilseeds that can substitute edible oil imports
  • Seeing innovation with agri-tech improving profitability, FPOs improving market linkages, and de-risking of farming through insurance – should drive investment in farm implements, food processing & jobs

Agri-tech panel:

“Cutting edge technology like satellite imagery, micro-area weather patterns and AI based prediction methods are being used by players of all sizes. Better visibility provided by technology is allowing farmers to minimize risk in production. Farmers in India maintain a 30% buffer to mitigate risks in production which they can reduce to 15-20% to increase their margins significantly. Businesses have been able to reduce rejection rate from 30% to 5% in procurement. The point of monetization of agricultural data has changed from farmers to participants in the food value chain.”

Agro-Inputs panel: 

  • Need for higher crop yields will drive use of agro-chemicals & fertilizers (India’s crop yields are lower by 30-40% vs. global standards, given lower productivity per acre and per ton of agri-input)
  • Formation of FPOs under new farm bills to address issue of fragmented land parcels & restricted use of technology/ equipment
  • Higher usage of technology should also be complemented with – a. Investments in soil health; b. Improvement in productivity of fertilizers/ agro chemicals by avoiding wastage; c. Crop portfolio approach, based on end demand and not MSP-based sowing of crops
  • India to be an integral partner in global agro-chemical value chain – not only as China + 1 beneficiary
  • PLI in chemicals could draw significant investments


Profits in agriculture are growing and Indian agri-input space is well placed for a multi-year uptick. Big opportunities in domestic and exports. India to gain share in the global agro chemical value chain.

5. Breaking Insurance Stereotypes w. Yashish Dahiya
(Co-Founder, CEO – Policybazaar)

Last week, we hosted Yashish Dahiya, Co-Founder and Group CEO of IPO bound Policybazaar (expected to file a DRHP next week for raising ~INR 6,000 crores). Listen to the podcast here or watch here to understand how Policybazaar has grown to become the largest digital player in the Insurance segment. Yashish also shares many practical insights as to how Insurance works and how one should think about taking Insurance cover. Give it a listen!

6. Q1 FY21 result highlights with Multipie

The result season for Q1FY22 is underway with around 500 results declared. We bring you all ongoing results in one single place!

  • ~90 companies (link) have seen EBITDA margin expansion in Q1 so far, along with revenue growth
  • Click here to access the complete results tracker
  • PS: We also have an annual report tracker with key details on over 600 companies!

Please support our work by sharing this!

7. Other news and reads of the week:

  • Corporate India has been deleveraging Sun Pharma has repaid debt of $185 million in Q1, 2021-22 and it has paid down total debt of about $765 million (~INR 5,600 crores) in the last five quarters.”
  • IPO season: While Fino Payment Bank joined the IPO list, we highlight key IPOs expected in August:
  • While Cartrade awaits its INR 2,000 cr IPO, we recommend this Hustle article on why used cars are so expensive right now!
  • The largest of them all – LIC IPO might see some wait. As per Finance Ministry sources, 3 PSUs (National Fertilisers, MDN and Rashtriya Chemicals) will need to be disinvested before this
  • A start-up is looking to disrupt age old FMCG distribution model. We liked this memo by Blume Venture on why they invested in ApnaKlub and think you should read it.
  • Kotak Mahindra Bank, generally seen as a conservative lender (loan book size equivalent to IndusInd) is shedding caution and getting aggressive. As per Uday Kotak’s letter in KMB’s FY21 AR: “We’ll not shy away from taking bolder bets.”
  • Bajaj Auto takes a different road from Ola in its electric vehicle journey
  • China continues to increase curbs:
    • The country’s major fertiliser exporters, especially state-owned firms, have indicated that they will be suspending fertilizer exports in order to fulfil demand in domestic markets
    • The government also removed rebates on more than 23 types of steel products and even raised tariffs on some such as pig iron 

That’s all for this week. Please share with your peers if you found this helpful and subscribe at multipie.co to start receiving these as a weekly digest every weekend!

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