Stock Markets Hit Record Closing Highs
A fresh surge in the stock markets took indices to new highs for the second session even as veteran market analysts warned once again of stretched valuations
On Episode 340 The Core Report, financial journalist Govindraj Ethiraj talks to Tarun Phatak, research director at Counterpoint Research.
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SHOW NOTES
(00:00) The Take
(03:27) Stories Of The Day
(04:12) Stock Markets hit record closing highs, earnings results steady
(05:36) Oil holds at $85 a barrel as China demand weakens
(06:15) Exports Fall to 7-Month Low
(08:57) Why premium phone sales are rising in India. Apple sales hit $8 billion
(17:56) Why your holiday in Europe has become more expensive and challenging
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 Tuesday, the 16th of July and this is Govindraj Ethiraj broadcasting and streaming from and headquartered in Mumbai.
The Take
The markets are obviously trading at highs. And will continue to do for some time. The problem is derivatives as we have been discussing here for some time now.
More and more horror stories are emerging, including in a detailed piece in The Economic Times, of how youngsters, mostly in their 20s, are feverishly trading in futures and options in the stock market.
And losing lakhs of rupees.
It is logical to assume that they do not research the stocks as such and are driven by, as increasing anecdotal evidence shows, by tips shared either on WhatsApp or on even platforms like YouTube.
Given that some of them do not even have any other income and have borrowed to speculate in the markets, then it would be only accurate to assume that understanding of markets and for that matter the risk involved in the truest sense is limited.
When I say risk, I mean when you borrow without thinking really about how you will repay.
Close to 80% of options contracts traded in the last year were on Indian exchanges, according to data from the Futures Industry Association quoted by the ET this time.
Overall turnover in the derivatives segment is above Rs 500 lakh crores or 500 trillion rupees.
It's a figure that is impossible to wrap one's head around. This has more than doubled from Rs 210 lakh crore in 2018.
The regulatory bodies including the Securities & Exchange Board of India are quite evidently scratching their heads to find a way to cool this trading frenzy.
The problem of course extends into the arms of the Reserve Bank of India since people are borrowing as well, or pledging gold or maybe other assets.
The system will not take a hit because the risk management measures are fairly strong.
But that does not mean the individuals and it could be that thousands of them will not be hurt badly if they are not already when markets go up and down.
Even if markets stay strong, there is nothing to say all bets will prove right.
It is clear already that there are segments within the markets, whether small and mid caps or verticals like PSU stocks which are considered overvalued.
That can be corrected either because of fresh regulatory action or the threat of it or an external trigger.
Research we have talked of here and quoted again by the ET suggests that 9 of 10 traders incurred losses and even those making profits paid as much as 50% as transaction costs.
Now you know why there is free brokerage for buying and selling of regular stocks, because the brokerages are making it up in futures and options trade. Of course that could change as Sebi is tightening norms further by making it more difficult for people to jump in and start trading.
More actions are on the way, including presumably higher margins on trading and making derivatives into true hedges for stocks rather than speculative instruments that have little to do with the underlying stock.
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Stock Markets Gain As Earnings Reports Flow Steady
A fresh surge in the stock markets took indices to new highs for the second session even as veteran market analysts warned once again of stretched valuations.
The BSE Sensex gained 145 points, or 0.18 per cent, to end at 80,665.
The NSE Nifty50, meanwhile, hit a record high of 24,635 in the intraday and ended at 24,587, up 85 points, all at record closing highs.
State Bank of India (SBI), NTPC, Ultratech Cement, M&M, Bajaj Finance, ITC, Tata Motors, Maruti Suzuki India, Adani Ports, and HCL Tech were the top gainers, rising in the range of 0.5 per cent to 2.5 per cent, reported BS.
State-owned companies and PSUs are leading the charge once again. Stocks like ONGC have hit record highs, though it is not clear why except that retail investors are piling into these stocks at an intensity never seen before.
In economy news,
India's wholesale prices rose at their fastest annual pace in 16 months in June on the back of costlier food, government data showed on Monday.
The wholesale price index rose 3.36% in June from a year earlier, slightly lower than the 3.5% gain expected by economists polled by Reuters but higher than a 2.61% year-on-year rise in May.
Wholesale inflation had stood at 3.85% in February 2023.
Oil Prices Hold Down
Oil prices are holding near $85 a barrel, a tad lower than previous weeks on weak economic data from China.
While the assassination attempt on Donald Trump has caused markets across the board to swing to and fro, oil’s key driver appears to be demand, or the lack of it.
