Markets See The Longest Winning Run In 4 Years
The NSE Nifty50 is now on its longest winning run in 4 years or since October 2020, gaining 3.8% in 10 sessions
On Episode 374 of The Core Report, financial journalist Govindraj Ethiraj talks to Neeti Sharma, CEO of Teamlease Digital.
Our Top Reports For Today
SHOW NOTES
(00:00) The Take: Why a primary market problem is also a market problem
(05:09) Markets see the longest winning run in 4 years.
(06:09) Caution on Wall Street even as it waits on Nvidia result
(08:14) Will captives of multinationals absorb excess manpower flows into IT services
(19:47) Air Cargo Numbers Rise In Double Digits For 8th Month
(21:15) Lego sales jump 13% in the first half, you may have contributed to it
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 Thursday, the 29th of August and this is Govindraj Ethiraj, headquartered and broadcasting and streaming from Mumbai, India’s financial capital.
The Take: Why a primary market problem is also a market problem
When a two-wheeler dealership with two outlets and 8 employees does an IPO which gets Rs 4,800 crore worth of subscriptions when it wants only Rs 12 crore, something must be wrong somewhere.
The primary market is a part of the stock market. It has always been the case that the secondary market does well, hits new highs and the primary market starts gathering steam and of course small investor funds.
Usually, this story ends badly, at least for the not sound companies.
While the funds flowing into the primary market are lower, the exuberance there is a direct symptom of what is wrong with the stock markets as a whole. We cannot ignore the signs just because the amounts are relatively lower.
Further, the most exuberance is clearly in the less regulated SME IPO space which is governed by the stock exchanges and not the Securities & Exchange Board of India.
But that does not change the fact that you could take the temperature for fever from any part of the body and it will be the same body and thus the same market.
It is equally important to revisit everything that is happening in the secondary markets with a fresh lens.
To its credit, the Sebi has done that earlier, for instance, asking mutual funds to do stress tests with their mid cap and small cap funds, asking them to model what would happen if investors suddenly redeemed their units.
Of course, while there is admitted froth in the smaller cap stocks, all of them have subsequently gone even further up to new record highs, like the rest of the market, which also hit a record high yesterday.
The Sebi is now cautioning investors against price manipulation by putting out a notice yesterday saying that it has noted that post listing some of the SME companies and / or their promoters have been resorting to certain means that project an unrealistic picture of their operations.
Such companies / promoters have been seen to make public announcements that create a positive picture of their operations. These announcements are typically followed up with various corporate actions such as bonus issues, stock splits, preferential allotments, etc," Sebi said.
The regulator said such corporate actions create positive sentiment among investors, leading them to purchase these securities. At the same time, this provides promoters with an easy opportunity to offload their holdings at elevated prices.
Urging investors to be careful and watchful of the aforesaid patterns and exercise caution while investing in SME stocks, Sebi said one should not rely on unverified social media posts and not invest based on tips and rumours.
Developed as an alternative source of raising funds for emerging businesses since 2012, the SME platform of stock exchanges has seen amassing funds worth over Rs 14,000 crore in the last decade, of which Rs 6,000 crore was raised during FY24, the ET reported, adding that some SME stocks even doubled on listing day itself till NSE imposed a cap of 90% recently.
We of course need SMEs to be able to access capital but what we are seeing now is an aberration.
One that can shake the entire market if ignored for too long.
Which goes back to the original point that a problem in the primary market, even if a problem with the SME IPO segment is a reflection of a problem in the larger market and the exuberance in it and we should now be revisiting everything.
Meanwhile, a small corrigendum from yesterday, when I said that Nykaa listed in November 2021, around Rs 2,001 and then is currently quoted at Rs 226. What I missed was the 5:1 bonus which would mean you have 6 shares instead of 1.
But you are still at Rs 1,300 worth of shares, close to its issue price of Rs 1,125.
Of course, then I must also mention that Nykaa’s bonus move came in for a fair bit of criticism because it made it more expensive for shareholders to sell.
Because the cost of acquisition of the 5 shares is 0 while the 1 share is what it is or was and capital gains tax gets calculated accordingly.
ICICI Direct among others has a good report on this bonus issue which created quite a stir, in case you want to check it out.
On the subject, some other IPOs from that time which are all below water right now are Delhivery, Freshworks and Cartrade.
Which brings me to the top stories and themes for the day.
Markets see the longest winning run in 4 years.
Caution on Wall Street even as it waits of Nvidia results
Will captive units of multinationals absorb excess manpower flows into IT services
Air Cargo Numbers Rise In Double Digits For 8th Month
Lego sales jumped 13% in the first half, you may have contributed to it.
