In this edition, we explain why foreign debt investors are flocking to India’s bond market and how it will impact the economy. In this edition, we talk about how India’s stock market and the cricket team are both riding high. We also talk about the NSE’s move to cap SME IPO listing gains and SEBI’s move to reshape the brokerage and mutual fund industries.
Welcome to Kuvera’s weekly digest on the most critical developments related to business, finance, and the markets.
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Is there a connection between Indian cricket and stocks? While most cricketers and even stock market experts would fume at such a seemingly preposterous suggestion, former India master blaster Virender Sehwag certainly believes there’s a connection.
In a post on X (formerly Twitter), the flamboyant batsman said that Team India, like stocks, has broken out of a consolidation range. The Indian cricket team, like stocks, he said, had been facing resistance and had been unable to get past the finish line in International Cricket Council (ICC) trophies despite playing consistently for years.
“Like in stocks, there is a breakout after consolidation in a range, where after resistance for years there is a multiyear breakout and it reaches new highs, I have a feeling that this is a breakout win for us,” Sehwag said in a post on X after India’s World Cup T20 win over South Africa in Kensington Oval on June 29.
“I think we would be winning many ICC trophies consistently in the years to come,” he said.
Now, we are not qualified to comment on Mr. Sehwag’s cricketing wisdom. After all, he had some of the classiest square cuts and slashes over point.
But we cannot ignore what we witnessed this week. And no, we are not just talking about the lakhs of frenzied, jubilant fans who thronged Mumbai’s iconic Marine Drive and Wankhede Stadium on Thursday, to welcome Team India.
We are also talking about ecstatic investors on Dalal Street, who saw the benchmark Sensex cross the 80,000 mark for the first time in its history. In the run-up to this peak, the Sensex recorded its fastest 10,000-point rally, racking it up in just 58 sessions. Meanwhile, the Nifty 50 is firmly above the 24,000 level now after hitting record highs more than two dozen times so far in 2024.
Market experts now feel that the Sensex could hit the 100,000 mark by the end of December 2025 if it continues to hold this momentum. If that indeed does happen, the index will have delivered an annualised return of 15.9% over the last 45 years. Although the index was launched in 1986, it had a base value of 100 as of April 3, 1979.
And this projection does not even account for the dividends declared by Sensex constituents which investors may choose to reinvest in the market.
So, are such assumptions realistic or have some analysts been taken in by irrational exuberance? Again, we don’t know, but what we can say is that in its path to the 100,000 mark, the Sensex will have to contend with several factors such as India’s union budgets, the rate cut trajectory of the US Federal Reserve as well as local politics, and the presidential elections in the biggest economy in the world later this year.
But some well-meaning people are already sounding a note of caution. One of those voices is DY Chandrachud, the chief justice of the Supreme Court.
Chandrachud said this week that the market surge makes the capital markets regulator Securities and Exchange Board of India (SEBI) and its appellate body, the Securities Appellate Tribunal (SAT), more important than ever before.
“It gives you a sense of the market sentiment,” he said, adding that it “emphasizes the importance of regulatory authorities including SEBI and SAT; just tells that we are into wins, but it is equally important for others to hold their balance and nerves at such times.”
Chandrachud isn’t the only one to raise this concern. In March, SEBI chief Madhabi Puri Buch had also warned of ‘froth’ in small and midcap stocks and of the risk of a bubble.
As for us, we have always advised caution. It is best not to get carried away by the euphoria, and take measured and judicious calls. It is after all your hard-earned money that is on the line.
Stop the sixes
In more stock market-related news, the NSE is set to apply a cap of 90% to all small and medium enterprises (SME) stocks that list on its platform in a bid to restrict runaway gains and bring more stability to the opening price discovery process for such stocks.
“To standardise the opening price discovery/equilibrium price across exchanges during the special pre-open session for the initial public offer (IPO) for the SME platform, it has been decided to put an overall cap up to 90% over the issue price for SME IPOs,” NSE said in a circular on Thursday.
In plain speak, gains for an SME stock with an issue price of Rs 100 will be limited to Rs 90 on debut.
How will this move help? Analysts say the cap can potentially reduce volatility and speculation in the opening price of SME stocks. Previously, there was no cap, and some SME IPOs would see their opening price surge significantly above the issue price. This, they say, could be due to factors like hype or a short supply of shares. The cap can help moderate such price swings.
The move will be a dampener for those who want to exit on day one after pocketing abnormal returns.
It is not uncommon for SME stocks to see a jump of over 100% on listing day. A Hindu Businessline report noted that in this month alone, Diensten Tech (152%), Divine Power Energy (280%) and Shivalic Power Control (226%) have seen a huge jump in prices on debut.
SEBI is reportedly looking to tighten the norms for these listings following certain complaints of misuse. For instance, the minimum issue size could be increased to ensure that only serious companies have access to the capital markets. The companies are currently required to have a post-issue capital base of Rs 25 crore.
