Goldman Sachs Takes A Pause On Indian Stocks
After a spate of bullish reports on India, where each report was almost trying to outdo the previous one on bullishness, Goldman Sachs appears to be now taking a pause
Our Top Reports For Today
- [00:00] Stories Of The Day
- [00:50] Goldman Sachs takes a pause on Indian stocks even as markets rise on falling oil prices.
- [04:14] Indian IT companies are facing a washout year, says JP Morgan after last week’s broad bullishness.
- [05:43] More Indians are taking health insurance companies to court and winning.
- [14:13] Its the World Cup and its worth over $2.5 billion!
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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Today is an important day because it is the Reserve Bank of India credit policy day. It is also important because quite likely nothing will happen and there will be no change in interest rates and monetary policy.
Though it would be interesting to see what the RBI says on inflation and growth, more of the former rather than the latter because inflation is what is eating into our household budgets and existence.
Anyway, while we have been worrying about rising interest rates and bond yields in the United States, which of course affects the world at large, like it or not, oil prices have fallen, as we spoke of yesterday too.
Thanks to which the markets broke free from a two day losing run and were back up. The BSE Sensex gained 406 points to end at 65,632 levels, while the Nifty50 advanced 110 points to close at 19,546.
Just to remind you of falling oil prices, it was going up because of supply cuts by Saudi Arabia and Russia. It is now going down because of the perception that demand is and will slow down.
Brent crude has now gone below the $85 mark, a far sight now from the $100 a barrel mark everyone was worrying themselves to death over.
And amazingly, US data shows the weakest seasonal gasoline usage in 25 years, Bloomberg is reporting.
Moral of the story: controlling supply of anything, however short it may be in supply of, can only get you that far.
But the rupee continues to be on a weak wicket, thanks to the strong dollar of course and it closed at Rs 83.25. Speaking of wickets, we have lots of cricket coming up including a chat with Ayaz Memon, noted writer and commentator.
Back to markets.
After a spate of bullish reports on India, where each report was almost trying to outdo the previous one on bullishness, Goldman Sachs appears to be now taking a pause.
Global headwinds and expensive stock valuations necessitate a cautious approach toward Indian equities in the short term as the country prepares for next year’s national elections, the firm said, in a report on Bloomberg.
“The sharp rally since end-March, expensive valuations and global macro risks (high oil, high US rates, strong dollar) warrant a tactically conservative stance over the next three to six months,” Goldman wrote in a note.
Bloomberg also points out that Goldman’s view comes as overseas investors sold $2.3 billion worth of Indian stocks on a net basis in September, following six months of inflows.
So the view following the selling action is triggering it, not very clear to me, at least right now.
Elections clearly seem to be a cause of concern to Goldman, as they are to many other brokerages who factor political risk into their calculations or are wary of making very grand projections just before a major election.
While the gauge has rallied more than 10% in the six months preceding election results in four out of the past seven instances since 1996, its valuations and midcap stocks’ performance look stretched relative to prior election cycles, the Goldman analysts said.
Yet, they said Indian equities’ implied volatility is low and not pricing in any significant event risk from elections as an opinion poll suggests Modi will retain power.
Show Me The Deals
The other demand that is expected to slow down is for services from Indian IT companies.
Investment bank JP Morgan which two weeks ago issued several bullish statements on India while its brass were visiting the country now says this is a washout year.
It says it expects investors to parse upcoming second-quarter results and commentary from Indian IT companies for signs of recovery in deal signings in fiscal 2025 now, thanks to this washout year.
Or more specifically, they want to see what big deals or how many of them are being announced by the IT companies before taking a meaningful call on their growth prospects.
Incidentally, I am not saying that because they were bullish a few weeks ago, they should be this week as well. Just saying that the IT sector slowdown didn’t start 2 weeks ago
"We remain negative on the sector as we haven't seen a meaningful uptick in demand in our recent checks. We think the overall setup is not as positive as last quarter," JP Morgan analysts said in a note on Wednesday, reported by Business Standard.
All major IT firms, including Infosys, TCS , Wipro and HCLTech, have previously warned that clients, the majority of which are U.S.-based, have been lowering their IT spending, delaying and even cancelling contracts, as economic growth slows and on fears of higher-for-longer interest rates, the Business Standard said.
Health Insurance Companies Are Being Dragged To Court
More individuals are going to court to fight health insurance companies who are denying their medical or hospitalisation claims, either some or all of it.
Moreover, the fact that people are going to consumer court is obviously an indicator of the sheer desperation, frustration and of course anger at being wronged.
When it comes to health, the biggest excuse is obviously prior conditions. You had a heart problem earlier and you did not reveal it.
But before that, an interesting article in the Economic Times by Shilpa Arora, Co-Founder of Insurance Samadhan points out that thanks to the Department of Consumer Affairs taking proactive measures to resolve cases in consumer courts, the inflow of appeals has increased, doubling the total number of pending cases last year.
