This week, we talk about the Nifty crossing the 20,000 mark and what it means for the stock markets. We also talk about the surge in mutual fund inflows and the IPO boom. Finally, we dwell on the mega land sale by the Wadia group and its implications for the debt-laden conglomerate.
Welcome to Kuvera’s weekly digest on the most critical developments related to business, finance, and the markets.
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In an otherwise staid speech in December 1996, the then US Federal Reserve chief Alan Greenspan used the phrase “irrational exuberance” to describe how investors were behaving as the stock markets surged.
Two decades later, in 2016, Greenspan said he was aware the words were put in the speech to spook the market.
But Greenspan’s words didn’t work. While stocks fell for a while, they quickly rebounded, and in 1999, Greenspan had to eat humble pie as he formally abandoned the now infamous phrase at the Fed’s annual retreat that year.
Why are we telling you this story?
You see, India’s benchmark Nifty50 index climbed to an all-time high of 20,000 this week, and stayed there. Although a brokerage did cite Greenspan’s phrase while talking of the rally in midcap and smallcap stocks, the Reserve Bank of India governor and senior government officials mercifully chose to keep their wise counsel to themselves.
The mandarins at the central bank and the finance ministry would have been aware of the fact that the markets were taking their cues from upbeat macroeconomic numbers, despite subdued global signals, with some anticipation building around the US inflation figures, which will influence expectations regarding US interest rates.
For one, prices seem to be finally cooling off. India’s consumer price index-based retail inflation moderated to 6.83% in August from a 15-month high of 7.44% in July, thanks to a fall in vegetable prices. Core inflation at 4.8% remained in line with the market’s expectations.
On top of that, government figures released during the week showed the country’s factory output rose to a five-month high of 5.7% in July, from 3.7% in June, driven by strong growth in mining and power.
So, is it time to pop the bubbly and party into the night with gay abandon? Party you can, but as always, we advise caution.
Kotak Institutional Equities, a marquee brokerage house, this week dropped recommendations on midcaps and smallcaps, citing Greenspan’s phrase.
Analysts at the brokerage said they saw limited point in trying to find fundamental reasons behind the steep increase in stock prices of several midcap and smallcap stocks. It also said that there was no meaningful change in the fundamentals of most companies, which it said, had worsened in most cases.
So, keep investing, but tread cautiously, please.
Awash with funds
And yet, one cannot ignore the surge in equity fund inflows and the IPO boom that Indian capital markets are witnessing.
Inflows into equity mutual funds surged 165% to Rs 20,245 crore in August, driven by heavy demand in smallcap and sectoral funds, data from the Association of Mutual Funds in India (AMFI) released this week showed.
This surge follows a decline in net inflows in July. Open-ended equity mutual funds had recorded a 12% decline in net inflows to Rs 7,626 crore in July as large-cap funds grappled with outflows.
Net inflows into equity funds have remained in the positive territory for the 30th month in a row in August starting with March 2021.
AMFI data also showed that the contribution via systematic investment plans (SIPs) hit a fresh all-time high of Rs 15,814 crore in August. In July as well, the SIP book was at record high of Rs 15,245 crore.
Further, total assets under management (AUM) of open-ended funds at the end of August stood at Rs 46.63 trillion against Rs 46.37 trillion with equity AUM contribution at Rs 18.4 trillion against Rs 17.8 trillion on a month-on-month basis.
IPO boom continues
When it comes to opportunities to make money in the stock markets, investors are spoilt for choice.
Mutual funds are not the only avenue where retail investors can hope to make good returns. The markets are witnessing an IPO boom of sorts, with as many as 11 companies either already in the process of listing on the bourses or planning to do so soon.
While the likes of cable manufacturer RR Kabel saw their issue subscribed twice over, others like real estate developer Signature Global, textile conglomerate Sai Silks Kalamandir and travel portal Yatra Online announced price bands for their IPOs as have Zaggle Prepaid Ocean Services and SAMHI Hotels.