On a sticky wicket
The capital markets regulator SEBI made more news this week as it sought to reshape the brokerage industry and shook up the fee structure as part of its continuing efforts to control the surge in derivatives trading.
In a circular on July 1, SEBI said that stock exchanges, depositories and clearing corporations must levy uniform charges on stock brokers instead of the existing discounted charges based on their trading volumes.
Stock exchanges currently offer a discount to brokers to increase trading across segments including derivatives. This means the fees paid by brokers reduce as trading volumes increase.
In turn, brokers charge investors through a similar volume-based structure. The difference between the fees levied on investors and what is paid to exchanges is their additional revenue stream.
However, SEBI doesn’t want brokers to make this extra money at the expense of investors and so has proposed a uniform fee structure instead of slab-wise fees.
The watchdog’s move is not only aimed to enhance transparency of the cost structure but is also intended to control the rush seen in futures and options trading over the past couple of years.
How will the SEBI move impact traders and investors? The rebates earned by brokers form a major chunk of their derivative business revenue. Since this source of money is now being curbed, brokerages may increase fees across the board, both in the spot market as well as in the F&O segment. Hence, investors across market segments will now have to account for these increased costs when calculating their expected returns. The likely loss of revenue dragged down the shares of brokerage companies, especially those that rely heavily on F&O trading.
New innings
SEBI made another significant move this week as it issued a consultation paper to introduce Mutual Fund Lite Regulations. The discussion paper is part of its efforts to make it easier for new players to enter the mutual fund sector and launch passive funds that typically replicate an index such as the Sensex or the Nifty.
Currently, passive funds can only mimic a debt or equity index. However, the consultation paper suggests the launch of hybrid passive funds. These funds will track a composite index comprising equity and debt securities, SEBI said.
To start with, SEBI plans to permit three types of hybrid passive funds. These categories are debt-oriented passive funds, which would invest 25% of the money in equity and 75% in debt; balanced passive funds, which would invest in equity and debt equally; and equity-oriented passive funds, which would invest 75% in equity and the remaining in debt.
While SEBI hasn’t made a final call—it has sought public comments by July 22—the move is certainly in the right direction. It will give more low-cost options to investors and deepen the mutual fund industry. What do you think?
On the front foot
The Adani-Hindenburg saga was back in the news this week after the New York-based shortseller said SEBI was seeking to silence whistleblowers. This, was after the market regulator accused Hindenburg Research of distortion in its scathing report last year on the Adani group that sent the conglomerate’s share crashing.
SEBI alleged that Hindenburg “deliberately sensationalised and distorted certain facts” in its 106-page report issued in January 2023 that accused the Adani Group of “brazen stock manipulation and accounting fraud.”
The regulator’s allegations came in a show-cause notice sent on June 27, nearly 17 months after the Hindenburg report was published. Hindenburg called the SEBI notice “nonsense”. It added the regulator has no power to act against it because the fund has no Indian operations and is, therefore, beyond the regulator’s reach.
Hindenburg also labelled SEBI’s show-cause notice “an attempt to silence and intimidate those who expose corruption and fraud perpetrated by the most powerful individuals in India”. It said the regulator’s notice “identified zero factual inaccuracies with our Adani research.”
Also caught in the crossfire was Kotak Mahindra Bank as Hindenburg said SEBI was not upfront in disclosing the involvement of a Kotak Mahindra Bank subsidiary’s fund in shorting Adani stocks.
Reacting to the development, Kotak Mahindra (International) Ltd said Hindenburg had never been a client or investor in its K-India Opportunities Fund Ltd. But it acknowledged that the fund had facilitated the shorting of Adani shares for Kingdon Capital Management, an investor-partner of the US short-seller.
Market Wrap
Although the benchmark indices scaled new highs, profit-taking on Friday saw them come off their peaks. The Sensex ended the week just short of the 80,000 mark, but up 0.7% over the five days. The Nifty gained nearly 0.9%.
Top Nifty gainers for the week included the likes of ONGC, Infosys, Coal India, Tata Consumer and Wipro. Top Nifty losers included IndusInd Bank, Titan, HDFC Bank, Bharti Airtel, Bajaj Finserv and Adani Enterprises.
Other Headlines
- UK prime minister Rishi Sunak’s Conservative Party routed in elections
- Labour Party leader Keir Starmer is set to be the new UK prime minister after winning a landslide
- Elon Musk’s Tesla pulls back on India EV push, says report
- Reliance Retail to launch IPO-bound Chinese retailer Shein in India
- Suzuki Motor Corp launches Rs 340-cr Next Bharat Ventures social impact fund for Indian startups
- National Company Law Tribunal tells Byju’s to pay salary dues to employees or face audit
- Finance Ministry notifies 7.1% as interest rate for Special Deposit Scheme in July-September
- Del Monte Foods appoints Abhinav Kapoor as CEO
- Microsoft lays off more employees in a fresh round of job cuts
That’s it for this week! Until next week, happy investing!
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