In this edition, we talk about the Sensex and Nifty, which have scaled new record highs. We also talk about a job scandal at TCS, what’s brewing at Byju’s and how HDFC Bank will soon become the fourth-biggest lender in the world.
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“I will tell you how to become rich. Close the doors. Be fearful when others are greedy. Be greedy when others are fearful.” — Warren Buffett
Now, Mr. Buffet certainly knows a thing or two about stock markets. So, what would he be doing if he were an active investor in the Indian stock markets right now?
The benchmark indices—the 30-share BSE Sensex and the 50-stock Nifty—reached new all-time highs this week with the former zooming past the 64,000 mark and the latter crossing 19,000.
The last few weeks have been a formidable journey for the Indian stock markets, which have been riding high on a $10.7 billion infusion by foreign institutional investors (FIIs) in the April-June period.
Both the indices have delivered a return in excess of 21% over the last one year. Moreover, a further up move is likely as June expiry data shows Nifty rollovers increased to 76.1% from 70.6% in the previous expiry and FIIs increased their net long position in index futures.
But why are FIIs so bullish on India? Analysts say this is because India stands out as an outlier in a world economy that is slowing and a Chinese economy that is weakening. Investors, they say, are looking for alternatives to China, and at present, India is the only bet they see on the horizon, at least across Asia.
The rain gods, too, seem to be doing their bit to prop the markets up. After a late start, the encouraging progress of monsoons across India is also boosting sentiments. If El Nino fears subside, investors see more sustainable up move in the market. Then there’s the central bank, which has paused interest rate hikes, at least for now.
How far could this rally go? Chartists (folks who read those complex technical charts) are reportedly pegging the Nifty to move towards 19,500-19,900-20,100 levels in the medium term.
Analysts say the only conundrum at this point is the global geopolitical situation and further tightening of interest rates by major central banks. Any negative surprises in the Q1 earnings season next month may also spoil the party.
For the week, which had just four trading sessions as markets remained closed on Thursday over Bakri Eid, the Sensex gained nearly 2.4% while the Nifty did a shade better at 2.5%.
The Nifty counters that gained the most were IndusInd Bank, Sun Pharma, Mahindra & Mahindra, and Dr. Reddy’s Labs. HDFC, HDFC Bank, Bharti Airtel, Maruti Suzuki, JSW Steel and Hero MotoCorp were the other gainers.
The stocks that ended in the red included Bharat Petroleum, Grasim, Tata Steel, Power Grid, GAIL and Bajaj Finance. Britannia, Vedanta, Reliance Industries, and Adani Ports also lost ground this week.
So, what should you do as an investor? We are not here to offer you recommendations, but as always, we will say, remain cautious, do your due diligence, and stick to your asset allocation strategy.
As Buffet says, be fearful when others are greedy. In fact, if you ask us, follow another oft-cited dictum from the legendary investor:
“Rule no. 1: Never lose money. Rule no. 2: Never forget rule number 1.”
Banking goliath
The Indian stock market is not the only thing scaling lifetime highs. Come July and HDFC Bank, one of the most respected lenders in the country, is set to vault into the ranks of the world’s most valuable banks after its merger with its parent Housing Development Finance Corp (HDFC). This mega merger will mean that the combined entity will jostle for top honours with some of the biggest lenders across the US, Europe and China.
The HDFC-HDFC Bank merger will create a lender that ranks fourth in equity market capitalisation, behind only JPMorgan Chase, Industrial and Commercial Bank of China Ltd. and Bank of America Corp, according to Bloomberg. It’s valued at about $172 billion. HDFC surges ahead of banks such as HSBC and Citigroup Inc. The bank will also leave behind its Indian peers State Bank of India and ICICI Bank.
The merged entity will have 120 million customers, a branch network of over 8,300 and more than 177,000 employees.
So, while this should make every Indian proud, how do the combined entity’s growth prospects look like? The lender says it is projected to grow at 18% to 20%, there is good visibility in earnings growth, and it plans to double its branches in the next four years.
Three cheers to that, we say, and wish HDFC Bank and all its customers, employees and investors, all the very best!
ICICI Securities delisting
Meanwhile, ICICI Bank, too, will soon get much bigger as it looks set to merge its brokerage arm, ICICI Securities, with itself and delist the subsidiary.
