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Signs Of Exhaustion In Indian Markets

The markets are likely to respond to a combination of factors including of course the stress in the middle segment comprising small caps and mid caps, which is currently negative.

By Govindraj Ethiraj
New Update
Exhaustion Indian Markets
On today’s episode, financial journalist Govindraj Ethiraj talks to Ajay Sahai, Director General and CEO of the Federation of Indian Export Organisations.

Our Top Reports For Today

  • (00:00) Stories Of The Day
  • (01:00) Signs Of Exhaustion In Indian Markets As Slog Overs Begin
  • (06:55) Oil Hits 4-Month High At $86 A Barrel
  • (07:47) Payments Bank Is A Flawed Business Model, Says Former SBI Chairman
  • (09:19) Tesla Gets Red Carpet, Vietnamese EV Company Could Walk On It First
  • (11:58) Exports Spiked In February. Will It Sustain?

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.


Markets Swing Between Uncertainty And Exhaustion

The markets are suffering from a problem of too much knowledge in some ways. While corporate performance could surprise in specific cases or there could be some industry shifts, like prices of a raw material going up or down or some policy induced action, like increase in prices of petrol and diesel, the larger market direction particularly for a consistent move is dependent on big signals.

The big signal is political at this point. The market believes that the ruling party will return and has thus priced in a victory though there is some speculation on how many seats and so on. Be that as it may, it would take a real surprise on the downside to shake the market.

But results are on June 4 for elections that start on April 19. And with the model code of conduct, no major announcements can be made till elections are over.

So till then, the markets are likely to respond to a combination of factors including of course the stress in the middle segment comprising small caps and mid caps. Which is of course negative.

Or positive, external factors like fund flows from overseas which is an important factor no doubt. As we pointed out yesterday as well, foreign institutional investors have returned to India after many months and gone shopping.

While that is an important trigger, times are different now, with domestic flows also being very strong, so much so that they easily absorbed the bulk of FII selling in January. We are talking of equity here. In the case of debt, there has been steady buying in recent months.

And to return to the present, the benchmark BSE Sensex was 105 points (0.14 per cent) higher at 72,748 levels after moving up and down during the day. The Nifty50, on the other hand, ended at 22,056 level, clocking gains of 32 points (0.15 per cent). 

The MidCap and Small Cap indices were somewhat flat but have lost a fair bit since late February when the fall started. 

The Nifty had hit an all-time high on March 11 just so you know where we stand today.

Analysts at stock brokerage Phillip Capital summed up best to Reuters when they said, “We are seeing signs of exhaustion in Indian markets,” adding that there could be corrections because of stretch valuations. 

Elsewhere, there is considerable action in the steel and iron ore space, all driven by China.

Metal stocks rose thanks to a stronger-than-expected factory output and retail sales data from China, the world's top metals producer and consumer of metals, Reuters said. Yesterday we spoke of how iron ore prices are weak but copper prices are strong. And of course steel prices are strong. Iron ore is a key input into steel production.

China industrial output increased by 7% in January and February compared to the same period last year, as per the National Bureau of Statistics announcements in China on Monday, which was significantly faster than what economists had predicted, reported Bloomberg. 

On Wall Street, S&P 500 futures climbed Monday, as Wall Street awaited a key artificial intelligence conference and looked ahead to monetary policy guidance from the Federal Reserve later this week, CNBC said.

Futures linked to S&P 500, Nasdaq-100 and Dow Jones Industrial Average futures were all up overnight.

Tech shares outperformed in early trading Nvidia shares were up more than 2%.

Meanwhile, the mutual fund stress tests are on. Markets regulator Securities and Exchange Board of India (Sebi), had directed all mutual funds to assess their liquidity, and how liquid their underlying portfolios really are. 

The first round of results according to MoneyControl showed that it would take an average of about 6 days for mid-cap funds to liquidate 50 percent of their portfolios and about 14 days, on average, for small-cap funds to liquidate 50 percent of their portfolios, if equity markets were to collapse badly and investors rushed for redemptions.

