Stock Markets Brace, Search For New Triggers
Third quarter results are one trigger that the market is waiting for and of course further smoke signals on how the US Federal Reserve will cut rates
Our Top Reports For Today
- (00:00) Stories Of The Day
- (01:00) Stock markets brace, search for new triggers
- (05:33) Pump prices may not drop for some time despite crude oil staying low.
- (08:29) India’s expanding market for healthcare, from home testing equipment to diagnoistics and hospital care.
- (12:53) Why the Anglo-Saxon model of business schools runs counter to India’s family-run business ethic.
- (20:36) Fidelity marks down Twitter investment by 72%
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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Markets Fall Back
Stocks fell back further on Wednesday for the second day in a move that was fairly expected given global markets including Wall Street had set the tone.
The BSE Sensex closed 536 points lower at 71,357. The Nifty50, on the other hand, shut shop at 21,517, down 148 points.
Most institutional investors are now asking investors to move and are themselves moving funds into large caps or mostly stocks that are closer to descriptively or already part of the benchmark indices.
This also reduces the number of active targets so to speak which means valuations will be key once again.
Even the most bullish investors in India are wary about high valuations. And even if they don’t say much which they may not for various reasons, their actions are quite demonstrative, as has been the case in the now happening shift from small cap to large cap stocks.
The market is waiting for fresh triggers as usually happens when it pauses after rising steadily for a while. Third quarter results are one trigger that the market is waiting for and of course further smoke signals on how the US Federal Reserve will cut rates.
On the business side, something I wanted to point out or leave here is the question whether companies will invest in fresh capacity expansion in 2024, picking up the slack so to speak as Government investments are set to slow down.
The reason for this, as Crisil chief economist DK Joshii told me last week as well, is that capacity utilisation is now over 75% in many cases and even higher for some industries and companies.
This is the point when fresh capacity investments kick in.
The question is when and how ?
A report from BOB Research using CMIE data to look at investment intentions however says that industry in general is still in a wait and watch mode.
Guess one industry which is spending expansively in capacity expansion ?
The answer is airlines, which if you look back at the headlines of 2023 is dominating both India and the world in some ways in orders placed.
Some 49% of investment intentions are in the services sector of which transport services contribute to 94% of the total, being aviation, according to CMIE data.
Within manufacturing which has a share of 28%, chemicals and machinery have larger shares of 42% and 19% respectively.
The power sector continues to be a driver with a share of 21%. Hence clearly the intentions are biassed towards 4 sectors.
The other aspect of investment intentions is the ownership pattern.
The share of government companies came down to 20.7% from 23.2% in 2022. But in absolute terms there was a fall in both government and private companies, and within private, both Indian and foreign sectors witnessed a decline.
Meanwhile, Reuters reported on Wednesday that India's manufacturing industry ended 2023 on a slightly shaky footing as factory growth decelerated to an eighteen-month low in December, thanks to a slower rise in new orders and output.
The HSBC India Manufacturing Purchasing Managers' Index (IPMI=ECI), compiled by S&P Global, fell to 54.9 in December from November's 56.0.
Still, the reading was above the 50-mark separating growth from contraction for a 30th straight month.
Back to the markets now and currencies, the Indian rupee closed marginally higher on Wednesday, supported by dollar sales from foreign banks, even as most of its Asian peers feel pressured by a recovery in the U.S. dollar index, Reuters reported.
The rupee ended at 83.27 against the dollar, slightly higher compared with its close at 83.31 in the previous session.
For everything, the Federal Reserve’s actions are a key signal.
Not that you need more uncertainty but the certainty of a Fed rate cut in March apparently is coming down, from 85% a week earlier to near 75%, according to CME Group's FedWatch tool, Reuters said.
Oil Falls Again
And our energy segment is supported by IndiaEnergyWeek.
Fears of impact on oil prices because of tensions in the Red Sea which leads to the Suez Canal, a key gateway for ships, receded once again as oil prices slipped.
West Texas Intermediate swung in more than a $3 range to settle near $70 a barrel after a retreat in equity markets dragged on commodities. Volumes have remained thin after the holiday season, leading to exacerbated price movements, Bloomberg reported.
Crude rose earlier and as we mentioned yesterday after Iran moved a warship to the Red Sea. Many ships are re-routing from the Red Sea around southern Africa and the Cape of Good Hope but adding at least a week or more and costs.
