Markets Lose Further Ground
The markets sank further on Thursday with few triggers
On Episode 413 of The Core Report, financial journalist Govindraj Ethiraj talks to Vishesh Dora, Chief of Staff at Bizom.
SHOW NOTES
(00:00) The Take: The Hyundai IPO Flop
(03:53) Markets lose further ground
(06:48) Hyundai IPO scrapes through
(07:09) ECB cuts rate for third time
(08:06) RBI Cracks down on more NBFCs, including leading app-based ones
(10:41) High prices are slowing down festival sales
NOTE: This transcript contains the host's monologue and includes interview transcripts by a machine. Human eyes have gone through the script but there might still be errors in some of the text, so please refer to the audio in case you need to clarify any part. If you want to get in touch regards any feedback, you can drop us a message on [email protected].
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Good morning, it's Friday, the 18th of October and this is Govindraj Ethiraj, headquartered and broadcasting and streaming from Mumbai, India’s financial capital.
The Take: The Hyundai IPO Flop
By present standards of retail investor dynamics, Hyundai Motor’s mega Rs 28,000 crore initial public offer (IPO) was a flop.
The retail investor part is important because while the issue as a whole was oversubscribed 2.37 times and thus sailed through, it was thanks to institutional investors who flexed their muscles.
Importantly, the retail section was only 50% subscribed while the non institutional investor segment saw a 60% response.
It would be safe to say looking at the overall auto market conditions right now where cars are not exactly flying off showroom shelves and the flattish mood in the stock markets, the Hyundai stock will either list flat or drop after listing.
Actually, it would be a near miracle if it starts climbing after listing, at least in the short term.
There was some trepidation around this listing, largely for sentimental reasons.
First, on the fundamental side, the financials were seen as strong, the track record sound and a clear recognition that this was a strong number two player in India’s passenger vehicle market battling it out with the number one, the Koreans versus the Japanese Maruti.
But when it comes to sentiment, big IPOs are usually a sign of a market peaking out even if there is no direct correlation.
But the bigger factor is perception of listing gains.
As a Sebi study last month said, 54% of IPO shares in value terms were sold within a week by non-anchor investors.
This study was based on data from 144 mainboard IPOs between April 2021 and December 2023.
Moreover, individual investors sold 67.6% shares by value allotted to them within a week, when returns were more than 20% and sold 23.3% shares by value, when returns were negative, the study said.
It is clear that most investors who punt on IPOs are comfortable placing their bets in the sub Rs 400 range per share that is.
This applies to some extent to the secondary market as well being one reason why small caps and mid caps have seen such huge flare ups in the last couple of years.
A price of Rs 1960 per share or thereabouts is a deterrent to most such investors who may not be willing to cobble together funds if they don’t see a listing pop.
And more likely would not thus venture to even buy a higher priced offer.
Not surprisingly, they gave it a pass.
Possibly, Hyundai could have priced the offer lower though possibly going against the advice of its investment bankers, if that were the case.
In Hyundai’s mind, the competition is with Maruti Suzuki, the number one player and it thus priced the stock aggressively.
Hyundai’s cars have always been well priced for value conscious Indian customers. Starting from Santro in 1998, which also explains the Korean giant’s success in the Indian market.
Possibly Hyundai forgot to take a leaf from its own book when it came to pricing this IPO.
And top stories and themes for the day:
Markets lose further ground
ECB cuts rate for third time.
Hyundai IPO scrapes through
RBI Cracks down on more NBFCs, including leading app-based ones.
HIgh prices are slowing down festival sales
Markets & More
The markets sank further on Thursday as few triggers if any except maybe for some bright spots on the IT horizon in the form of better than expected results from companies like Wipro which revealed a 21% increase in net profit at Rs 3,209 crore.
Wipro also announced a 1:1 bonus share issue even as its consolidated revenue fell 1% year on year.
Bajaj Auto's stocks fell 12% on Thursday after it said it anticipated weak festive season sales and more on that shortly.
That warning affected other automakers too and dragged the overall market.
Bajaj Auto, India's third-biggest motorcycle maker by sales said festive sales of motorcycles had grown only about 1%-2% so far this month, falling short of market expectations of 5%-6%, Reuters reported.
That would compute sales growth of 3 to 5% in the festive season that runs from October to November, below industry expectations of at least 8%.
Benchmark indices, BSE Sensex, and NSE Nifty50 ended in the red, also keeping pace with Asian stock markets.
The BSE Sensex fell 494.75 points to end at 81,006.61 levels while the NSE Nifty50 ended at 24,749.85, down 221.45 points.
The broader indices were also lower with both the Nifty Midcap 100 and Nifty Smallcap 100 indices down by over 1 per cent each.
Among the sectoral indices, the Nifty IT index bucked the trend, ending 1.19 per cent higher.
The India, China sweepstakes are not looking very good, for India that is.
Most major brokerages as we have reported have upped China weightages from Morgan Stanlely, Bank of America Securities, Jeffries and Macquarie among many others.
17 percent of global investors surveyed by BofA between 4 and 10 October 2024 said "long gold" was the most crowded trade, followed by "long China equities" at 14 per cent.
