Best Half Yearly Performance In Stock Markets In 3 Years
During the last 3 years, the BSE Mid cap and Small cap indices outperformed their Large cap peers with gains of 25 per cent and 22 per cent, respectively
On Episode 328 of The Core Report, financial journalist Govindraj Ethiraj talks to Ajay Bagga, a veteran market expert.
Our Top Reports For Today
SHOW NOTES
(00:00) The Take
(05:02) Stories Of The Day
(05:38) Best half yearly performance in stock markets in 3 years, midcaps and small caps beat benchmark indices.
Wall Street is gearing for a return of Trump
(09:28) Nightmarish Covid 19 era logjams are back for the shipping and logistics industry
(12:23) Entry strategies for the stock markets, making sense of valuations and value
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, it's Monday, the 1st of July and this is Govindraj Ethiraj broadcasting and streaming from and headquartered in Mumbai, India’s financial capital.
The TAKE
An outdoor metal canopy collapsed at Delhi Airport’s Terminal 1 on Friday early morning last week during very heavy rainfall killing one person and crushing several cars in the process..
The area recorded its heaviest one-day June rainfall in 88 years that day.
A day later, a canopy collapsed in Gujarat’s Rajkot airport, once again amidst heavy rainfall.
At a recently inaugurated airport in Jabalpur in Madhya Pradesh which is three months old, a fabric canopy collapsed because of heavy rains and crushed a car parked there. No one was injured.
In Delhi, the collapse of the outdoor canopy led to suspension of operations from the Terminal, which handles around 200 flights a day, according to reports.
The MidDay reported that the Ministry of Civil Aviation has ordered a structural audit of all airports across India and submitted their findings.
Presumably, these audits include external structures like canopies outside and the airport roofs themselves.
It would be useful to note that preparing for disaster resilience is not something new.
India is co-chair of the Coalition of Disaster Resilient Infrastructure, an intergovernmental body which has done extensive work on disaster resilience for, guess what, airports.
The CDRI last year released a study titled, GLOBAL STUDY ON DISASTER RESILIENCE OF AIRPORTS PHASE 1 UNDERSTANDING THE CURRENT STATE OF PRACTICE OF DISASTER RISK MANAGEMENT AND RESILIENCE.
The report quite clearly says Airports should conduct periodic vulnerability assessments and develop a resilience strategy. Also, they should move towards a more proactive approach rather than reactive towards hazard management and resilience planning. • Airports and insurers should collaborate to mitigate climate risk, this will be mutually beneficial.
The report also projects that airports were expecting extreme storms and winds, extreme precipitation, and third-party systems failures to result in partial infrastructural restrictions, flight delays, and indirect economic loss to airport partners.
Runways, terminals, and communication systems are given the highest priority among the critical assets, with the majority of participating airports having mitigation or recovery measures in place for these assets.
On the other hand, the report points out that while airport access links are considered one of the most vulnerable assets, participating airports in the creation of the report had highlighted that developing mitigation or recovery measures for these assets is often challenging, as they may not be a part of airport jurisdiction and require extensive collaboration with multiple stakeholders in the region.
The Indian Government has been quite actively leading this effort so it would not be correct to say the Government is ignorant or not done enough at least conceptually in preparing for disaster resilience including in airports.
But of course doing the brain work and then converting that to actual onground responses takes some very concerted effort.
Which is why a hurried structural audit to keep the public happy is not good enough and the airports and airport authorities must revert to the process on structural safety and integrity of airport operations.
Disaster resilience of course focuses on continuity and there is a bias on airside operations as the CDRI report says. Which is how do you keep an airport running or minimise damage to it when there is a cyclone or unprecedented rains or some other natural disaster, including earthquakes.
The case of Dubai airport coming to halt in April this year demonstrates how lack of preparedness can have a domino effect.
Even in the case of Terminal 1 in Delhi, the fact that flights had to be suspended because of a canopy collapse outside in the pick up and drop drive up area does not reflect well on preparedness.
The point is this will get worse. There will be more intense rains preceded by, as it happened in Delhi just now, intense heat waves. I am no structural engineer but it is obvious that all this impacts all materials, down to the bolts and rivets that hold parts of a roof or canopy together.
We have to prepare for extreme conditions. Whether it is airports or bridges or roads, we have to build differently and the public at large must stress on accountability at a much higher level of engineering quality and durability.
Bridges might collapse because of age or inferior materials used during construction. Transport infrastructure could be hit repeatedly. This is a new world.
And the top stories and themes of the day:
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It's Been A Six Month Bull Run
Of course if you have been listening carefully to The Core Report, you have been following the mostly ups in the stock markets in the last year.
It's been a solid six months which ended over the weekend.
A report in the Business Standard says Indian equities posted their best half-yearly performance of the past three years in January-June 2024 (H1 CY24), with the National Stock Exchange Nifty 50 and BSE Sensex surging 10.5 per cent and 9.4 per cent, respectively.
