Berkshire Hathaway hits the jackpot: Buffett's got 99 problems, but profit ain't one!

Saturday, May 7^th 2023

Good Morning!

India's finance and investment landscape has been buzzing with a mix of news, ranging from profit posts to merger plans, from billionaire investor predictions to investor interest in jewellery companies. In this summary, we'll delve into five intriguing headlines that have captured attention lately - Warren Buffett's recent predictions for Berkshire Hathaway, the potential outflow of funds from HDFC twins, Berkshire Hathaway's impressive profit post, Temasek's plans for investing in BlueStones, and the growing trend of airlines folding in India's aviation market.

1. Warren Buffett's Berkshire Hathaway posts $35.5 billion profit

Berkshire Hathaway, Warren Buffett's company, announced a first-quarter profit of $35.5 billion, an increase from $5.58 billion in the same period last year. The boost came from gains in common stocks like Apple, as well as higher investment income. The company's operating profit rose by 13%, and it repurchased $4.4 billion of its own stock in the quarter. Berkshire owns an array of businesses, and while its insurance unit performed well, its railroad and utility divisions saw lower profits. Investors at the company's annual meeting expressed concerns about the aging of Buffett and Vice Chairman Charlie Munger.

2. HDFC twins: How much funds outflow will HDFC Bank-HDFC merged entity see after MSCI plan

HDFC Bank and HDFC may remain under pressure in the near term after concerns over funds outflow following inclusion in the MSCI report, according to Dr. V K Vijayakumar, Chief Investment Strategist at Geojit Financial Services. It is expected that the HDFC twins will be under pressure in the short term due to the anticipated selling of around INR 2,000 crore ($268m) worth of HDFC Bank shares. The merged entity has been included in the large-cap segment of MSCI's Global Standard Indexes with a weightage of 6.5%, and concerns over lumpsum foreign funds outflow have been raised, resulting in a significant correction in HDFC twins' share price.

3. Temasek considers investing $100 million in Indian jeweller BlueStones

Singapore's Temasek Holdings is reportedly considering a $100 million investment in Indian jeweller BlueStone for a stake of around 20%. The potential deal could value the Bengaluru-based jeweller, which is also backed by Accel and Indian industrialist Ratan Tata, at close to $500 million. BlueStone aims to expand aggressively in India, where it has over 150 stores, and has previously disclosed plans to open 300 stores by 2024. Temasek's interest in investing in BlueStone has been previously reported, but Reuters is the first to report details of an investment amount, the potential valuation, and other financial details of the potential deal.

4. Why do airlines keep folding in India’s booming aviation market?

India's Go Airlines is the latest victim of the fierce competition in the Indian airline industry, which has seen a number of high-profile carriers cease operations in the past decade. Go's collapse was caused by engine supplier Pratt & Whitney's failure to supply parts and replacement engines. Other reasons for airline failures in India include dirt-cheap fares, high taxes on fuel, cut-throat competition, and high levels of borrowing. Despite the challenges, new airlines continue to emerge in India, attracted by the potential for growth in a country with a large and young population.

5. Mutual funds add 85 lakh new millennial investors in the last five years; SIP's most preferred option

According to a report by CAMS, 84.8 lakh new millennial investors have entered the mutual fund industry in India in the last five financial years, despite market volatility and uncertainty. SIPs in equity schemes have been the preferred investment route for two-thirds of the new millennials, with women accounting for up to 30% of new millennial investors in FY23. Millennials have added 1.03 crore SIPs in addition to 51 lakh SIPs made as initial investments, which are 29% of the total 5.3 crore SIPs registered across segments during FY19-FY23. Overall, 1.57 crore new investors joined the industry between 2018-19 and 2022-23.