Elara Securities' fund level analysis in October showed a total shortage of $32 billion in China (around 3.5 per cent of assets under management (AUM) within top 450 GEM funds. At 20 per cent India weight, Elara said, could lead to $6 billion selling in Indian equities.
The interesting thing is that Wall Street is hitting fresh highs but the sentiment there is not really heading eastwards like before for the reasons we just discussed.
Stocks were strong on Thursday after the Dow Jones Industrial Average
rose to a record close on Wednesday.
The big news on Wall Street was Morgan Stanley which rose 6.5% after topping Wall Street estimates for both its third-quarter earnings and revenue.
United Airlines also reported better-than-expected results and forecast strong numbers for the fourth quarter, sending shares 12.4% higher, CNBC reported.
These numbers also indicate that non tech shares on Wall Street are gaining strength, something we mentioned earlier as well.
Meanwhile, Hyundai’s mega Rs 27,000 crore IPO was oversubscribed by more than two times on Thursday attracting aggressive bidding from institutional investors.
As we just discussed.
Hyundai Motor's first listing outside South Korea is India's largest and the world's second-largest IPO of 2024.
ECB Cuts Rate For Third Time
The European Central Bank lowered interest rates for the third time this year as a hastier retreat in inflation allows it to offer support to the region’s stuttering economy, Bloomberg reported.
The key deposit rate was cut by a quarter-point to 3.25% — as predicted by all analysts in a Bloomberg survey.
The ECB said the process of taming prices should be complete “in the course of next year” — tweaking its previous language for that landmark to only be reached in the second half of 2025.
While looking unlikely just five weeks ago, it follows a slump in inflation to below 2% for the first time since 2021, alongside softer private-sector activity and cracks in the so-far resilient jobs market.
While ECB President Christine Lagarde reiterated that risks to growth remain tilted to the downside, she said a recession isn’t likely.
“We are still looking at that soft landing,” she said in Brdo, Slovenia, where officials have gathered for the one policy meeting of the year that they hold outside of their Frankfurt headquarters. “Lower confidence could prevent consumption
RBI Asks More NBFCs To Stop Lending
The RBI has cracked down on a fresh set of NBFCs on multiple counts for what seems to be like a fairly brazen set of violations.
At least two are app-based kinds.
Asirvad Microfinance, Arohan Financial Services, DMI Finance, and Navi Finserv are the NBFCs that have been asked by RBI to cease and desist from sanction and disbursal of loans with effect from close of business on Oct 21.
The RBI says the action is based on material supervisory concerns observed in the Pricing Policy of these companies in terms of their Weighted Average Lending Rate (WALR) and the Interest Spread charged over their cost of funds, which are found to be excessive and not in adherence with the regulations.
These are also found to be not in conformity with the provisions laid down under Fair Practices Code issued by the Reserve Bank.
Unfair and usurious practices continued to be seen during the course of onsite examinations as well as from the data collected and analysed offsite.
In addition to usurious pricing, these NBFCs were variously found to be in non-adherence with the regulatory guidelines on assessment of household income and consideration of existing / proposed monthly repayment obligations in respect of their microfinance loans.
Deviations were also observed in respect of Income Recognition & Asset Classification (IR&AC) norms resulting in evergreening of loans, conduct of gold loan portfolio, mandated disclosure requirements on interest rates and fees, outsourcing of core financial services, etc.
The Core has argued in the past for greater focus on fintech-led lending since this is where most of these infractions appear to take place.
Slowing down would also allow time for greater due diligence and better monitoring since it is quite evident that the intent to do so on part of these NBFCs is somewhere weak and non-existent.
Samsung Strike Ends
Workers of Samsung Electronics' Indian unit have decided to end a strike at its factory in the southern Indian state of Tamil Nadu, the company said on Tuesday, bringing to an end a labour protest that continued for more than a month, Reuters reported adding the strike, backed by the Centre of Indian Trade Unions (CITU), was the biggest such dispute in recent years in the country and cast a shadow the Government’s efforts to set up local manufacturing, particularly in electronics.
Samsung India in a statement late on Tuesday said it welcomed the decision by CITU to call off the strike at the plant, which employs about 1,800 workers and makes refrigerators, TVs and washing machines.
"We will not take action against workers who merely participated" in the strike, Samsung India said, without elaborating if it is planning any action against certain workers.
Which Way Is Consumption Going?
The signals are mixed so far.
Rising prices of edible oils and vegetables like onions and tomatoes have driven up grocery spending for Indian households ahead of the festival season, prompting some consumers to limit more expensive purchases like electronic items, retailers told Reuters.
This of course syncs with the latest consumer price inflation numbers, which hit a 9 month high of 5.5% last month. Food inflation at 9.24%. Vegetable prices were 36% higher than a year ago.
India's annual festival season, which runs from late September to early November and Diwali, sees amped up buying by households for food and other goods, driven also by discounts both offline and online.
Not so much this time.
