The Markets Jump 3%
The markets took comfort from the fact that allies who were with the BJP like the TDP and JD came out formally in support of their pre election alliance partner
On Episode 311 of The Core Report, financial journalist Govindraj Ethiraj talks to Nitin Gupta, senior research analyst at Emkay Global Financial Services, Jigar Pandit, head of commodities at Sharekhan by BNP Paribas as well as Puja Mehra, economic journalist and author.
Our Top Reports For Today
SHOW NOTES
(00:00) Stories Of The Day
(02:55) The markets jump 3% as the NDA government gets set to rule for another term. Markets set to stabilise further
(06:56) Shifting themes within the markets: why consumer goods stocks are doing well even as capital goods stocks slide
(15:36) Gold and silver are edging up again, where do they stand at times like this?
(21:02) The major economic imperatives for India and a new Government, looking back, looking forward
(28:27) Delhi’s Hindon Airport gets more airlines including the first major one
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, its Thursday, the 6th of June and this is Govindraj Ethiraj broadcasting and streaming from and headquartered in Mumbai, India’s financial capital.
If you had gone on a one week holiday that started late evening May 31st which as you know was last week and returned this evening, little would have changed.
Of course, in the political world there was the equivalent of an earthquake whose tremors will be felt for some time with the BJP returning to power but with a reduced majority and dependent on allies to hold on.
As far as the stockmarkets go, consider this.
On May 31, the Sensex was 74,018 points.
On June 5, that is last evening, it was 74,235 points.
So for all the mayhem that we saw in between, we are almost exactly back to where we were last week. More on that mayhem shortly.
So the bottomline is, don’t try and time the markets and trying to operate in volatile markets like these is trying to catch the proverbial falling knife.
Equally, don’t listen to politicians talking up the markets or pollsters talking up election outcomes.
Politicians should of course take credit if stockmarkets do well if they have to, but they should do so in retrospect.
For example, because of our economic policies, the stockmarkets have risen from x to y. But do not project new highs or higher levels or exhort investors to buy. That ends in disaster everytime, everywhere.
If you believe in India’s long term growth story and earnings growth in companies that are listed on Indian bourses, then you will be fine. As every long term investor who has made a killing on Indian bourses has discovered.
More on that because it must be said but that’s coming up.
Our top stories and themes meanwhile.
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Stocks Jump 3% On Wednesday
After falling 6% the day before, Indian stock markets jumped up 3% on Wednesday, making it its best one day gain in over three years or since February 2021 when the market rose 5% thanks to announcements in the Union Budget.
The markets took comfort from the fact that allies who were with the BJP like the TDP and JD came out formally in support of their pre election alliance partner thus securing the Government for the BJP which needed 272 seats in a house of 543 seats to form a Government.
The BJP had 240 seats of its own and needed obviously another 32 seats, at the least which the two parties, headed by N Chandrababu Naidu and Nitish Kumar, have brought in.
The NSE Nifty 50 index was up 736 points or 3.4% at 22,620.35 points and the S&P BSE Sensex rose 2303 points or 3.2% at 74,382.
It is quite funny how brokerages, including foreign ones like CLSA are changing their view on stocks now that the Modi premium as they call it seems to be, in their views, losing its appeal.
Translated, stocks that benefited from Government spends in infrastructure and public sector stocks which represented presumably the Government’s desire to be in the business of doing business, are no longer in fancy.
It is more amusing that the brokerages are implicitly or explicitly admitting these stocks were overvalued to start with. Which of course institutional domestic investors I have been talking to have been saying as well.
Let me illustrate because this is a larger illustration of euphoria as well.
The week before, CLSA put out a report where the broking firm discussed 54 stocks that were perceived to be the most direct beneficiaries from popularly expected policy measures if the Modi government secured a third term.
The ET reported that these were capex and infrastructure-linked companies, and also include PSUs and some corporate houses. The firm called it the Modi stocks and looked at six-month returns to understand how these stocks were faring.
90% of Modi stocks outperformed the Nifty 50. Against 14% rise in Nifty 50, the average upmove for Modi stocks has been 50% over the last six months.
And of course on counting day that is June 4, the stocks all crashed, down by almost 5%-10% in a single day, where Adani Enterprise, among the list of 54 stocks, crashed 25% intraday.
Actually I would rate Adani stocks fairly alright fundamentally for the core businesses they are in but the proximity to Government is tricky and does not always help, nor do other technical factors like concentrated ownership and so on.
