This week, we talk about why the RBI decided not to touch interest rates for the fifth straight time and what it said about the state of the economy. We also talk about why many analysts see the bull run in the Indian stock markets continuing into 2024, the multi-fold rise in Adani group stocks and why the conglomerate should be wary of competition from cigarette maker ITC.
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For the fifth straight time, India’s central bank decided this week, not to tinker with its prime lending rate. At the first glance therefore, the monetary policy committee (MPC) meeting of the Reserve Bank of India (RBI) might seem like a non-event.
But dig deeper, and you’d discover that the six members of the central bank’s apex decision making body actually ended up saying a lot this time. And that, my dear Watson, is what will be key to how India’s macroeconomy shores up, as the country goes into election mode in less than five months.
For one, RBI governor Shaktikanta Das (the top boss), highlighted the central bank’s continued focus on “withdrawal of accommodation.” In plainspeak, it means the central bank will focus on curbing the money supply to control inflationary pressure.
In fact, this decision comes even as the retail inflation numbers have come back inside the RBI’s target range of 2-6%, despite a robust economic expansion in the first half of the fiscal year, driven largely by growth in the manufacturing and construction sectors.
Don’t understand this seemingly highfalutin lingo that economists use? Let’s decode this mumbo jumbo for you, in that case.
What the RBI is basically saying is this- the economy is growing and we are finally getting inflation under control- so we want things to remain as they are and not get out of hand. We are therefore not raising interest rates for now, but we will also not let easy loans drive up demand, and in turn, prices. So, do not expect your EMI to come down anytime soon.
In fact, three years after it went into a pandemic induced recession, the Indian economy seems to be doing rather well. The second quarter growth in the country’s gross domestic product (GDP) exceeded expectations registering a stupendous 7.6% increase.
Despite this unexpected growth number, the RBI has left its inflation forecast for this fiscal year unchanged at 5.4%. This, despite concerns of rising food prices, uncertainty around crude oil prices and inflationary pressures caused by excess demand.
The RBI upped its forecast for India’s GDP growth to 7% for FY’24, from its earlier projection of 6.5%. For Q3 and Q4, the projections are 6.5% and 6%, respectively. The GDP growth rate in the first three quarters of FY25 has been pegged at 6.7%, 6.5% and 6.4%, respectively.
Extended bull run on cards
With such overall positive sentiment, now buttressed even by the central bank, the country’s stock market is seeing a bull run that is unlikely to lose steam anytime soon.
Apart from positive economic numbers, the markets seem all fired up following the recent electoral victories by the Bharatiya Janata Party (BJP) in Rajasthan, Madhya Pradesh and Chhattisgarh.
As things stand right now, the markets are betting on prime minister Narendra Modi returning to power in 2024, with a full majority. And that, from the market’s perspective would mean only one thing- policy continuity.
As the Sensex nears the 70,000 mark and the Nifty breached the 21,000 mark, market watchers are betting on a mega bull run in 2024, expecting large caps and cyclicals to drive the rally, as risks fade.
In fact, the Nifty is expected to return 15% in 2024 if expectations of most market mavens are anything to go by. Rally in large caps is likely to be driven by growth stocks and cyclicals.
Brokerages expect the Nifty to touch 23000 in 2024, despite earnings forecast for FY’23-26 likely to remain at 12% on a compounded annual growth rate basis.
But politics can at best be a policy enabler. And sentiments can take a market only as far. Ultimately, what matter are fundamentals including terms of trade, inflation, non-portfolio foreign inflows and such like.
Moreover, mid and small caps have mostly outperformed the large caps in this bull run but this outperformance is unlikely to continue owing to their stretched valuations. Small- and mid-cap indices have surged 40-50% this year, outperforming large caps by over 25%. Some brokerages say these valuations now look stretched.
So, as a retail investor, what should you do? Our advise would be to not merely chase returns and focus instead on managing risk. That should be your number one aim as you try and navigate this market. Remember- a rising tide lifts all boats, so you need to know what not to buy.
Adani shares surge
Meanwhile Adani Group stocks continued to rally this week after a report indicated that a US agency found that the accusations made by Hindenburg Research against the conglomerate were ‘irrelevant.’
The US International Development Finance Corp (DFC) conducted a due diligence before extending the conglomerate a $553-million loan for a container terminal in Sri Lanka, a Bloomberg report said. A senior US official affirmed that the US government considered the Hindenburg Research allegations of corporate fraud against Adani inconsequential.
Adani Green Energy was up more than 38% this week while other counters including Adani Ports and SEZ, Adani Power were up by 17.9% and 16%, respectively. This rally left the group’s founder Gautam Adani richer by more than $12 billion. Now what can we say about that!
