This week, we talk about SEBI’s ongoing crackdown on financial influencers and the impact of rising US bond yields. We also talk about key corporate earnings and talk of Reliance Industries’ multi-billion-dollar deal with Disney.
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They have a saying in Chicago, Auric Goldfinger told James Bond almost sixty years ago. “Once is happenstance. Twice is coincidence. The third time it’s enemy action.”
British writer Ian Fleming’s characters in the 1964 Bond movie Goldfinger, played brilliantly by the German actor Gert Fröbe and the Scottish legend Sir Sean Connery, respectively, wowed millions of people around the world. With Goldfinger in mind, let’s talk about three instances that would interest the readers of this newsletter.
The three instances happened on May 25, August 25 and October 25 of this year. What connects these days? The number 25, obviously, you may say! True, but we are not talking numerology here.
These three dates were days when the Securities and Exchange Board of India took action against financial influencers, or the so-called finfluencers who give information and advice to investors on topics such as stock market trading and mutual funds, mainly on social media platforms.
Let’s quickly recall what exactly happened on these days before we move on to examine why.
On May 25, the capital markets regulator banned Youtuber and options trader PR Sundar from trading for one year for violation of norms that govern investment advisers. SEBI also directed Sundar, his company and co-promoter Mangayarkarasi Sundar to pay Rs 46.80 lakh to settle the case and to return Rs 6 crore earned from advisory services.
On August 25, SEBI released discussion papers to control what it sees as a growing menace of finfluencers by proposing a set of measures and penalties.
And on October 25, SEBI banned Mohammad Nasiruddin Ansari, who runs a profile on social media platform X (formerly Twitter) under the name ‘Baap of Chart’. The same day, it barred Shivaay Investments and its owner Jaydeepgiri Goswami in a separate case. SEBI ordered Ansari to deposit Rs 17.20 crore, which it said were unlawful gains from his ‘educational courses’ on stock markets and asked Shivaay and Goswami to cough up nearly Rs 2 crore.
So, why is SEBI cracking the whip on finfluencers?
SEBI says these finfluencers are effectively unregistered and unauthorised investment advisers or research analysts and are enticing their several million followers on Instagram, Facebook, YouTube, LinkedIn or Twitter to buy products, services, or securities. Moreover, since these finfluencers are not regulated, they often don’t disclose any potential conflict of interest or the compensation they receive from various service providers and investment platforms.
SEBI’s worry is not just that these finfluencers are often working illegally but also that the advice they dish out may seek to promote shady schemes or risky behaviour by gullible retail investors.
While SEBI’s crackdown on the finfluencers is, no doubt, important, the timing of its actions is significant, too. The number of finfluencers surged after 2020, when Covid-19 lockdowns and work-from-home prompted millions of retail investors to start dabbling more actively in stocks and mutual funds. While this seems good as long as markets keep rising and investors keep making money, a sudden downturn could spell chaos.
Chaos is exactly SEBI wants to prevent. And the three strikes mean it isn’t just happenstance or coincidence but that the regulator is serious in its intent to rein in the finfluencers.
Bond Concerns
Moving on to the bond of a different kind, bond markets in the US were in focus this week after data showed the world’s biggest economy defied recession fears and grew 4.9% in the July-September quarter.
This may seem like good news, but not in current circumstances. The high growth rate means the US Federal Reserve’s rate hikes to mitigate inflation have not been as effective as anticipated. Still, the chances of the Fed opting for another rate hike next month has slimmed thanks to a sudden and sharp jump in the US Treasury yields beyond 5%.
“I will remain cognizant of the tightening in financial conditions through higher bond yields and will keep that in mind as I assess the future path of policy,” Fed Vice Chair Philip Jefferson said earlier this month.
This can be the breather investors are hoping for as the red-hot US Treasury yields have singed many emerging markets, including India. While Indian stocks fell this week, 10-year benchmark bond yields remained elevated above 7.34% as the government prepared to raise Rs 30,000 crore via bond sales on Friday.
The rise in US Treasury yields has also strengthened the dollar, leading to fatter import bills for countries like India.“Even as energy importers reel from the impact of soaring crude oil prices that resurrect the spectre of inflation alongside external vulnerabilities, the US dollar gets ever stronger on the heft of surging treasury yields, creating a pernicious feedback loop,” says the Reserve Bank of India’s State of the Economy.
Earnings Snapshot
India Inc.’s quarterly earnings season threw up some surprises, and some predictable results, this week. Tech Mahindra reported its worst quarterly performance in 16 years. Its consolidated net profit nosedived 61% to Rs 494 crore during the July-September quarter, worse than even the worst of estimates. Revenue fell 2% to Rs 12,864 crore.
The company had bet on its solutions for 5G technology to lift its growth. Unfortunately for it, 5G services haven’t taken off yet in India, at least not in the way the company had hoped for.