Notably, she writes, of the 5,78,061 pending cases, a staggering 1,61,134 or 27% are related to the insurance sector. The number is not mentioned here but obviously many point to health insurance rather than other forms, like crop insurance.
These numbers also signal a steep rise in the resoluteness of the consumers to seek redressal in case of claim rejection or discrepancy with the cover amount, she says. Desperation and frustration, like I said, is more like it.
The basic problem is a lack of transparency, at least in the context of health. It is very likely and I do speak from experience that the person who sells you the policy will not ask all the questions you should have been asked or even if so will not highlight where you could be caught out were you to face a medical emergency.
Also remember, the time you will need the insurance is usually when you yourself or someone close family member is in a dire medical condition in the hospital. And that is likely when the insurance company will tell you or more likely the hospital to take a hike, or drag its feet which amounts to the same thing.
The writer in ET says the Insurance Regulatory body has been asked to address these issues and focus on the lack of transparency in insurance contracts, rigid terms and conditions, claim rejections due to pre-existing diseases, and tying crop insurance claims' success. It's not just health of course.
I reached out to Jehangir B Gai, well known consumer rights activist and lawyer based in Mumbai and began by asking him what he was seeing in terms of such health insurance cases going to court.
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World Cup and Everything Around It
The World Cup kicked off in India yesterday in Ahmedabad. And just like we were discussing Taylor Swift economics a few weeks ago, now we are talking World Cup Economics.
Bank of Baroda research says that there will be a boost of Rs 18,000 to Rs 20,000 crore or over $2 billion on gross output, mostly in the services sector, with the hospitality sector benefiting the most.
This is already evident from the fact that even if you somehow found a ticket to watch a one day match in lets say, Ahmedabad, you will have to sleep on the pavement if you are coming from out of town.
One analysis says average hotel rooms during the match days are up 150% from previous weeks while flight fares are up 80%.
But all hotel rooms are booked out too. And don’t even talk about the India Pakistan match. Maybe you can buy a larger screen TV and thus boost the non services side of the economy too.
BOB has calculated that at least 2.5 million people will watch the series at 10 venues over 45 days with 48 matches between 10 teams.
Of course, millions will watch from home.
So how does the Rs 20,000 crore break down?
BOB says, ticket sales would be between Rs 1,600 to Rs 2,200 crore, TV Rights and sponsorship is around 10,500 to Rs 12,000 crore, screenings and food delivery will be around Rs 4,000 crore and several other categories like team spending, foreign and domestic tourists, merchandise and spectator expenses in several hundreds of crores each.
Event management and gig workers or volunteers, including security are budgeted at between Rs 750 and Rs 1,000 crore.
BOB says the last cricket cup in 2019 in England contributed handsomely to the UKs GDP and India should benefit similarly.
Of course, the match season ties in with the festival season which seems to be off to a good start at least in some sectors so overall consumption spends, particularly on the affluent end of the market should be high.
The only flip side, BOB acknowledges, is inflation because of all the price jumps in airline tickets, hotel accommodation, though these would be mostly in the 10 cities in October and November.
There are some figures on both inflation and economic growth floating around but I feel they are too small to specifically tout because the larger point of the big spending spike is well taken.
Speaking of sold out hotel rooms and sky high air fares, fund managers
Saurabh Mukherjea, along with his colleague Nandita Rajhansa, has coined the term the "octopus class" to analyse the rise of this affluent class in India.
"What is astonishing is the fact that in spite of the (Cricket World Cup) ticket prices, every ticket that I have heard of is gone and this goes to show how wealthy a certain section of Indian society has become," Mukherjea said.
According to Mukherjea and Rajhansa, the "octopus class" comprises nearly 200,000 families across India, in small towns as well as big cities, or nearly 10 million people, who control nearly 80% of India’s wealth. Mukherjea has done an interesting deep dive into the composition of this octopus class but that’s for another day.
And finally, stocks primed for the World Cup have spiked leading up to the 45-day event’s start, Bloomberg has pointed out saying its Bloomberg index of stocks that are set to benefit from the tournament has gained about 20% in the last three months.
Stocks related to food delivery, alcoholic beverages, travel and other consumer sectors — including Zomato Ltd., United Spirits Ltd. and Indian Hotels Co. — will continue to see “positive” impact from the quadrennial event, stockbroker Jefferies said in a note Wednesday.
The stock of Restaurant Brands Asia, owner of the Burger King franchise rose yesterday as did media companies.
Indian Hotels, which runs the Taj Group of hotels,Chalet Hotels Ltd. and InterGlobe Aviation Ltd, owner of Indigo. jumped 3.6%.
To get a sense of how things are looking on the pitch as the matches kick off, I reached out to Ayaz Memon, well known cricket and sports writer as well as commentator, right now for the Asia Cup.
I began by asking him what he was looking for in this World Cup.
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And do check out our original podcast series Frontfoot, where Ayaz talks about matches from previous world cups, and the lessons in management we can take away from the Indian team’s many successes and failures. The link will be in the description.