Back home, Union petroleum minister Hardeep Singh Puri on Wednesday termed reports of a proposed fuel price cut as ‘speculative’ and ‘mischievous’. The speculation was pegged around the upcoming general elections in April, May.
“I have already clarified that there has been no such discussion with oil marketing companies on any such issue,” he said in a briefing. Oil marketing companies include Indian Oil, Hindustan Petroleum and Bharat Petroleum and have made record profits in the first two quarters of Financial Year 2023-24 (FY24).
However, pump prices across India have not changed for 20 months now, despite crude prices falling. Mr Puri indicated that OMCs need to make up for previous losses and defer to shareholder interest, the Economic Times reported.
He also referred to the tensions in the Red Sea and cautioned that if there was an escalation, there could be an impact on prices.
“4-8 percent of LNG cargo went through this route in 2023. And 8.2 million barrels per day of crude oil comes through this route. If God forbid there is a challenge, you can see the impact it will have,” the minister said in a report quoted by Hindustan Times.
He also added that diesel prices have increased by 40 to 80 per cent in neighbouring countries in South Asia.
And finally and still sticking to energy, a word on exploration and search for new oil prospects in India.
Oil and Natural Gas Corporation (ONGC) won seven areas for exploration of oil and gas while a consortium of Reliance Industries Ltd and BP Plc walked away with one in a bid round for 10 blocks for exploration and production of oil and gas offered in the eighth round of Open Acreage Licensing Policy (OALP-VIII).
Of the 10 blocks offered, ONGC won seven while Reliance-BP, Oil India Ltd and Sun Petrochemicals Pvt Ltd got one area each.
Contracts for the 10 blocks were signed on Wednesday morning, the Government said.
More on India’s oil exploration prospects later in the week.
The energy segment was supported by India Energy Week, to be held on February 6. More details on www.indiaenergyweek.com
Blood Pressure Monitors Are Going Up
Healthcare has always been a large and growing market in India.
Yet for a long time, hospital stocks never really performed well on the bourses. That has changed as the industry has itself got more institutionalised and transparent.
One reason is the rise of insurance schemes, like the Government-run Ayushman Bharat, earlier called the Rashtrya Swasthya Bima Yojana, which covers 500 million Indians with Rs 5 lakh of insurance annually.
Insurance obviously contributes to institutionalisation and monitorable cash flows.
Private insurance has grown too.
And has affordability in India as incomes have risen.
But the bigger change is obviously on the supply side, as non-communicable diseases rise in India.
A Government report “India: Health of the Nation's States”- The India State-Level Disease Burden Initiative in 2017 by Indian Council of Medical Research (ICMR), estimated that the proportion of deaths due to Non-Communicable Diseases (NCDs) in India have increased from 37.9% in 1990 to 61.8% in 2016.
The four major NCDs are cardiovascular diseases (CVDs), cancers, chronic respiratory diseases (CRDs) and diabetes which share four behavioural risk factors –unhealthy diet, lack of physical activity, and use of tobacco and alcohol.
This is increasing and would have increased further, with close to 5 million Indians dying from such diseases.
But more are suffering from them.
IndiaSpend reports that before the pandemic, ischaemic heart disease was the leading cause of death in India, followed by chronic obstructive pulmonary disorder and stroke, according to the WHO.
Together, these three non-communicable diseases (NCDs) caused an estimated 226 deaths per 100,000 population in India in 2019. Diarrhoeal diseases, TB and neonatal conditions caused 112 deaths per 100,000 population.
Sedentary lifestyles and a lack of space for physical activity are responsible for the surge in cases of diabetes. In 2021, diabetes affected 101 million Indians. Cancer affected 1.46 million people in 2022.
To get treatment, patients and their families sold their assets and amassed debts, as we reported in March 2023.
Which brings me to testing and checking.
More Indians are using devices or essentially finding means to test at home and/or lean on diagnostics both preventive and responsive.
Omron Healthcare, the world's largest maker of home blood pressure monitoring (BPM) devices, is stepping up capacity in India as the number of people suffering from hypertension increases with age and lifestyle changes, the ET is reporting.
Tetsuya Yamada, managing director of Omron Healthcare India which sold 1.6 million devices in 2022, told ET the device maker plans to expand its footprint in India.
"India has just 2% penetration of home BPM; when compared to BRICS it is very low. Brazil has 20% penetration, Russia has more than 30%, China around 25%," Yamada said.
Omron has announced a production unit in Chennai, Tamil Nadu with an investment of ₹128 crore.