The lender has valued the investment bank’s shares at Rs 628.09 apiece, a premium of 2.25% to Wednesday’s closing price, and more than 11% to its price before the plan was announced on Sunday. Every ICICI Securities shareholder will get 67 ICICI Bank shares for every 100 shares held by them.
ICICI Bank held a 74.85% stake in the brokerage, which will now become its fully owned subsidiary. ICICI Bank listed ICICI Securities via an initial public offering in April 2018, selling shares at Rs 520 apiece. Since then, the stock underperformed the broader market for much of the time.
The bank is merging the brokerage apparently because of an overlap of businesses between the bank and the subsidiary in areas such as wealth management.
TCS in the dock
Even as two of India’s biggest banks become even bigger, the country’s largest IT company has been mired in a recruitment scandal.
Tata Consultancy Services (TCS) has come under fire for an alleged bribes-for-jobs scandal, forcing the company to fire six employees and staffing firms, and initiate a probe.
N Chandrasekharan, who is now the top boss at Tata Sons and was earlier heading TCS, said he was deeply pained over the discovery that six TCS employees received favours from staffing agencies for hiring temporary workers. The company says it is also probing the role of three more employees in the scandal.
Earlier this month, it was reported that a few senior executives at the company were taking bribes from staffing firms in exchange for providing jobs to their candidates. This had been going on at the company for years. The scam was discovered when a whistleblower wrote to the company’s CEO and COO claiming that the global head of the resource management group, ES Chakravarthy, had been accepting bribes from the staffing firms involved in hiring candidates.
TCS has now formed a three-member committee, which includes Chief Information Security Officer Ajit Menon, to investigate the allegations. After the probe, TCS sent its head of recruitment on leave and sacked four executives. The company debarred Chakravarthy from coming to the office and sacked Arun GK, another executive in the division.
The company has now appointed Sivakumar Viswanathan, a veteran of nearly 30 years, as the new head of the resource management group.
Byju’s in a crisis
TCS is not the only major company facing the heat. Ed-tech firm Byju’s, once one of India’s most valued startups, seems to be facing an existential crisis.
The problems have forced the ed-tech company to fire hundreds of employees over the last few months. The crisis came to a head when the top management had to hold a townhall meeting with the entire staff this week.
Byju’s founder Byju Raveendran reportedly remained optimistic about the company’s prospects. He said the company is experiencing steady growth and is nearing profitability. But key questions about possible future layoffs and profitability remained unanswered.
Raveendran also said that the issues with the $1.2 billion term loan lenders are being resolved and that he expects a positive outcome within the next few weeks without the need for court intervention.
Various reports have surfaced regarding Byju’s’ financial performance, debt burden, delays in filing financial results, and a recent instance of Prosus, an investor in the firm, lowering its estimate of Byju’s valuation to about $5.1 billion, far below the $22 billion valuation at which the company raised funding last year.
Byju’s plan to raise equity capital from new investors is also going nowhere and its planned merger with test prep firm Aakash, which it acquired two years ago, has been delayed as well. In fact, Aakash and its private equity investor Blackstone are putting pressure on Byju’s to complete the merger.
Clearly, Byju’s is going through its most difficult period, and at this point, many observers are even doubting its own survival—at least in the current form.
Will Byju’s pass this test? Well, it may eventually come out the other side. But it can no longer rely on easy money from investors and must fix its lackadaisical attitude towards corporate governance and regulatory compliance.
Other headlines
- SEBI defers decision to rationalise total expense ratio for MFs
- SEBI finalising draft discussion paper over guidelines for ‘finfluencers’
- Bajaj Finserv enters mutual fund business, launches two debt funds
- IdeaForge Technology IPO subscribed more than 94 times
- Reliance Capital lenders vote in favour of Hinduja offer for bankrupt company
- Xiaomi to bring down India headcount to below 1,000
- India Inc’s fundraising from overseas increases 12% to $9.7 billion in H1 2023
- Reserve Bank of India says 10% retail borrowers missing their monthly payments
- BRICS countries likely to induct five new members in August summit
- World Bank President Ajay Banga named in US Great Immigrants list of 2023
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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