Sales of electronics and home appliances so far in October have risen just 5-7% from last year, against estimates for an 8-10% climb, Nilesh Gupta, director at Vijay Sales, a retail chain with 143 stores, told Reuters though he said he was still optimistic that sales would pick up.
But other indicators like auto sales and the manufacturing purchasing managers index (PMI) are also weak.
Online sales, which account for 15% of retail sales during the festive season, are also off to a slow start, said Reuters quoting Crisil Market Intelligence and Analytics saying there are signs of continued income stress on low income groups.
How is it looking at the store level ?
I reached out to Vishesh Dora who leads the data insights practise at Bizom, which tracks about 300,000 distributors and 8 million corner or kirana stores about what stocking levels were telling them
INTERVIEW TRANSCRIPT
Vishesh Dora: I think as Bizone, what we look at is how stocking looks at it at this point, because we largely work with all stocking points in the FMCG industry. So I'm going to answer that from a stocking point. I think Chas as a quarter was expected to be at 12% growth.
We are seeing a little higher than that. That means stocks are in. Festive season has started.
Couple of things that clearly stand out are that commodities are one thing where stocking is better than last year. That means India is preparing us for sweets. Last year, the post-festival analysis or the total sales that we looked at was somewhere around 4%, right, with major contributors coming in from chocolate and dairy, right?
This year, JS in itself is more than 12% is what we are seeing right now. July, August, September of this year was mid-November, right? So this time it's a little ahead.
So stocking has happened largely and it continues to happen if I look at these 15 days as well. Largely value-wise growth, if I talk about the value of stock available, chocolates, confectioneries and dairies are three places which have seen huge uptake, partly pricing, partly demand. When I say partly pricing, all of us know chocolate, cocoa prices are going through the roof.
Dairy, while in the beginning of the year it wasn't growing that much from a price standpoint, it has gone up again. So chocolates have grown by 10 to 15%, dairy again 50% down, right, which means festive spendings are going to get a little expensive, especially if you're looking at gifting, sweet consumption as well. So those are largely what we are seeing today.
From a stocking point of view, we see the large retail points being overstocked or amply stocked to meet consumer demand.
Govindraj Ethiraj: Right, so that's the festive part, right, which is why I'm assuming you're talking about chocolates and confectionery and dairy. What about the non-festive part? How are trends looking there?
Vishesh Dora: Largely when we look at categories, we look at four, five block categories, right? So you have beverages, chocolate, confectioneries, you have commodities, you have dairy, home care, packaged food and personal care, right? Thankfully, all of them have grown in this quarter, right?
Beverages are the least, right, which has grown, largely understandable because change in season, change in priority for consumers. If I look at personal care, again, from a perennial level, we're seeing roughly around 14% growth in the quarter. What is seeing some flat trajectory or very less growth is home care, largely 3%, right?
So those are what other categories are looking like, apart from the festive driven categories, things like commodities where we are seeing some festive effect, largely grew at around 25% in the quarter.
Govindraj Ethiraj: So how would you compare this? I mean, is there a way of looking at a quantum over two or three years? You know, sometimes these monthly figures can be a little misleading.
So is there a longer trend line?
Vishesh Dora: Yeah. So I'm talking about the year on year comparison, which is last July to September quarter versus this July to September quarter, right? So that gives us a like to like comparison of where we were last year.
So last year, whatever commodities we had stocked up on in the market right now, we are up by 25% on that.
Govindraj Ethiraj: So that seems like a huge jump, isn't it?
Vishesh Dora: Yeah. I mean, prices have gone up. Largely, if you look at value sales, 7-8% prices have gone up.
Anyway, if you take 4% as consumption increases, you can attribute rest to festive stocks.
Govindraj Ethiraj: So if you were to now equalise between festive and non festive, how would you consumers be behaving at this point of time in this year?
Vishesh Dora: So I'm going to add one more layer to that, because I can't put consumers in the same basket with how it is today. Right. So how we've been sort of studying consumption in India for the last two years, at least is looking at it from a global standpoint.
Right. So urban consumption is not that great. And we've been reading about it for over the past couple of months.
Right. And that's visible. So your major consumption or major growth driver is the semi-urban and the rural India today, like largely great direct penetration.
Right. No Q-comm effect, no E-comm effect. Right.
That is what we are seeing where the contribution to growth across has been higher in the rural, especially in things like personal gear. As if I look at last year versus this year, just the mere penetration, which is the number of outlets where branded products are increasing in personal gear has gone up by 40%. Right.
Daily, which is huge. Right. Everybody in rural areas would look at making gear at home or buying it unbranded.
Items have gone up by 27 to 28%. And these are just improving the penetration of branded commodities in rural areas. So rural areas are definitely growing in terms of their spending in India.
From an urban point of view, packaged food remains around three to four percent is what we're looking at right now. Right. From the other category, personal care is around 40% again.
Right. So urban, the growth is pretty static, if I may call it so. But rural and semi-urban is where direct distribution muscle is being built.
Penetration is improving. Right. And therefore, we are seeing the effect of brands making it big enough in semi-urban areas.
Govindraj Ethiraj: Right. Vishesh, thank you so much for joining me.
Vishesh Dora: Thank you so much.