ITC gets a foothold
But the billionaire businessman from Gujarat should watch out. The Kolkata-based ITC Ltd, one of India’s most established companies, has reported upstaged his group company Adani Wilmar and other rivals like Britannia and Parle Products, to emerge as the country’s largest fast moving consumer goods (FMCG) manufacturer in the foods space by domestic sales in the nine months to September, according to the latest data collated by market tracker NielsenIQ.
According to a news report by The Economic Times newspaper that cited the NielsenIQ data, ITC clocked food FMCG sales of Rs 17,100 crore in the period, while Britannia was at Rs16,700 crore, Adani Wilmar at Rs 15,900 crore, Parle Products at Rs 14,800 crore, Mondelez at Rs 13,800 crore and Hindustan Unilever Ltd (HUL) at Rs 12,200 crore.
This is significant, as ITC, which still generates a bulk of its revenue and profits from its core tobacco business, has been looking to become a key player in the FMCG market for a couple of decades now. The company’s efforts seem to finally be paying off.
The report said that ITC has jumped from the fourth spot in the same period last year, when Adani Wilmar was leading the market.
To be sure, one of the key reasons ITC managed to overtake Adani Wilmar was due to the steep fall in edible oil prices. That has impacted the revenue of the country’s largest edible oil company in the nine-month period. In September, edible oil prices were hovering at less than $1,000 per tonne levels, down from a peak of $2,000 per tonne in April-May 2022. At the same time, an increase in atta prices helped ITC. Its packaged atta, sold under the Aashirvaad brand, is the largest revenue contributor to the food business.
This should be music to the ears of millions of retail investors, including retirees, who hold ITC shares in their portfolios for the dividends they offer, year after year.
Fund-raising gets a leg up
The government, too, seems to have woken up to the stock market bull run, and get some monies into its disinvestment kitty.
This week it decided to raise Rs 1,159 crore by selling shares of IRCON International Ltd via an offer for sale (OFS), which witnessed an overwhelming response from non-retail investors who subscribed it more than 4.6 times.
The government, which is selling 8% shares of the railway PSU at Rs 154 per share, decided to exercise the green shoe option. The government owns 73.18% of IRCON International as of September-end. The IRCON share sale comes close on the blockbuster IPO of the government-owned green energy lender IREDA, which listed last week on a premium.
So far in the current fiscal, the government has raised Rs 8,859 crore by selling minority stakes in CPSEs (central public sector enterprises). The Union Budget has set a target of Rs 51,000 crore to be mopped up from PSU disinvestment.
Meanwhile, the IPO rush at the bourses continued with pencil maker Doms Industries setting a price band of Rs 750-790 per share. Doms’ IPO will open for bidding on 13 December and close on 15 December. The stationary products company is looking to raise Rs 1200 crore, comprising a fresh issue of Rs 350 crore and an OFS of Rs 850 crore.
Affordable housing finance company India Shelter Finance too is looking to raise Rs 1200 crore and has fixed its IPO price band at between Rs 469 and Rs 493 per share. The IPO of the WestBridge and Nexus Ventures-backed NBFC will open for subscription on 13 December. India Shelter Finance will issue fresh shares worth Rs 800 crore and the sale will have an OFS component of Rs 400 crore.
Market Wrap
As we just said, India’s stock market seems to have entered a bull run with some analysts predicting that it could go even higher from here.
Both the Sensex and the Nifty ended the week firmly in the green, up nearly 3.5%. In fact, both the benchmark indices have gained around 10% since 1 November, with no major correction visible just yet.
The Nifty stocks that led the rally this week included Adani Ports and SEZ, NTPC and Larsen & Toubro. Others that also caused the Nifty to rally were Power Grid, BPCL, UltraTech Cement, Eicher Motors and six lenders- State Bank of India, Yes Bank, ICICI Bank, HDFC Bank, Axis Bank and Kotak Mahindra Bank.
Some Nifty stocks, however, left their investors poorer, ending the week in the red. These included Bharti Airtel, Hero Motocorp, Hindustan Unilever, Bajaj Auto and Dr. Reddy’s Laboratories.
Other headlines
- Zomato shares worth Rs 1,125 crore sold in block deal, Softbank likely seller
- ChrysCapital acquires 75% stake in ProHance, enters SaaS segment
- Dunzo delays November salary due to cash crunch
- Tata plans new iPhone factory in Tamil Nadu to hasten Apple’s India expansion
- Govt provided over Rs 6,100 crore for the renewable energy sector via green bonds in FY23
- RBI cancels license of UP-based Urban Co-op Bank, Sitapur
- Water management startup DigitalPaani raises $1.2 million in seed round
- Dr Reddy’s arm inks pact with Coya Therapeutics for development of sclerosis drug
That’s all for this week. Until next week, happy investing!
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