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Talking Points This Week: Get Used To The New(est) Normal

Every week, Niraj Shah studies how top business leaders and market makers are navigating the pandemic-altered financial landscape.

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(Image: pxhere)

In ‘Talking Points This Week’, Niraj Shah studies how top business leaders and market makers are navigating the pandemic-altered financial landscape.

The one development that caught my attention the most this week is that the United Kingdom will end the need to wear masks or work from home, with Covid-19 restrictions to be relaxed next week. That is quite a move by a nation that was the first to roll out the use of the Pfizer vaccine back in late 2020. Elsewhere in Europe (pardon that, Brexiters), tension continues to build between the western world and Russia on Ukraine. In markets, the price upticks in scarce commodities like nickel, tin, and lithium, and a large acquisition by Microsoft drew attention. Not to forget earnings, where the picture with banks in the United States and technology services in India is mixed, at best.

Geopolitics And Oil

A new flare-up in West Asia geopolitics with the Yemeni Houthi attack on oil facilities in Abu Dhabi, coupled with Russia’s troop build-up at its border with Ukraine, and some temporary outages in key pipelines all meant that crude oil went on the boil. #OOTT was trending on Twitter and we saw seven-year highs for the commodity. One look at the players involved in these tensions – Russia is the world’s second-largest oil producer, and the United Arab Emirates is OPEC’s third-largest producer – tells you that some of these heightened tensions, and consequently higher prices may be here for longer. A BBC editor quoted an unnamed senior European Union diplomat as saying that Europe is now closer to war than it has been since the break up of the former Yugoslavia.

While high oil prices are great for stocks of upstream companies, this will bite into the trade balances of a number of oil-importing countries. That’s something that India could do well without, in times of economic activity already getting impacted due to Covid-led stop-starts. But then, maybe this is the way times will be. Unpredictable, and volatile.

Opinion
U.S., Germany Say Any Russian Aggression Against Ukraine Would Trigger Response

A Big Deal

Microsoft bought Activision Blizzard Inc. in a $68.7 billion deal. This would be Microsoft’s largest purchase ever, paying $95 a share in cash for one of the biggest gaming publishers in America, known for titles like Call of Duty and World of Warcraft. Experts see the Activision titles helping Microsoft expand the offerings for its own Xbox gaming console and better compete with Sony’s PlayStation. Activision has a long history with Microsoft as most of Activision’s games are published on Xbox consoles. This effectively unites two of the biggest forces in video games. It’s easily the largest cash takeover of the pandemic and will make the computer giant the world’s #3 gaming company. Halfway around the world, this deal wiped $20 billion off Sony’s market value at a point of time on Wednesday.

Putting that deal size in another frame, a gaming company got a value of over $68 billion, a number above which there are only six companies in India. Think about that. Gaming may not be native to a lot of people, but it is the norm amongst a whole lot more.

Opinion
Microsoft’s $69 Billion Activision Deal Could Be a Blunder

Earnings: Mixed At Best, In India

Lately, information technology, brokerage businesses, and select financial stocks have displayed growth. But in the last ten days, we have had multiple companies release very patchy numbers.

Even in optically strong results, there were chinks in the armour. Consider HCL Technologies Ltd., which showed the best revenue growth in 47 quarters but its margin performance disappointed the street. Similarly in the case of companies like L&T Technology Services Ltd., Tatva Chintan Pharma Chem Ltd., Mastek Ltd., or Oracle Financial Services Software Ltd. The revenue or margin disappointment was met with strong reactions on the stocks on the days after their results this week.

However, some other firms did exceptionally well. What LTTS couldn’t do, Larsen & Toubro Infotech Ltd. did, showing both revenue growth and margin strength. Bajaj Finance Ltd. showcased better asset quality and optimism on the future. Textile companies offered promise both on the revenue front as well as the bottom-line.

At the opposite end were companies like CEAT Ltd, optic fibre stocks like Sterlite Technologies Ltd. and Tejas Networks Ltd., and agrarian stocks like Rallis India Ltd., where investors have had to contend with unpredictable quarters, for a number of quarters.

It’s been a mixed set of numbers thus far, and not exactly the start you need to an earnings season in an expensive market. Again, volatility in earnings is something investors may best get used to.

Gold, And All That

Amidst the flurry of all the silver exchange-traded funds being launched in India and the talk of gold being an inflation hedge, here’s a point to note. The last time the U.S. Fed taper happened, gold did something very curious. Interestingly, the movement thus far in the taper cycle resembles the movement in the previous cycle. Bulls would be hoping it does not follow the last cycle.

By The Way

Paytm has company. In a bracket it may not want. The payments gateway-cum-marketplace is not the only large digital offering in the Asia Pacific region to lose over half its value. Online commerce company PT Bukalapak.com lost more than half its value this week since raising $1.5 billion in 2021 through Indonesia’s largest initial public offering. In any IPO rush, investors would do well to remember the National Stock Exchange’s caution slogan – soch kar, samajh kar, invest kar.

Niraj Shah is Markets Editor at BloombergQuint.