A Global Market Rally Is Still On
On Wednesday, the S&P 500 hit a fresh record, breaking above 5,600 for the first time, driven by a sharp rise in semiconductor stocks
On Episode 337 of The Core Report, financial journalist Govindraj Ethiraj talks to Sanjeev Hota, vice president and head of research at Sharekhan by BNP Paribas as well as Siddharth Pai, founder and managing partner at Siana Capital.
Our Top Reports For Today
SHOW NOTES
(00:00) The Take
(05:49) Stories Of The Day
(06:36) A Global market rally is still on
(08:45) TCS Results meet street expectations but value of new contracts shrinks 18%
(11:16) How will earnings season play out, how have companies fared in the last 3 months?
(20:12) Accenture buys 2 chip design companies with an India footprint in a week. What does this mean for IT services companies?
NOTE: This transcript contains only the host's monologue and does not include any interviews or discussions that might be within the podcast. Please refer to the episode audio if you wish to quote the people interviewed. Email [email protected] for any queries.
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Good morning, its Friday, the 12th of July and this is Govindraj Ethiraj broadcasting and streaming from and headquartered in Mumbai,
The Take: India’s Meme Stock Revolution.
You may have heard of GameStop, including the film Dumb Money that was made around it.
In early 2021, a bunch of day traders, led by a home-bound dad called Roaring Kitty, trounced institutional investors and drove up the stock price of GameStop.
The retail investors and day traders believed GameStop, arguably the largest video game and merchandise retailer in the world with over 4,000 stores but a hybrid brick and mortar cum digital company, to put it simply, was undervalued and being shorted by hedge funds because of its declining performance. The details don’t matter here but what matters is that the investors somehow took it upon themselves, including banding together on a Reddit platform and sending the stock price up.
What accelerated the synchronisation of the effort was of course social media and the presence of a leader of sorts.
This was 2021, also the time, most of us were well, sitting at home and staring at our computer screens.
It's also the time millions of Indians quite likely entered the market and continue to buy derivatives at massive scale, making India the largest in the world and of course stocks on the basis of little information and pure guesswork.
India has also seen a deadly mix of slick stockbroking apps, social media led influencers or influencers and of course the driving desperation to get better returns on savings in a high inflationary environment with wages and incomes growing slower than desired.
You could say this is how bull markets work, with some differences for the fact that this is 2024. You can’t blame anyone except to ensure the market integrity and systems and surveillance measures are working fine.
But it is clear to me that the meme stock phenomenon is now firmly dictating prices of many stocks in India and why care is important.
Let me quote one example. Shipping Corporation of India’s stock price rose around 19% to hit an all time high of Rs 328.
Overall, in yesterday's trade, as Business Standard points out, shipping stocks, including SCI, Essar Shipping, and Sadhav, were buzzing in trade..
This year, shares of Shipping Corporation have already doubled, in comparison to the BSE Sensex has gained over 10 per cent year-to-date.
Meanwhile, the stock price of Sadbhav, a SME shipping company, rallied 18.9 per cent to an intraday high of Rs 262. Essar Shipping, meanwhile, were locked in the 10 per cent upper circuit at Rs 56.35 per share.
GE Shipping (Great Eastern Shipping Company) advanced 13 per cent (Rs 1,538; record high), Shreyas Shipping 18.6 per cent (Rs 398.75), and SEAMEC 7.4 per cent (Rs 1,548.95; record high). By comparison, the benchmark BSE Sensex was down 299 points at 79,626 levels at 11:05 AM.
Now, what is triggering all this ?
As I can see, mostly speculative news.
The first appears to be, in no particular order, news that the government was considering major proposals for the shipping sector in the upcoming Union Budget 2024.
The Business Standard quoted a TV channel report saying the Government may propose a Maritime Development Fund in the 2024 budget.
Besides, a 'Harit Nauka' scheme could also see the light of the day.
"The Maritime Development Fund may get an allocation of Rs 15,000 crore to Rs 20,000 crore, while the Harit Nauka scheme may see incentives for ships which run via Hydrogen," the report said.
Ships running on hydrogen is an excellent idea though it's not clear to me how this appears to be a near term win.
But then thanks to this, shipbuilding stocks were also ruling higher. Mazagon Dock Shipbuilders was up 2.5 per cent, Garden Reach Shipbuilders 5 per cent, Cochin Shipyard 4 per cent, and Garware Marine Industries 5 per cent (upper circuit).
And then, there was more news earlier that the Government wanted the SCI and Indian Oil Corporation to form a joint venture between Shipping Corporation of India (SCI) and a public sector oil marketing company, likely Indian Oil Corporation (IOCL), for manufacturing very large oil tankers.
Why IOC was needed for this specifically is not clear, unless it was for the capital. But that is a different story.
Either way, most of the stocks are riding high on the Government's local thrust.
Simultaneously, another report, again the BS here, said the finance ministry's Department of Investment and Public Asset Management is at an "advanced stage" to push through the strategic sale of Shipping Corporation of India (SCI).
WHich means at the beginning or end of all of this, SCI would get sold or greater parts of it.
Which at this point appears extremely remote given the Government’s proclivity to be in the business of doing business and only extending its tentacles further.
SCI is of course not the only meme stock. There are several, particularly in the public sector space.
But do note. All these companies are fundamentally fine, have steady financials, growth prospects, capable management and so on.
They are not con jobs for sure. But the valuations of their stocks ?
I am not the first to bring this up, several veteran market investors have posed the same question in recent months.
Equally, to a bunch of individual traders and charged up investors, the concept of valuation does not matter, particularly if they are operating, knowingly or not so knowingly together.
