In this edition, we talk about the bull run in the Indian stock markets and if this stupendous rise is likely to continue for much longer. We also talk about upcoming IPOs, how F&O traders are losing thousands of crores and three well-known companies that are attempting a comeback.
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We seem to be making a habit of this, quite literally. Week after week after week, we have been telling you how the Indian stock markets have been scaling newer and newer and yet newer highs.
And this week, we are again telling you the same thing. The markets have scaled yet another new peak. Don’t blame us, for we are only the messenger. Blame India’s 10 crore registered stock market investors whose unflinching sense of euphoria has ensured what is perhaps the most sustained bull run that the country’s markets have seen.
Both the benchmark indices—the Sensex and the Nifty—rose for the third week in a row and scaled to record highs. While the Sensex reached a high of 85,978.25, just shy of the 86,000 mark, the Nifty rose well above the 26,000 level and managed to touch an all-time high of 26,277.35 on Friday.
How long will this spectacular bull run continue? Frankly, we don’t have an answer to that question. What we do know is that analysts are now having a hard time recommending stocks worth buying in India’s $5 trillion stock market.
According to a Bloomberg report this week, only 61 stocks on the NSE Nifty 200 index now have a consensus ‘buy’ rating. This is the lowest in at least a decade. Moreover, analysts have a ‘hold’ recommendation for over two-thirds of the Nifty 200 stocks, up from roughly half a decade ago.
A weak outlook for corporate earnings is making analysts doubtful about further gains in some shares that have driven the rally, the report says. Kotak Institutional Equities, for instance, expects earnings for the Nifty 50 companies to increase by 8.4% in the fiscal year through March 2025, down from 20% last year.
What are smart investors doing in this situation? Bloomberg says some investors are moving to larger stocks, where valuations seem more reasonable than midcap and small-cap stocks. Some investors are also shifting money to sectors like banking and financial services, which have trailed the broader market rally.
Does this mean the end of this rally is near? Again, we don’t know that, but what we do know is that savvy investors are looking to take some money off the table.
In fact, even promoters of companies seem to be cashing out, in a bid to make hay while the times are good. An analysis by Business Standard newspaper said this week that 22.6% of smaller and mid-size companies have seen a decline in promoter holdings for five quarters in a row, just as the BSE MidCap and BSE SmallCap indices touch new highs.
So, what should you, the retail investor, do in such a scenario?
We have always advised investors to remain cautious. The legendary investor Warren Buffett says that one should be greedy when the markets are fearful but should be fearful when the markets are greedy.
But don’t follow our word blindly, do consult your financial advisor before you take a call.
IPO Bonanza
India’s soaring markets have seen a flurry of listings over the past few months, with companies both big and small launching initial public offering (IPO) and seeing record numbers of retail and institutional investors applying for their shares. And some more big IPOs are coming soon.
As India enters the festival season, South Korean carmaker Hyundai’s local subsidiary and food and grocery delivery company Swiggy are set to float large IPOs.
Market regulator SEBI this week approved Hyundai Motor India’s IPO. The country’s second-largest automaker by domestic sales and market share plans to raise about Rs 25,000 crore, or $3 billion, at a valuation of almost $20 billion. Hyundai Motor India will be the first carmaker to float an IPO in the country in two decades, after bigger peer Maruti Suzuki’s share sale in 2003.
SEBI also allowed Swiggy to file an updated Draft Red Herring Prospectus (DRHP). The company had previously confidentially filed for an IPO, which may seek to raise as much as $1.2 billion and could target a valuation of $15 billion. The IPO will also allow several Swiggy investors to cut their stake and monetize their investment. These include Japanese tech investor SoftBank, Chinese tech giant Tencent, venture capital firm Accel and Amsterdam-listed tech investor Prosus.
While Hyundai India’s IPO comes at a time when automakers are beginning to feel a little pressure due to moderating sales, Swiggy’s IPO comes at a time when shares of its main rival Zomato have nearly tripled over the past one year.
So, do you plan to bid for these IPOs? Let us know!
Futures Tense, Options Limited
For the past several months, SEBI and finance ministry officials have been raising concerns over the exponential rise in futures and options trading after the pandemic. This newsletter’s subscribers will remember reading about this issue previously. But a new SEBI analysis this week showed just how serious this problem has become.
The analysis showed that individual F&O traders suffered a total loss of Rs 1.8 trillion over the last three fiscal years and that 93% of more than 1 crore investors incurred average losses of Rs 2 lakh each. Even more worrisome is the fact that the top 3.5% of loss-makers, or about 4 lakh traders, lost a staggering Rs 28 lakh each on average from FY22 to FY24. In FY24 alone, 91% of retail F&O traders made a loss and total losses were Rs 52,400 crore.