Markets At Highs
The NSE Nifty50 is now on its longest winning run in 4 years or since October 2020, gaining 3.8% in 10 sessions.
Sustained local retail and institutional inflows, as well as money from portfolio management services and alternative investment funds has ensured a liquidity surplus, analysts told Reuters.
The Nifty50 hit a record high of 25,129.60 during intraday trade and closed at 25,052.35, up 34.60 points while the Sensex closed at 81,785.56, up 73.80 points.
As we said yesterday, the markets are not shooting but gaining steadily, despite the absence of any major triggers except the potential rate cut in the United States which has helped, among other, IT stocks which are seeing a renewed boost of energy.
Speaking of energy, Brent crude prices have slipped again, below $80 to quote around $78.88.
More Caution on Wall Street
The speedy return of market confidence following a dramatic global sell-off in risky assets should be seen as a cause for concern, according to the head of asset allocation research at Goldman Sachs who spoke to CNBC on WEdnesday.
Goldman’s Christian Mueller-Glissmann said investors could think about the early August stocks slump as something akin to “a warning shot.”
For those who forgot or need a reminder, in early August, the big worry was the unwinding of carry trades linked to Japanese yen which pulled down stocks from record highs.
At that time, the S&P 500 lost 3% on Aug. 5, its biggest one-day loss since 2022. However, since then, thanks to the belief that interest rate cuts were imminent apart from stronger economic data, the S&P 500 has jumped 8% since Aug. 5, while the Dow Jones Industrial Average has climbed more than 6%.
Elsewhere, all eyes on Nvidia’s earnings expected early this morning or after close of trade on Wednesday on Wall Street.
Bloomberg said stocks were hovering near all-time highs, with traders awaiting Nvidia Corp.’s results for clues on whether the artificial-intelligence euphoria that’s powered the bull market has more room to run.
Given its massive influence on broader indexes, Goldman Sachs Group Inc.’s trading desk has once called Nvidia “the most important stock on planet Earth.”
Reliance AGM Tomorrow
The IPO timelines for Reliance’s retail and telecom-digital businesses is what markets are expecting from the company’s annual general meeting today at 2 pm.
A report in the ET says last year was noteworthy for the fact that the company unveiled a meticulous five-year succession plan for the three children of Chairman Mukesh Ambani.
This time, investors will watch out for timelines, targets, new partnerships and other announcements regarding the conglomerate's diversified business that sprawls across oil and petrochemicals, telecom, retail, new energy and finance.
IT Manpower
The big question facing the IT services industry and the economy has been what happens if IT services slows down as it has been in the last year, particularly in terms of new jobs.
We have been discussing for some time now and asking if global capability centres or GCCs or the captive arms of multinationals world over will pick up the slack.
There are a couple of different answers.
First, they are picking up slack for sure, by hiring steadily at higher rates though on a smaller base and also paying more.
Because, they are looking for domain expertise, for instance, in retail or banking or even health tech as we will find out shortly.
A new report just out from Teamlease Digital says that from 1,600 GCCs in India employing over 1.6 million professionals, India could go to over 2,400 GCCs in six years employing over 4.5 million professionals.
Many of these GCCs will be set up in tier-II cities like Kolkata, Ahmedabad, and Vadodara, driving geographical diversification and employment in these locations and then there are the highly specialist areas that they are setting up in.
We are seeing almost 2 GCCs being set up everyday, Neeti Sharma, CEO of Teamlease Digital tells me.
I began by asking her what prompted this report at this time and the major findings from it.
INTERVIEW TRANSCRIPT
Neeti Sharma: So we basically come out with a skills and salary primer every year, and this time, we wanted to specifically focus on how GCCs are stacking up, given the fact that today, GCCs have become a very important sector for hiring tech talent across the country. IT services, as we all know, has not been able to hire the volumes that they used to hire in the past. However, GCCs are, in a way, offsetting that deficit, to some extent, also the fact that GCCs are looking at talent and skill set combinations slightly differently than what an IT services company would look at. So our idea of getting this report out was twofold, one to let, you know, people know where the jobs are going, what are the skill sets that companies would look at which cities are hiring and which cities and which roles and which industries pay higher salaries compared to the others. So that was the essence of the report. We do this periodically. And this time around, we actually did a survey, you know, of about 300 or 400+ employers. And you know those many employees across 15,000 job roles. We've kind of identified sectors, about 10 sectors. So it's spread across those many JDs, job roles, spread across multiple skill sets and 10 sectors across, of course, the three industry segments that we are talking about this, IT services, product, GCCs and the non tech sector. And the intent was purely to A, analyze where the jobs growth are going to be, and B, What are the skillsets for the near future.