That’s why we are in the middle of a meme stock revolution.
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A Global Market Rally Is Still On
Indian stock markets are still taking deep breaths. Before I come to what else has been happening elsewhere and why that’s important too, let's start at home.
On Thursday, the benchmark indices, the Sensex, and Nifty50 indices, stayed weak, with a fair bit of selling in the larger cap stocks.
The BSE Sensex ended the session 27 points lower at 79,897 level, while the Nifty50 closed at 24,316, down 8.5 points.
Both indices fell during the day and bounced back but still lower. As you can see the Sensex is still below 80,000.
It is important to note that while the Indian markets are pausing for direction, global markets are still hitting highs.
On Wednesday, the S&P 500 hit a fresh record, breaking above 5,600 for the first time, driven by a sharp rise in, no prizes for guessing, semiconductor stocks.
The index closed 5,633.91, notching a seventh straight day of gains, CNBC reported.
The Nasdaq Composite advanced 1.18%, also hitting an all-time high and ending at 18,647.45.
It was the 37th record close in 2024 for the S&P 500, and the 27th for the tech-heavy Nasdaq.
The Dow Jones Industrial Average added 429.39 points, or 1.09%, to close at 39,721.36.
Chip stocks were among the largest winners of the session, including Taiwan Semiconductor, Qualcomm and Broadcom rose about 0.7%. And who can forget AI darling, to use CNBC’s words, Nvidia which climbed 2.7%.
But it was not just Wall Street.
Japan’s Nikkei 225 crossed the 42,000 mark for the first time amid a broader rise in Asia-Pacific markets on Thursday, after the big rally on Wall Street, I just referred to.
The Nikkei rose 0.94% to close at 42,224.02, powered by technology stocks, CNBC reported.
TCS Results Are Out
Tata Consultancy Services (TCS) kicked off the earnings season for the first quarter of the financial year, reporting a net profit growth of 8.7 per cent year-on-year at Rs 12,040 crore.
Profits were down 3.1 percent sequentially.
Revenue for the quarter came in at Rs 62,613 crore, up 5.4 per cent year-on-year and 2.2 percent sequentially.
TCS's Q1 performance exceeded Bloomberg estimates on revenue and net profit. Bloomberg had estimated revenue to be Rs 62,128 crore and profit at Rs 11,959 crore.
Margins for the quarter came in at 24.7 per cent, an expansion of 1.5 per cent year-on-year.
The TCVs generally give a sense of demand.
The company’s order book shrank to $8.3 billion, 18.6 percent lower from the $10.2 billion in the year-ago period and 37 percent down from the previous quarter, the company said.
In the March quarter of FY23, TCS had reported a record-high order book of $13.2 billion.
Interestingly, as per reports in MC and BS, the growth driver for the first quarter for TCS was emerging markets, led by India, which grew 61.8 per cent year-on-year, primarily due to a deal with state owned telecom major BSNL, followed by the UK at 6 per cent. Notably, the US continued to be subdued and down.
TCS added 5,542 people to its headcount, the number is important because the company has been shedding for the last few quarters.
Attrition levels were at 12% and the total workforce stood at 606,998 as of June 30.
TCS is of course the first off and the results seem in line with projections and estimates.
It will be of course interesting to see how the other majors like Infosys, Wipro and HCL Tech report their numbers and what insights we can take away.
Which in turn will reflect both the state of the North American and European economies, the march of AI and the ability of Indian companies to cope with all these rapid changes.
More on the changes in a bit.
Earnings Season
Earnings season is kicking off but there are many more companies whose results will reflect the fundamental trends in the economy in terms of demand, supply and price trends.
What do we know of how companies have performed in the last quarter that reflects both their performance as well as the underlying economy.
We have seen price shifts and demand moves.
What is the impact of this, including in traditional industry ?
I spoke with Sanjeev Hota, VP and Head of Research at stockbroker Sharekhan By BNP Paribas and began by asking him the larger trends he had seen in the last quarter, industries that stood out and why and then specific sectors he was tracking more closely..
Accenture Buys 2 Chip Design Companies In A Week. What Does That Portend?
Earlier this year, Infosys announced the acquisition of inSemi, a semiconductor design and embedded services provider.
The size of the acquisition was reported at Rs 280 crore.
In the last week, Accenture has been on an overdrive.
A few days ago, it said it acquired Excelmax Technologies, a Bangalore, India-based semiconductor design services provider.
The objective of this acquisition, terms of which were not disclosed, further enhanced Accenture’s growing silicon design and engineering capabilities, the companies said.
And just yesterday, Accenture announced it had acquired Cientra, a silicon design and engineering services company, offering custom silicon solutions for global clients.
Founded in 2015, Cientra is headquartered in New Jersey, U.S. and has offices in Frankfurt, Germany as well as in Bangalore, Hyderabad and New Delhi, India.
An Accenture release said Cientra brings consulting expertise in embedded IoT and application-specific integrated circuit design and verification capabilities, which augments Accenture’s silicon design experience and further enhances its ability to help clients accelerate semiconductor innovation required to support growing data computing needs.
Earlier, Accenture acquired XtremeEDA, an Ottawa, Canada-based silicon design services company, in 2022.
The larger question of course is with these acquisitions, are Indian IT services companies, in this context, Infosys, able to find new ways of growing the otherwise slowing IT services market as is quite evident from the many results.
More importantly, where does this place them technologically?
I reached out to Sidharth Pai, technology columnist, strategist and founder & Managing Partner at Siana Capital and began by asking him how he was seeing this trend and whether a deeper dive into chip design would help Indian IT Services companies shore up their offerings.
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