Tech Mahindra’s outgoing CEO and MD C.P Gurnani summed up his disappointment in these words: “I have been through a few waves in my life. I have seen ups and downs, but the last two quarters were probably the most
difficult ones.”
“It is just that we believed in terms of market timing, service offering, I thought we were poised for riding some of the network investments, particularly 5G. I don’t think the wave was strong enough for 5G,” Gurnani said.
Tech Mahindra’s CEO-designate Mohit Joshi will be hoping that the earnings have bottomed out and will be pinning his hope on the organizational restructuring that he announced on the same day as the result. The company now plans to have a vertical-wise focus instead of region-specific teams so far.
In such times of shock, even earnings that are in line with expectations bring a smile.
Axis Bank posted a 10% rise in quarterly net profit to Rs 5,864 crore and its asset quality improved with gross non- performing asset ratio at 1.73% as on September 30, compared with 1.96% three months ago.
The profit growth was backed by a 19% rise in net interest income to Rs 12,315 crore and a 15-basis-point expansion in margin to 4.11%.
Another set of earnings that brought cheer was Maruti Suzuki, which declared an 80% surge in net profit to Rs 3,716.5 crore, its highest ever in a quarter. Hopefully, it will rub onto other automakers, too.
Disney’s Loss, Reliance’s Gain
Four years ago, Walt Disney Co. acquired the global entertainment assets of Rupert Murdoch-led 21 st Century Fox for $71 billion. That deal gave Disney ownership of the Star India TV network and Hotstar streaming platform. But now, Disney is looking to sell its India business that is reportedly valued around $10 billion.
No prize for guessing who has a wallet big enough to buy this business—Mukesh Ambani. The billionaire owner of Reliance Industries and India’s richest man is showing no signs of slowing down. Ambani continues to transform his empire that once depended almost entirely on refining and petrochemical businesses but now also owns India’s biggest media and entertainment group, India’s largest telecom operator, and the biggest retail network.
Bloomberg reported this week that Reliance, whose JioCinema app is taking subscribers away from Hotstar, is in talks to buy Disney’s India operations but values it around $7-8 billion.
It remains to be seen who will blink first on valuation – Reliance or Disney, that is if they do at all. But if the deal goes through, it will lead to big consolidation not just in the Indian OTT segment but also in the legacy TV business. It will also be a very painful headache for other players such as Amazon Prime and Netflix as well as Sony, which is looking to close its acquisition of Zee Entertainment.
Market Wrap
Indian stocks crumbled this week on concerns related to high US bond yields, rising oil prices and escalating tensions in the Middle East. Continued outflows by foreign portfolio investors, who have pulled out over $2.5 billion from India in September and October, made matters worse.
Both the benchmark indices—the 30-share Sensex and the 50-stock Nifty—lost almost 2.5% each this week despite the 1% gain on Friday. Mid-cap and small-cap indices fell even more this week, losing 3.0-3.5%. Still, they are up 23% and 30%, respectively, so far in 2023, far above the Nifty’s 5.2% rise.
Axis Bank, HCL Tech and state-run Coal India were the only Nifty 50 stocks that managed to stay in the green this week. Losses were led by Adani Enterprises, HDFC Life Insurance, JSW Steel, Asian Paints, Grasim and Tech Mahindra. Stocks that fell the least included FMCG companies Hindustan Unilever, Nestle, Tata Consumer and ITC.
Other headlines
- National Financial Reporting Authority probes Adani auditor EY member firm S.R. Batliboi
- Adani Group to raise $4 billion to fund green hydrogen plans
- GMR Airports to buy Malaysia Airports’ 11% stake in Hyderabad airport
- Essar plans regional hub in Saudi Arabia, setting up steel plant
- Kotak Mahindra Bank names Ashok Vaswani as MD and CEO to succeed Uday Kotak
- Vedanta CFO Sonal Shrivastava resigns, Ajay Goel to return as finance chief
- Edelweiss MF’s multi-cap fund collects Rs 1,000 crore in NFO
- Mamaearth sets price band of Rs 308-324 a share for IPO
- Cello World sets IPO price band at Rs 617-648 per share
- Govt demands $12 billion in GST from online gaming firms
- Colgate-Palmolive (India) Q2 net profit rises 22% to Rs 340 crore
- Asian Paints Q2 profit jumps 54% to Rs 1,205 crore but misses analysts’ forecast
- ACC swings to Q2 profit of Rs 384 crore from year-ago loss of Rs 91.1 crore
- RBI to meet banks next week, to discuss liquidity conditions
- RBI pushes banks to increase interest rates on savings deposits
- Govt allows power generation plants using imported coal to run until next June
That’s all for this week. Until next week, happy investing!
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