In this edition, we talk about why Jefferies’ top equities analyst Chris Wood is bullish on India and how deal-making activity has been picking pace. We talk about the stupendous rise in Nvidia’s stock price and about the latest troubles at Byju’s and Zee Entertainment.
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If you’ve been reading us, you’d have realised that over the past few weeks, we have consistently highlighted how the fortunes of India’s economy have been looking up. And hinting that it might just be on the brink of a historic growth trajectory of sorts.
Turns out, we are not the only ones who are betting big on India’s economic growth. Jefferies chief Chris Wood, too, seems to share our optimism.
Wood, the global head of equity strategy at the New York-headquartered investment bank, has said in his ‘Greed and Fear’ report that fundamental structural reforms have changed India’s macroeconomic factors, which make the country the best equity story in the world. Wood went on to say that this was not the case earlier but now India’s macros are as good as any other country.
“The bottom-up appeal of India has always been severely diluted by the lack of a compelling top-down story. In a sense the country has been the inverse of China, the ultimate macro story but without the compelling micro options,” Wood said, citing a statement from a two-decade-old note.
Wood, it turns out, is very impressed with the structural reforms put in place by the government over the past decade. And, it seems, for good reason.
Wood lists what he calls are the three major achievements of the current government. First, he says, massive government spending on infrastructure has been game changing in terms of improving the overall logistical efficiencies of the economy.
Second, the passage of the Insolvency and Bankruptcy Act of 2016 has meant that Indian “promoters” now know they risk losing their assets if they default on loans.
Finally, the long overdue reform of the residential property market as a result of the Real Estate (Regulation and Development) Act of 2016 which means the property market, three years into an upturn after a seven-year downturn, is now delivering its full potential in terms of the resulting multiplier effects for the economy at large.
Wood, therefore, argues that it is quite realistic to project a 7% real growth in India’s gross domestic product and a 12-15% earnings growth going forward. He also sees India’s market capitalization hitting the $10 trillion mark by 2030.
Do you agree with Wood’s optimism? Or is he being a little too optimistic on India?
M&As make a comeback
While you may be entitled to your opinion either ways, deal-making activity in India certainly seems to be picking up, an indication that economic activity is on the rise.
After hitting a three-year low in 2023, India-involvement announced M&A activity came back in January 2024, jumping 78% in deal value to touch $6.3 billion, the latest LSEG Deals Intelligence data showed. Deal value in January 2024 was led by telecommunications, industrials and consumer staples.
By value, India-involvement deals targeting telecommunications accounted for 39.7% of the market share worth $ 2.5 billion in January, up nearly eightfold from a year ago. Industrials captured a 20.6% market share worth $ 1.4 billion, more than a fivefold increase compared to January 2023.
In 2023, India-involvement M&A witnessed a record number of deals with more than 2,600 transactions announced.
The latest M&A activity in value terms is a strong start since January 2022, when deal value had touched a four-year high of nearly $10 billion. However, the number of M&A deals for the month under review saw a 48% decline to 137 in 2024 from 263 in January 2023.
M&A activity fell to a three-year low in 2023 at $83.8 billion, down 50.6% from a year ago. The total M&A activity stood at $169.70 billion in 2022, and $123.14 billion in the preceding year.
The report said that despite uncertainty due to lingering macroeconomic and geopolitical challenges, several factors underline cautious optimism as one enters 2024. The expectations for lower interest rates in 2024, the use of M&A to accelerate the adoption of technology and technology-enabled processes, energy transition and decarbonisation, pressure to deploy capital, and corporate portfolio transformation to address supply chain and reduce reliance in one country are just some of the potential drivers that could drive activity in India.
In fact, India seems also to be doing well on the manufacturing and services front. This has resulted in the HSBC Composite Purchasing Managers’ Index (PMI) rising to a seven-month high of 61.5 in February, up from 61.2 in January, although the news on the job front was not so great.
The Flash Manufacturing PMI touched 60.4 in February, from 59.7 of January. Simultaneously, the Flash Services PMI climbed to 62 from 60.4.
Nvidia juggernaut
It is not just the Indian economy that seems to be on a high. Shares of American tech giant chipmaker Nvidia Corp hit record highs, with the counter adding a record $277 billion to its market value on Thursday. This was Wall Street’s single biggest one-day gain ever. The euphoria followed Nvidia’s latest quarterly report that beat expectations and reignited a rally fuelled largely by optimism about artificial intelligence.
The company’s stock soared 16.4% to close at $785.38, a record-high close, lifting its market capitalization to $1.96 trillion after its January-quarter report late on Wednesday showed demand for its specialized chips used in AI computing continued to outpace analysts’ already-high expectations.
Just for context, at this market cap, Nvidia is now bigger than the combined market capitalisation of all the 30 Sensex companies put together.
With a market cap of $242 billion, Reliance Industries makes up 14% of the Sensex’s market capitalisation. While Tata Consultancy Services (TCS) contributes another 10% to the index’s market valuation, HDFC Bank accounted for 7.4% of the top 30 companies in the country.