Govindraj Ethiraj: Right. And what in your mind would be the one or two more, let's say, dramatic findings in this, in terms of the kind of people that GCCs are hiring, the transition that's happening, or the movement that's happening, let's say from IT services to GCC or otherwise.
Neeti Sharma: Yeah. So absolutely, you know, where do you get talent? You know, not everyone's a hiring freshers, B, not every talent pool is willing to move to GCCs. So the shift is happening from IT services on two count. One is the lateral which is given there are special natural workforce who has specifically worked on a certain domain. GCCs are very happily hiring them. Give you an example a BFSI GCC will you know will actually open doors for tech talent that is probably worked in that domain under the IT services sector for a very long time, which means they bring domain expertise as well as tech expertise, and which is the reason why GCC salary levels are a notch higher than the IT services salaries today, right from the entry level workforce driven leadership, purely because the composition of skills that GCC is look for is a tech plus domain and a tech plus something else. As against IT services, which initially looks at pure tech, and then it kind of starts specialising. So one is that we've seen a lot of GCCs hiring from IT services. The other aspect of GCCs is we know today that we have about 1600 odd GCCs in the country, about 45-46% of these GCCs are actually in Bangalore. About 28-30 25% probably are in Hyderabad, and the rest are spread across cities such as a Mumbai, Pune, Gurgaon, and each of these cities, in a way, are creating specialisations of their own. So Pune is specialising in product and auto engineering, the automotive GCCs Hyderabad is, you know, in a way, has a large talent pool and set up for healthcare and Pharma. Tech GCCs, Bangalore and other is a combination. So tech GCCs, retail GCCs and couple of others. So this is something that we see. GCCs are expected to actually employ over four and a half million youth by 2030 which is really 115% jump year on year from right now. But obviously we see this, that's growth so in a sector. So which is where talent is going to shift. Which is where freshers are going to get hired as well, along with, of course, you know, other sectors such as the non tech and IT services.
Govindraj Ethiraj: Right. I'll come back to the it versus GCC. But the growth reflects the fact that obviously many multinationals sitting in various parts of the world, North America, Europe, are wanting to set up these captive centres in India. And obviously have been doing so, and have set up 1600 at least so far. What is driving the acceleration right now? Companies have been setting up for a while now.
Neeti Sharma: yeah, so I think right now what India brings to the table, and, you know, I think all of us started, even the IT services industry started with purely as a cost arbitrage for the other countries. So other geographies, right? GCCs in India started, you know, thought like it started yesterday. It's been around for a while. The growth is increasing like right now, for three factors. One is, of course, cost though it's not going to be a one is to four. Kind of a cost arbitrage, it probably will be a one is to two, or a one is to one and a half. Arbitrage, operating leverage, given the fact that the value we bring in terms of skill set right now and the cost obviously plays a big role. And the third piece is the talent arbitrage. I think the kind of people we are, the candidates that we are generating in our country. No other country is able to give that kind of talent. You know, just as an example, there are auto engineering R and D centers in India. You know, of large multinational automotive companies. Large part of them are between Pune and Bangalore, R and D in India was not a area that we ever looked at. But given the fact that these companies are looking at setting up large research and development base in India, purely talks about the talent that we bring to the table. So today, it's a combination of cost, operating leverage and the value that the talent brings across to the table, which is where now we're looking at this, you know, spiking up in the last couple of years, a lot more than what has happened in the past. If you look at there are, there are lot of deep, deep things, centers coming up, innovation hubs coming up, GCCs in cloud, cyber security, I think there's, there's a whole range and a very exciting segment that GCCs are looking at to scale, data centers, ERD, automotive, BFSI, detail across sectors is what we look at growth. And in my view, it is the trinity of a cost operating leverage in talent arbitrage.
Govindraj Ethiraj: The more macro question. So what would be, let's say, the median intake of professionals into the IT industry every year. What was it, let's say, a year ago, and which was largely getting absorbed by IT services companies. And how can that change? And will there be net addition, or will it be flat?
Neeti Sharma: So IT services, obviously, from last year to this year is going to have a growth very clearly. I mean, even though the growth will be a single digit growth right now and then, that's what we hear from all our partners in the industry. GCCs is, however, the growth is actually in double digits. It's about at about 26 or 27% growth that we are looking at across in people, yeah.