Other companies that are expected to list in the next few weeks include JSW Infrastructure, Madhusudan Masala and Vaibhav Jewellers. Entero Healthcare and the Indian Renewable Energy Development Agency have filed their draft papers with the market regulator SEBI, which has already given Updater Services the green light to go ahead with its listing plans.
But why this rush of IPOs, you may ask? For one, because the markets are on a high and flush with money. And second, the overall economic sentiment in the country seems to be looking up, with domestic investors pouring in the cash each time there is a pull back by foreign investors.
However, analysts caution restraint and say some of these companies may be overvalued. Moreover, the IPOs of smaller businesses come even as some blockbuster listings over the past failed miserably at the box office.
So, if you are a retail investor, do go ahead and take your bets, but don’t forget to read the fine print before you gamble with your money.
Bombay Dyeing’s mega deal
Even as new-age companies list on the stock market, one of India’s oldest business houses was in the news this week as it decided to sell a 22-acre land parcel in the heart of Mumbai for a whopping Rs 5,200 crore ($627 million).
The mega deal saw the shares of Nusli Wadia-promoted real estate-to-textile company Bombay Dyeing surge as much as 20% on Thursday, as investors saw this as a cue that the property market could pick up.
The Wadias are selling the prime land to a unit of Japan’s Sumitomo Group in a bid to make their flagship company debt-free. This, even as the group faces troubles at its airline Go First, which has had to shut operations and file for bankruptcy.
Sumitomo subsidiary Goisu Realty Pvt Ltd would pay for the acquisition in two parts, with Rs 4,675 crore initially and Rs 525 crore subsequently after the fulfilment of certain requirements.
Along with Bombay Dyeing, shares of the Wadia Group’s holding company Bombay Burmah, too, hit a 52-week high as it was up nearly 8% on Thursday.
Market Wrap
As we discussed, the markets just seem unstoppable. The two benchmark indices—the 30-share Sensex and the 50-stock Nifty—have delivered 17.6% and 18.7% in absolute returns over the past year. In fact, just in the past five sessions alone, the Sensex and the Nifty have jumped 1.8% each. While the Nifty managed to remain above the psychologically crucial 20,000 mark, the Sensex, too, touched a new lifetime high of 67,927.23 on Friday.
Bajaj Auto, Hindalco, Grasim Industries, Bharti Airtel and Adani Ports were among the Nifty stocks that gained the most during the week. Other counters that followed suit included three lenders—Axis Bank, HDFC Bank and ICICI Bank—as well as ONGC, IT majors Tata Consultancy Services, HCL Tech and Infosys, Coal India, UPL and Tata Motors.
The losers during the week included Asian Paints, Hindustan Unilever, Cipla, JSW Steel and Eicher Motors.
Other headlines
- Reliance Retail pursues $1.5 billion investments from Singapore, Middle East sovereign wealth funds
- Vitol, AT Capital Group invest $350 Million in Juniper Green Energy
- Axis Finance challenges NCLT’s nod for Zee-Sony merger
- Securities Appellate Tribunal finds SEBI’s probe on Punit Goenka in Zee case appears to be witch-hunt
- Mastercard appoints former SBI chairman Rajnish Kumar as India chairman
- Vedanta names Chris Griffith as CEO of base metals unit
- Apple to sell made-in-India iPhones on launch day for the first time
- Tata Motors to open exclusive electric vehicle sales network this fiscal year
- Passenger vehicle sales rise 9% to record 3,59,228 units in August, says industry group SIAM
- Domestic air passenger traffic jumps 22.81% year on year in August
- European Central Bank raises interest rate by 25 bps
- Tesla expected to double imports from India to $1.9 billion this year, says minister Piyush Goyal
- ITC invests close to Rs 3,000 crore in Welcomhotels Sri Lanka
That’s all for this week. Until next week, happy investing!
Interested in how we think about the markets? Read more: Zen And The Art Of Investing
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