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Moneycontrol Pro Panorama | Global diversification and its side effects

In today’s edition of Moneycontrol Pro Panorama: IT slowdown likely to get tougher, a glimmer of hope for rural jobs, central bankers rush to buy gold, the mystery of the Chinese balloon, and more

February 07, 2023 / 02:10 PM IST
Representative image

Representative image

Dear Reader, 

The Panorama newsletter is sent to Moneycontrol Pro subscribers on market days. It offers easy access to stories published on Moneycontrol Pro and gives a little extra by setting out a context or an event or trend that investors should keep track of. 

Geographical diversification brings depth and scale to business. It also exposes the company to market vagaries in foreign locations. Take the case of Tata Steel and Hindalco Industries which are leading the losses in the Nifty 50 shares in Tuesday afternoon trade.

Tata Steel slipped into losses in the December 2022 quarter, pulled down by its weak Europe business. Similarly, Hindalco’s key subsidiary in the US, Novelis Inc, reported sharply lower profits on reduced product offtake by customers and soft realisations. “We are navigating a challenging period of intensified inflationary headwinds,” said Dev Ahuja, executive vice-president and chief financial officer of Novelis, in a statement.

Tata Steel’s India business fared better than its Europe operations. The company also sees better prospects in its India business, helped by the government’s thrust on infrastructure spending. On the other hand, the outlook for the Europe business is clouded by geopolitical tensions, inflation and tight monetary policies. The company sees a gradual recovery in end-use industries such as automobiles. “Economic activity remains subdued,” Tata Steel said in an investor presentation, referring to Europe.

Tata Steel is reorienting its business to India. But Europe remains a laggard and continues to weigh on the consolidated entity’s performance. The situation at Hindalco is different. Even so, Novelis continues to have a determining role on Hindalco’s earnings and stock returns. Analysts fear the performance may remain muted in the near term.

The beverage can sheet market, a large customer segment at Novelis, is seeing inventory normalisation in the US. This is expected to weigh on Novelis’ sales and earnings. “The continuous beverage cans destocking and high cost leads to near-term earnings uncertainty,” analysts at Nuvama Research said in a note. In comparison, Hindalco's India business is expected to fare relatively better, helped by lower input costs.

Of course, metal prices in India and Asia are contingent on the recovery in China. But investors in companies with a global presence currently have to worry about weak demand trends also, especially in the US and European markets.

Investing insights from our research team

Will the Paytm stock recover lost ground as loss narrows?

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Varun Beverages: Is there some fizz left, post the rally?

Tata Consumer Products: What will be a key driver for India business?

KPIT: Strong quarterly numbers, but does rich valuation support upside?

What else are we reading?

The Eastern Window: The Kafkaesque mystery of the Chinese balloon

Who makes more money: Bulls or bears?

Budget 2023: A glimmer of hope on the rural jobs front

With central bankers rushing to purchase gold, should retail buyers follow?

Cognizant repair can make slowdown tougher for Indian IT

Marketing Musings: Competitive federalism

The paradox of financial conditions (republished from the FT)

Budget 2023: Expect only committed crypto players to stay invested in India

Budget 2023: Angel tax a dampener for Indian companies seeking FDI

Budget 2023: With capex thrust and fiscal shield, the budget tells India's growth story loud and clear  

Technical Picks: VBLA B CapitalAmbuja CementsApollo Hospitals and Zinc (These are published every trading day before markets open and can be read on the app).

R Sree RamMoneycontrol Pro 

R. Sree Ram