6. US labor market defies rate hikes, posts strong job gains

According to the US Labor Department's April employment report, job growth accelerated, and the unemployment rate fell back to a 53-year low of 3.4%. Although February and March data were revised lower, the labor market's momentum is relatively unaffected. Despite strong wage gains, this report does not indicate a downturn from the tighter credit conditions and rate hikes implemented by the Federal Reserve to control inflation. The report suggests that the US economy has yet to face any significant headwinds due to these actions. The report’s larger-than-expected increase in payrolls could indicate a spring revival in the US economy after a sluggish period in February and March. However, the report poured cold water on the financial market's expectation that the Federal Reserve would start cutting interest rates this year. The US central bank raised its benchmark overnight interest rate by another 25 basis points to the 5.00%-5.25% range on Wednesday, indicating that it may pause its fastest monetary policy tightening campaign since the 1980s but kept a hawkish bias.

7. India is at a 'tipping point' and a major focus for Apple, says Tim Cook

Apple's CEO Tim Cook has described India as an "unbelievable" market that is a major focus for the company. Cook noted that Apple had set a quarterly record in India, which he called an "incredibly exciting market." Cook also said that Apple's first two retail stores in India, in Mumbai and Delhi, were "off to a great start," and described their opening as a "milestone" for the company. Cook believes that India is at a "tipping point" as more people enter the middle class. Apple has been expanding its operations in India, including partnering with channel partners, to serve more customers. Cook also highlighted the opportunities in emerging markets, including Indonesia, Mexico, the Philippines, Saudi Arabia, Turkey, the UAE, Brazil, India, and Malaysia.

8. Russia says it has billions of Indian rupees that it can’t use

Russia's foreign minister, Sergei Lavrov, said on Friday that Russia has accumulated billions of rupees in Indian banks that it cannot use, due to the ballooning trade surplus with India. India's total exports to Russia fell 11.6% to $2.8bn in the first 11 months of the 2022-23 financial year, while imports rose nearly fivefold to $41.56bn. The surge came as Indian refiners purchased discounted Russian oil that had been shunned by the West in response to the Russian invasion of Ukraine. The imbalance in trade for Russia means that "the volume of 'frozen funds' can reach tens of billions of dollars," said Alexander Knobel of the Institute of International Economics and Finance.

9. Non-life insurance industry grows over 16% driven by health and motor insurance

The non-life insurance industry in India has grown by 16.4% in FY23 compared to 11.1% in the previous year, driven by a pick-up in health and motor insurance segments, according to a report by CareEdge. Except for a blip in September 2022, the segment reported double-digit growth for the month of March 2023 continuing the trend. Private players grew 2.2 times their public counterparts, with a market share of 62% in FY23. The health insurance segment is on track to breach the INR 1 lakh crore mark, while motor insurance premiums will cross INR 85,000 crore in FY24. The companies are anticipated to make significant investments in digital enablement across all distribution channels, including expanding their online/digital channels to simplify the insurance purchase process. The report warns that intensified competition, an uncertain geopolitical environment, and high inflation could negatively impact economic growth and, subsequently, the non-life insurance sector.

What else is happening around the world?

1. US job creation robust despite banking crisis: Employers added 253,000 jobs, which was better than many analysts had expected. The unemployment rate fell to 3.4%, returning to a multi-decade low.

2. HSBC foils plan by major investor to break up bank: Chinese insurer Ping An has been trying for more than a year to split the bank. On Friday it failed to gain the backing of any other major shareholder as investors voted to reject the proposal.

3. CBI hires ethics consultancy to overhaul culture: The CBI has hired a team of ethics advisors to help overhaul its operations, following allegations of serious sexual misconduct by staff.

4. Kanye West Yeezy loss is hurting us, admits Adidas: Adidas has said the ending of its collaboration with Kanye West is "hurting" the business, with sales in North America hard hit. Overall, total revenue fell by 1%.

5. White House: Big Tech bosses told they must protect the public from the dangers of Artificial Intelligence (AI).

6. US interest rates raised to highest level in 16 years: The Federal Reserve increased its key interest rate by 0.25 percentage points - its 10th hike in 14 months.

7. US economic growth slows as firms cut investment: The economy grew 1.1% on an annualised basis, the Commerce Department said. That was down from a rate of 2.6% in the prior quarter, despite strong consumer spending.