And gold help you if the key reason a reputed foreign brokerage is hawking your stock is because you are a Modi stock.
The bottomline is as an investor you have to be very careful and invest via institutional investors with track records in this market and there are quite a few.
Let me end this part by reading what veteran journalist Shekhar Gupta wrote in his column in Business Standard yesterday.
He wrote and I quote:”*And the last, a request to bankers, investors, fund managers. Look at the market convulsions. Please promise, especially those millions who trust you with their hard-earned money, never to let your voting preferences determine your actions on the markets.
Political analysis, I agree, has a heady sex appeal. But it carries risks to your reputations and your investors’ money. So leave it to people like us. We aren’t as smart as you, but we have that one attribute an innocent and impassioned may not: Healthy political scepticism.
The most appalling and scary phenomenon I noted in this campaign was fund houses and brokerages going out on election yatras and writing copious reports promising more than 300 for the BJP. That was your wish as voters. Your investors are paying for it now.”
On that note, lets move on, as we mercenary market types must, to the new themes.
The New Themes In The Markets
If the Modi stocks are falling out of flavour for now, what is in ?
Well, its consumer product companies. The fast moving consumer goods (FMCG) index rose 0.15% on Tuesday, the only bright spot in the stock market carnage, which saw a 12% plunge in the capital goods index, Reuters reported.
FMCG stocks continued their rise on Wednesday, climbing 5.2%, while capital goods companies slid another 1.5%.
As shifts go, this is quite dramatic and and in a way worrying given that for a developing country the fate and fortunes of companies can be linked to easy to policy, for example, capital investment, there should be general consenus on.
The market clearly believes otherwise and is now focussed on the laggards like Hindustan Unilever, Nestle among others.
To understand why this was happening and how the new theme was playing out and what was the logic driving it since that is good to know too, I reached out to Nitin Gupta, Senior Research Analyst and began by asking him to explain the re-rating in consumer product companies.
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Gold & Silver Prices
Prices of 24-carat gold were up slightly on Wednesday, trading at Rs 72,880 for 10 gms. Silver meanwhile is going at Rs 94,100 per kilogram.
Silver demand is driven by both jewellery and industrial reasons while gold prices have been rising because governments and central banks including China and India have been buying as have been retail buyers in countries like China and of course India, though in India it is a little more linked to festival and wedding demand patterns.
With stockmarkets in volatile zone right now, how does gold and silver look though their prices are determined by global benchmarks unlike for stocks.
I reached out to Jigar Pandit, Head of Commodities at Sharekhan by BNP Paribas and began by asking him how he was seeing the prices.
India A Lost Decade
A decade, being the time the BJP government which is set to return to power for its third term in a few days, is a long time.
In retrospect, could more have been done in terms of key economic policy. This is of course a long discussion but I tried to get a gist of the past and the future.
I reached out to Puja Mehra, economic journalist and author of the book, Lost Decade, (2008-2018), The: How India': How India's Growth Story Devolved into Growth Without a Story.
The book was released in 2019 and looks at India’s unfinished agenda, among others.
I asked her what are some of the economic items of this unfinished agenda that are carrying on and will do so for the next decade and at the next five years as a wishlist for the Government incoming to act on.
Delhi’s Hindon Airport Gets More Airlines
In the many common Mumbai versus Delhi battles that I relish having, I can claim success in most of them, except one, which is large airports and now, many of them.
Hindon AIrport, which is barely 23 kilometres from central Delhi and around a 45 minute drive is set to host flights from Air India Express with 28 weekly flights from Hindon starting August 1.
Air India Express has said its flights will connect Bangalore, Goa and Kolkata to start with.
Right now Star Air and Flybig airlines operate to cities like Adampur, Ludhiana and Nanded.
Air India Express already operates 280 flights from Indira Gandhi International Airport which is about 40 km from Hindon or a hour and fifteen minutes.
This obviously means that passengers living in central and Eastern Delhi, and extending to Noida and onwards to western Uttar Pradesh will have more or better access to an airport.
The other big airport in the region is the Noida International Airport or Jewar Airport which is on the way to Agra and about 79 kilomtres and more than a hour and a half from central Delhi.
Jewar is expected to start trial runs this month and commercial flights are targeted for September this year.
Mumbai has a second airport coming up in Navi Mumbai which is not effectively linked to the mainland. The new Atal Setu bridge does help cut distance and time but access to the start point of the bridge on the city’s eastern seaboard is fairly if not severely limited and not conducive at this point for predictable and timely journeys.