Nvidia, which was less than half the size of Sensex in May 2023, has seen its market valuation swell by 560% since October 2022. In contrast, the market capitalisation of the top 30 companies in the country surged 30% during the same period.
In May last year, Nvidia had joined the elite club of companies sporting a $1 trillion market value. Moreover, it is also set to hold the record for the biggest single addition in market cap with a nearly $250 billion jump in value.
But while Nvidia was on cloud nine, Google faced flak for its latest AI-based Gemini, with several influential tech czars like Tesla and X owner Elon Musk accusing its text to image generation feature of being racist. The chatbot has also been accused of being “too woke” for generating some historically inaccurate images depicting World War II soldiers and America’s founding fathers.
Raising the issue on X (formerly Twitter), Musk called Google ‘insane’ and ‘anti-civilization’, claiming that the Mountain View, California-based company had overplayed its hand with the AI’s image-generation capabilities of Gemini.
Following such criticism by Musk and US politician Vivek Ramaswamy, Google paused Gemini’s image generating capabilities. Google admitted that Gemini offered “inaccuracies in some historical depictions” and promised to release an improved version of the feature soon.
Byju’s in more trouble
Google though, is not the only tech company facing the heat. Back home, the news seems to be getting worse for Indian ed-tech company Byju’s which was once one of the most valued Indian startups.
The Enforcement Directorate has reportedly renewed its look out notice against Bjyu’s founder Byju Ravindran in a Foreign Exchange Management Act (FEMA) case against his company, Think & Learn Private Ltd.
News reports said that the lookout circular against Raveendran was renewed as the Rs 9,362.35-crore FEMA case is pending in which his company is alleged to have made significant foreign remittances contravening laws.
Meanwhile, it was also reported that neither Raveendran nor his wife and co-founder Divya Gokulnath are expected to attend the extraordinary general meeting (EGM) called by a select group of investors on Friday.
Zee on SEBI’s radar
While the ED may be on Raveendran’s tail, market regulator Securities and Exchange Board of India (SEBI) is reportedly looking into the accounts of Zee Entertainment.
A Bloomberg news report said that SEBI had unearthed a financial discrepancy exceeding $240 million or around Rs 2,000 crore in the accounts of Zee Entertainment Enterprises.
This comes as another setback for the beleaguered media firm, occurring within a month of the collapse of its merger with Sony Group Corp’s India unit.
As part of its investigation into Zee founders, SEBI has reportedly disclosed that approximately Rs 2,000 crore ($241 million) may have been redirected from the company. This amount is nearly ten times more than SEBI investigators initially estimated.
The company has, however, denied any wrong-doing. “The reports and rumours pertaining to accounting issues in the company are incorrect and false. Pursuant to the SAT order, which granted relief to the current Key Managerial Personnel (KMP), the Company has been in the process of providing all the comments, information or explanation requested by SEBI, and has extended complete co-operation on all aspects.” a Zee spokesperson said.
Market Wrap
The Indian stock markets remained buoyant this week with both the Sensex and the Nifty ending four trading sessions firmly in the green and the last one flat.
The 30-share Sensex outpaced the Nifty as it ended the week up by more than 1% while the 50-stock index was up by just over 0.8%. This indicates that the market rally, at least among large cap stocks, was concentrated.
Nifty stocks that led the rally included auto majors Mahindra & Mahindra, Maruti and Bajaj Auto, ICICI Bank, Grasim, Nestle India, SBI Life Insurance and Wipro. Other stocks the ended the green were three pharma majors – Cipla, Sun Pharma and Dr. Reddy’s Labs-Tata Steel, Tata Consumer, Asian Paints, Axis Bank, Tech Mahindra, Larsen & Toubro and ITC.
Nifty counters that ended the week in the red included Hero Motocorp, Indian Oil, Coal India, Divis Labs and Kotak Mahindra Bank. Other shares that also lost ground were HDFC Life Insurance, Bharat Petroleum and Shree Cement.
Other headlines
- Jio Financial market cap crosses Rs 2 trillion; surges 20% in one week
- Global PE major KKR to raise infra bet in India; route major portion of $6.4 billion to the country
- IFY25 corporate tax collections may miss Budget Estimate
- SC allows Vedanta to refurbish Thoothukudi Sterlite plant
- Reliance Industries becomes the first conglomerate to set up ship leasing firm at IFSC Gift city
- Efforts are on to attract external investors for Vodafone Idea: Kumar Mangalam Birla
- Payments banks seek RBI nod for small-value deposits and loans
- Former Bank of Maharashtra Chief Executive A S Rajeev appointed as Vigilance Commissioner
- India to stop open wheat sale from March 1 in northern States
- Dubai introduces 5-year multiple-entry visa for Indians
- Aditya Birla Group targets Rs 10,000-crore revenue from paint business in 3 years
- Ikea India to discontinue operations of store in R-City Mumbai by mid-2024
That’s all for this week. Until next week, happy investing!
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