Home checking has gone beyond lets say using now affordable digital thermometers.
The new rage of course is real time monitoring with patches and rings and so on where you can see how various body functions including blood sugar are behaving.
Personally, I find real time a little intrusive and feel it makes us over conscious of our bodies and what is going on in them and leads to potentially more stress than we started with.
But the overall market for healthcare, whether testing through devices at home which would provide the early warning signals like in blood pressure, among others, or diagnostics or hospital care will expand quite rapidly in 2024 and beyond.
Succession In Indian families
Before succession, a small segway into company boards.
An insightful article by my colleague Anjali Palod in www.thecore.in highlights how companies need to do more than perform lip service when it comes to the role of women directors in specific and independent directors in general.
IIM A Professor Neharika Vohra told my colleague how women often find themselves alone in boardrooms, undermining their contribution as they lack support and connection.
Professor Vohra argues that there should be at least two women mandated. This might sound fair from a gender lens but am not sure how that plays out from a pure governance perspective. And the matter needs more study for sure.
A recent case involving Gautam Singhania and his wife Nawaz Modi Singhania who are seeking divorce brought up both the gender issue, since Ms Singhania was on the board of Raymond, the company Mr Singhania predominantly owns and runs.
While the divorce settlement would see shares being distributed, the independent directors on the board of Raymond came in for attack for being mere bystanders in a family run business which of course could be the case for many such directors and companies in India, including names we all know.
Segwaying back, how are companies managing succession in India and are they doing the best for stakeholders or forcing their scions upon the company and its stakeholders, including shareholders.
There is no real evidence that they do, at least in hindsight because many scions have turned out to be capable and effective.
Equally, there are several signals of companies that are selling out even in the period that there is a transition being attempted. Pharmaceutical major Cipla is one example.
Blowplast, VIP is another example. And there are several more.
So how are companies managing this and how effective are they in managing the dynamics?
I spoke with Farhad Forbes, global chair of the Family Business Network headquartered in Lausanne Switzerland.
The 35-year-old FBN brings together 3,600 family businesses, and 16,000 individual members, including 5,000 next-generation members, and operates out of 65 countries.
I asked Mr Forbes, who is also co-chairman of Pune-based engineering company Forbes Marshall, also a family run business, if he were to take ten business leaders of family businesses in India, how many would want to or would insist on the next generation staying within the company and running it, even though clearly, or at least to outsiders, there is some sacrifice involved in performance, vision, delivery and so on.
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You can hear the full interview by clicking on the link in the description.
The streaming subscription market has been growing in India with Netflix, Amazon, Disney, Jio and others leading the charge.
But could it slow down or is India’s peak still some time away?
About one-quarter of U.S. subscribers to major streaming services—a group that includes Apple TV, Discovery+, Disney+, Hulu, Max, Netflix, Paramount, Peacock and Starz—have cancelled at least three of them over the past two years, according to November data from subscription-analytics provider Antenna.
Two years ago, that number stood at 15%, a sign that streaming users are becoming increasingly fickle.
Streamers are in turn trying a range of tactics to retain customers, from launching lower-cost ad-supported tiers of service, to teaming up with rivals on bundled deals and providing discounts or free months of service.
Fidelity Marks Down Twitter Investment by 72%
Would Steve Jobs have said that those people who did not like his iPhone could go F themselves ?
Well, not evidently. Actually, no CEO at least in the media business whose bread, butter, cheese and jam depends on advertisers would tell them to go F themselves.
And yet Musk did that in his now famous rant - among other famous rants- last month in New York.
Anyway, Twitter or now X is now worth less than one-third of what the billionaire paid for the company formerly known as Twitter Inc., based on a recent estimate from investor Fidelity.
The firm, which helped Musk complete his $44 billion purchase, cut the value of its holding in X by 19% in its November portfolio update for the Blue Chip Growth Fund, compared with a September filing, according to calculations by Bloomberg.
It’s the latest in a series of markdowns by Fidelity since Musk concluded the acquisition of the social media platform in October 2022, as closely held X has struggled to hold on to advertisers and is weighed down by $13 billion in debt.
2023’s revenue from ad sales is estimated to come in at $2.5 billion, far below the prior rate of roughly $1 billion per quarter, Bloomberg News reported last month.
Fidelity said in a recent document that its current stake in X was worth $5.6 million in November. That’s down 72% from the value of its stake at the time of the takeover.
That’s it from me for today, have a great day ahead and see you tomorrow !