During this period, the BSE Midcap and Smallcap indices outperformed their largecap peers with gains of 25 per cent and 22 per cent, respectively.
So much for all the perception of froth in the smaller cap stocks and the reaction of the regulators to it, including asking mutual funds to run stress tests.
So what drove these rallies ?
Most of it was led by automobile, capital goods, telecom and public-sector undertaking (PSU) sector stocks, says the BS report.
Indian investors have invested nearly Rs 200,000 crore in the stock markets in the last 6 months.
As many as 10 Nifty 50 stocks outperformed the benchmark as well as broader indices by surging over 30 per cent in H1 CY24.
Even large cap stocks have done well, like Mahindra & Mahindra which was up 66 per cent, followed by Adani Ports and Special Economic Zone (44 per cent) and Shriram Finance (43 per cent), and Bharti Airtel, Bajaj Auto and Power Grid Corporation (40 per cent each, according to the BS report.
With all this, what should one’s investment approach be or how should one gauge the markets.
I have a longish conversation with Ajay Bagga, private investor now and veteran market voice coming up so stay tuned.
The big question of course I am asking is of course the valuations and whether they will sustain and how and why.
Meanwhile, latest data with the depositories shows that foreign portfolio investors (FPIs) have made a net investment of Rs 26,565 crore in equities this month.
This came following a net outflow of Rs 25,586 crore in May and over Rs 8,700 crore in April.
If you look at the last six months, FIIs have been in and out, out in January and in in February and March.
Of course FIIs as we have pointed out in recent days are buying large cap stocks and many of them traditional, legacy stocks which should be good for those who have held onto them in the last year.
Meanwhile, commodities are steady, oil is now lower around $85 a barrel. We will track oil more closely later in the week.
Meanwhile, Bloomberg says the S&P 500 rally has hit a wall at the end of a banner quarter.
All eyes are also on the presidential race with increasing belief in the markets that Donald Trump will return for a second term in November.
So guess which stocks are doing well in anticipation of that ?
Well, oil, health insurance and…private prisons, yes private prisons.
On the other hand, renewable energy stocks are weak.
With Trump appearing more likely to unseat Biden in the November election, the market should “be pricing in a considerable risk of higher-than-target inflation in the coming years, and this is from a starting point of our thinking they already offered structural value,” Barclays strategists Michael Pond and Jonathan Hill said in a note, reported by Bloomberg.
Shipping Routes Are Slowing Further
Shipping routes in the Gulf of Aden and the Red Sea have been hit badly since November last year after Houthi rebel attacks started there.
The problem is getting worse as there are now cascading supply chain effects leading to, as increasingly people in the logistics space are calling it, a return to the bottlenecks of Covid19 times.
The Economic Times quotes latest data released by the ocean and freight rate benchmarking and intelligence platform Xeneta, the ocean freight container shipping market is set to surpass the Red Sea crisis peak, reaching levels not seen since the COVID-19 pandemic.
In addition to Red Sea troubles, there are port congestions, equipment shortages, and potential labour issues at US ports. This coupled with the fact that shippers are deciding to front-load imports ahead of the traditional peak season in Q3, has overburdened the shipping industry, says the ET.
Moreover, the bunching of ships at major transhipment ports has severely crippled Indian traders’ shipments.
A significant portion of India’s transshipped cargo is handled at ports outside India, like Colombo (Sri Lanka), Singapore Port, and Port Klang (Malaysia). We spoke of the logjam in Singapore port a few days ago as well.
Transhipment ports are essentially ports where smaller Indian ships take cargo and place them on larger ships which also obviously means the larger ships do not dock here.
A Delhi based textile company told ET that During the time right after Covid when the freight rates of $2000 became $12000. It is almost similar now. And that they were experiencing delays of 2-3 weeks because they are currently held up at Colombo port.
Also, not just freight costs, but material costs because we are importing raw materials have also increased.
Elsewhere, India’s commerce minister said the Government was confident India would get over $800 billion exports this year, with both goods and services growing.
India’s goods and services exports in FY24 hit an all-time high of $778.2 billion.
It is a fact that despite all the troubles in the last 7-8 months, Indian merchandise trade and exports have been holding and growing, as one of India’s largest exporters of leather footwear, M Rafeeque Ahmed, Chairman of the Farida Group of Companies told me recently on The Core Report.
Where Could the StockMarkets Go Next?
The markets are evidently on a roll as we just discussed, including the last six months.
The tailwinds are strong but there could be headwinds too, including the lack of major triggers for a month at least till the next budget.
Global equity flows may slow down or shift around between equity and debt or other markets.
The issue for Indian markets of course is finding the right direction and the sweet spots and of course making sense of the valuations.
I spoke with Ajay Bagga, veteran stock market voice over a longish conversation and asked him a range of questions beginning with how he was seeing the markets poised right now.