The SEBI report also showed that the F&O frenzy has reached beyond the metros, with nearly three-fourths of all such trades in FY24 coming from cities outside the top 30, and that Almost 43% of retail traders were younger than 30 years.
But if almost every retail trader is losing money, who is making the moolah?
Proprietary traders, who trade on behalf of financial institutions, and foreign investors made gross profits of Rs 33,000 crore and Rs 28,000 crore, respectively, last fiscal year. Moreover, 97% of foreign investors’ profits and 96% of proprietary traders’ profits came from algorithmic trading, SEBI said.
So, if you, as an individual investor, are enamored by F&O after listening to financial influencers on social media, do remember these sobering facts the next time you sit down to trade!
Making A Comeback
Moving on to some corporate news, three well-known companies that have been going through a tough time over the past few years were in the news this week.
Budget airline SpiceJet, which came perilously close to collapsing a few times, raised Rs 3,000 crore through a share sale to institutional investors such as Goldman Sachs, Morgan Stanley, BNP Paribas, Nomura, and Tata Mutual Fund.
The company said it will use the fresh capital to clear its dues, operationalise grounded planes, add new aircraft to its fleet, invest in technology, and expand into new markets.
Earlier this month, SpiceJet disclosed that it had not paid statutory dues amounting to Rs 427 crore between April 2020 and August 2024 due to its “constrained financial position”. This included Rs 219.8 crore in tax deducted at source (TDS), Rs 71.33 crore in goods and services tax (GST), and Rs 135.47 crore in provident fund contribution.
The airline has gone about using the money raised from the share sale to clear its GST dues, pay pending salaries to staff, and settle its dispute with Engine Lease Finance Corp.
Meanwhile, businessmen Anil Ambani’s Reliance Power said it will raise up to Rs 1,525 crore through a preferential allotment to group company Reliance Infrastructure, Authum Investment and Sanatan Financial Advisory Services. The power-generating company plans to use the funds to cut debt and grow its business.
Interestingly, the fundraising comes a month after SEBI barred Ambani from the securities market for five years on charges of diversion of funds.
The third company in the news was telecom operator Vodafone Idea. The debt-laden company said this week it had concluded a deal worth $3.6 billion with Nokia, Ericsson and Samsung for supply of mobile and network equipment over three years. The company said the contract is part of its capex of Rs 55,000 crore, or $6.6 billion, to expand its 4G coverage and launch 5G in key markets.
Separately, Vodafone Idea has also started fresh talks with the government for “remedies” related to $8.4 billion in owed adjusted gross revenue (AGR) dues after the Supreme Court dismissed its plea to re-compute the dues.
Vodafone Idea also said that it was in talks with lenders for Rs 35,000 crore in loans and that it was planning a tariff hike in the next 15 months.
Will all these measures help the company survive? We can only wait and pray for the best.
Market Wrap
This was a good week for the broader markets as both the Sensex and the Nifty gained more than 1% each. While the Sensex ended up by more than 1.2% in the five trading sessions between Monday and Friday, the Nifty was in the green by more than 1.5%.
Nifty counters that led the rally over the last five trading sessions included the likes of Mahindra & Mahindra, Maruti, Tata Steel, Hindalco, Coal India, Bajaj Auto, Bajaj Finserv, Adani Enterprises, Power Grid Corp of India and JSW Steel.
Nifty stocks that ended in the red include LTIMindtree, IndusInd Bank, Divi’s Laboratories, Tata Consumer and Hero Motocorp.
Other headlines
- Govt asks companies to seek fresh approvals for laptop imports from January 1, 2025.
- SEBI investigating six local investment banks over handling of small IPOs, reports Reuters.
- Govt probing Netflix for visa violations, racial discrimination.
- India’s September business growth at nine-month low as demand eases: PMI data.
- Karnataka plans tax waivers for hybrid cars, incentives for EVs.
- Employee strike at Samsung’s Tamil Nadu factory enters third week.
- IIFL Finance to raise Rs 10,000 crore via bonds, to consider IPOs of home finance and microfinance units.
- State-run Small Industries Development Bank of India (SIDBI) raises Rs 8,000 crore via bonds.
- Shriram Finance raises $500 million by selling dollar-denominated bonds.
- Insurer Star Health sues Telegram after hacker leaks data using app’s chatbots.
- Basmati rice exports set to surge after government removes floor price.
- Government mulls increase in sugar MSP, ethanol prices.
- Government to borrow Rs 6.61 lakh crore during October 2023-March 2024.
- Tata Motors’ JLR unit to transform Halewood plant into EV production unit at an outlay of £500 million.
That’s all for this week. Until next week, happy investing!
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