Govindraj Ethiraj: In people
Neeti Sharma: absolutely yes in terms of headcount for two reasons, right. One is the existing GCCs are growing because they bring in more and more processes into India. And two is, obviously there are newer GCC is being set up practically every day. Third aspect Govind is that lot of state governments now are rolling out schemes and incentives to attract GCCs into even tier two cities, right? Which is a new hinder this. This had not happened in the past, but multiple states are actually giving incentives, creating tax holidays and ensuring that GCCs come to those states into tier two cities, so that there is also talent from tier two cities that can be hired into these roles. So, yeah, I think that's where the growth is also spiking in for GCCs right now.
Govindraj Ethiraj: So you're saying that there's a net positive at the end of all of this in terms of hirings that will happen in the IT sector.
Neeti Sharma: Definitely. I think, yes. I mean, then I'm comparing it to last year, right? I'm not comparing it to the last three years, because the last 10 to 18 months were very difficult. In the it hiring sector. There is change, there is upward movement that's going to be net positive. And while we are all talking about, you know, AI or Gen AI taking away jobs, clearly in India, they're not taking away jobs, probably getting used for productivity enhancement, you know, and efficiency, but in the long run, it will definitely create more jobs, which will enable people to work better, while, of course, GCC is a non tech sectors higher. I mean, today, all of our organizations are tech companies. We are not non tech anymore, right? I mean using technology as we speak. So we all have our own technology teams creating products that we can use internally. So large part of hiring is also happening, in fact, in the non tech sector. You know, I think from seven and a half lakh head count now, I think over the next two years time since we're looking at about 11 and a half lakh head count growth, which is also a good growth. So GCC is hiring, non tech hiring, and IT services will hire better than last year, but obviously it's still going to be single digit for now. Obviously, because it services is not hiring so opportunities there are lesser right a lot of people have been let go. The strength has gone almost zero in most IT services companies. The options are with GCCs and I think as. People view GCCs as a area where they can grow in their career. More and more people will actually start transitioning to GCCs whenever it services goes back to their original hiring. I'm sure they will also get the right set of talent. So I think at some point it will balance. But it's not like what is eating the pie from the other that's not really where we are right at the moment.
Govindraj Ethiraj: Got it. Neeti, thank you so much for joining me.
Neeti Sharma: Pleasure Govind, lovely talking to you once again
Air Cargo Numbers Rise In Double Digits For 8 Months
The International Air Transport Association (IATA) released data for July 2024 numbers showing global air cargo markets continuing to grow, up 13.6% compared to July 2023 levels (14.3% for international operations).
This is the eighth consecutive month of double-digit year-on-year growth, with overall levels reaching heights not seen since the record peaks of 2021.
Capacity, measured in available cargo tonne-kilometres (ACTKs), increased by 8.3% compared to July 2023 (10.1% for international ations).
Interestingly, this was linked to the growth in international belly capacity, which rose 12.8% on the strength of passenger markets and balancing the 6.9% growth of international freighter capacity, IATA said.
It should be noted that the increase in belly capacity is the lowest in 40 months whereas the growth in freighter capacity is the highest since an exceptional jump was recorded in January 2024.
"Air cargo demand hit record highs year-to-date in July with strong growth across all regions. The air cargo business continues to benefit from growth in global trade, booming e-commerce and capacity constraints on maritime shipping. With the peak season still to come, it is shaping to be a very strong year for air cargo.
Lego Moves
I don’t have numbers for sales of Lego products here but anecdotally seeing the fact they are displayed in more and more stores including of course chains like Hamleys, I can say that its picking up in India.
Anyway, globally, Lego has said revenue during the first six months of the year jumped 13%, reaching 31 billion Danish krone, or about $4.65 billion.
Niels Christiansen, CEO of the privately held Danish toymaker, told CNBC that the company is seeing strength across its portfolio, especially with Lego Icons and Lego Creator, and through its partnership with Epic Games’ Fortnite, CNBC reported.
Apparently, last year, Lego saw consumers “trading down” or opting for lower-priced sets, while still buying the same volume as the year before. This year, volume is up, Christiansen said.
“To the extent they traded down last year, they’re not trading further down,” he said. “So that has stabilised. And we see almost all of the growth is actually growth in volume.”
The Lego story is of course about innovation and extension because many of their assembly projects are aimed at older and older people, including 18+ involving complex assemblies of several thousand pieces and also involving themes like popular sports cars to Star Wars to NASA rockets.
Lego now says the company has nearly doubled the amount of renewable and recyclable materials it uses in its bricks compared to full-year 2023 and hopes to source over the next few years, half its raw materials from sustainable sources.
Meanwhile, CNBC said that publicly traded rival Mattel saw net sales fall 1% in the first six months of 2024 and Hasbro reported that its net revenue fell 21% between January and the end of June.