Bloomberg reports that China’s appetite for raw materials including crude has shrunk over the first six months of the year, raising concerns over demand.
The nation’s GDP growth slid to the smallest in five quarters. The International Energy Agency has cautioned that China’s slowdown is weighing on global oil consumption growth.
US Stocks Strong In Anticipation of Trump
Back on Wall Street, the assassination attempt on former President Donald Trump is expected to better his chances as President in US elections in November, which he was already a strong contender for.
Stock futures advanced on Monday as investors evaluated the impact of the assassination attempt on former President Donald Trump and geared up for a big week of corporate earnings, CNBC reported.
While it had potential to create more political strife in the country, investors also speculated it could lead to further gains in the polls for Trump and Republicans ahead of the November election.
Meanwhile, Goldman Sachs said Monday that its profits jumped 150% from a year earlier to $3.04 billion, or $8.62 per share; the bank’s results a year ago were hamstrung by write-downs tied to commercial real estate and the sale of a consumer business, CNBC reported.
Fixed income was a highlight for the quarter; revenue there jumped 17% to $3.18 billion, roughly $220 million more than the StreetAccount estimate, on activity in interest rate, currency and mortgage trading markets.
More from Wall Street. Bloomberg reports that BlackRock Inc. hauled in $51 billion of client cash to its long-term investment funds in the second quarter, pushing the world’s largest money manager to a record $10.6 trillion of assets.
Exports Fall To 7-Month Low
Exports have fallen. In terms of value, exports plummeted to a seven-month low in June to $35.2 billion, Business Standard quoted data released by the commerce department.
The trade deficit narrowed to $20.98 billion in June, compared to a seven-month high of $22 billion in May, but widened from $19.2 billion in June last year.
Merchandise imports expanded by 4.9 per cent to $56.18 billion due to a jump in imports of items such as petroleum products, electronic goods, and metals, among others.
The Government says India will cross $800 billion total exports (goods and services) during the current financial year. Quarterly figures are quite optimistic. And services exports continue to do well.
Apple Is Growing
Apple Inc.’s annual sales in India hit a record of almost $8 billion, up about 33% in the 12 months through March from $6 billion a year earlier, Bloomberg reported.
Apple and Samsung now control more than 90% of the premium end of the smartphone market, which grew some 64% in the last year, more than other segments, according to Counterpoint Research data shared with The Core Report.
But Apple’s stranglehold of the $920 plus market is noteworthy also demonstrating the brand’s pricing power.
Some 137 million smartphones will be sold this year and some 1 of 3 smartphones will be financed which in turn is driving sales of smartphones and expensive ones.
I reached out to Tarun Phatak, Research Director at technology research organisation Counterpoint Research and began by asking him what were the key reasons behind the spike in Apple sales?
Record Tourism In Europe
Despite extreme weather conditions, high hotel prices and overcrowding to the point that locals are protesting, Europe is still in peak demand for summer holidays.
So much so that a new report from the European Travel Commission on tourism spending and travel trends published in the second quarter of 2024 and shared with Bloomberg says International tourists are projected to spend a record €800 billion in Europe this year, the report shows—that’s a 37% increase over pre-pandemic levels of €583 billion, per United Nations World Tourism Organization data.
Overseas visitor arrivals are also up 6% over 2019 thus far, the report reveals, marking a fresh record for Europe.
Americans are driving this year’s European tourism boom and 72% of the record tourism spend has so far taken place in western European destinations.
Further revenue boosts have come from intra-regional visitors and returning East Asian tourists, notably from China, though Chinese travellers’ spend contribution was not immediately available, ETC said.
Greece, despite experiencing increased climate impacts including heat waves this year and wildfires last year has not seen any impact on its appeal.
Indeed, the country has seen fancy-yet-affordable hotel options proliferate this year, most of them away from the pricier haunts of Santorini and Mykonos.
This applies to Indians too.
There’s also a growing preference for lesser-visited or less-crowded European destinations in the south, the report shows: Overseas tourist arrivals for Croatia and Malta rose 7.6% and 37% above 2019 levels, respectively, while Albania’s share of overnight tourist arrivals has risen by 86% compared with 2019 levels.
And finally, locations with a favourable currency exchange are soaring in popularity, too, whether they’re off-the-beaten-track or not—Bulgaria (+29%), Serbia (+40%) and Turkey (+22%) experienced double-digit growth in international tourist arrivals over pre-pandemic levels, Bloomberg said