This is great news to know and possibly Sebi is doing all it can to fight the froth and alert investors but I increasingly feel this exercise will not really work except to scare off one set of investors who perhaps deserve to be scared off anyway.

Otherwise, it is near impossible for anyone to act on this knowledge in any meaningful way. Of course, Sebi can always say, we told you so. 

Though I feel another way is to force companies themselves in these mid cap and small cap segments to disclose much more on their financials with some additional ratios, including on cash flows which are evidently suspect in some cases.

What these additional disclosure elements could be, I’m not fully sure but am confident that there could surely be. I will come back on this

All of which will still not prevent the froth or a bloodbath if one is ordained but could make it a little more easy and specific for investors to focus on.

I must add that brokerages too are sending out signals which are quite logical but will surely be confusing to investors when they now put out specific stock alerts on small cap and mid cap stocks. The buy signals are fine but investors must be careful obviously since there is an overhang on the market.

Meanwhile, Tata Sons, the investment arm of Indian conglomerate Tata Group, is offering to sell up to 23.4 million shares in IT company Tata Consultancy Services in a deal worth $1.13 billion, fixed income news service IFR reported on Monday.

Tata Consultancy Services' stock price closed at Rs 4,152.50 today, it is up 1%.Tata Sons held a 72.4 per cent stake in TCS as on December 31, per exchange data.

TCS shares will be sold at a floor price of Rs 4,001 apiece, a 3.7 per cent discount to the last close of Rs 4,152.5. 


Oil hit a fresh four-month high as Chinese economic data beat expectations, and Ukrainian drone attacks on Russian refineries heightened geopolitical risks, Bloomberg is reporting.

Global benchmark Brent rose to around $86 a barrel, after gaining 4% last week. As we mentioned earlier in the context of steel,  China’s factory output and investment grew more strongly than expected at the start of the year. Oil refining hit a record.

We have been tracking crude in its tight trading range that dominated the opening months of the year, with prices recently hitting the highest level since November.

The OPEC+ as we know has cut back production even as the International Energy Agency has warned of a supply deficit throughout the year. Crude inventories in the US are also falling. 

Payments Bank Model Is Flawed, Former SBI Chairman

Payment banks are a flawed business model. It needs a relook, former SBI chairman Rajnish Kumar told the Economic Times. 

He pointed out that mostly, banks make money through intermediation — you take deposits and lend. 

But merely mobilising deposits and putting them in government securities doesn't work. You may say it is a low-cost deposit, but it is not actually low cost because operational costs are very high for mobilising current and savings deposits. 

Sometimes, the fixed deposit product may be cheaper than the former because you need the entire network of payment banks. 

I of course wonder why it would take someone so long to acknowledge something that was pretty clear, at least to me, several years ago, maybe a year after payments banks were launched as a pointless and unnecessary work around which in turn created half if not more of the froth in the fintech ecosystem.

Mr Kumar also said that he was apprehensive as a banker when the payments bank model came. Narrow banking doesn’t work. There are proposals to allow payment banks to offer micro loans. Then what will be the difference between a small-finance bank and a payments bank? 

He also said that he didn’t see a future for payments banks in India because there is no money in payments after UPI. There is a huge customer acquisition cost. How will you cover that? 

Whatever has happened will be learning for everyone on how to build a sustainable business. We just have touched the tip of the iceberg, he told The Economic Times.

Tesla Gets Red Carpet, Vietnam’s WinFast Might Walk On It

Vietnam's electric car maker WinFast Auto on Monday said India's new electric vehicle policy that provides import duty concessions for companies setting up manufacturing units in the country will allow it to introduce a wide variety of eco-friendly premium-quality SUVs at inclusive prices, the ET reported. 

"This forward-looking policy helps us introduce a wide variety of smart, green, premium-quality SUVs, at inclusive prices, along with outstanding after sales policies," Vinfast India CEO Pham Sanh Chau said in a statement.

In February this year, VinFast -- a major competitor to American EV -- had stated that it would invest Rs 4,000 crore over the next five years in the initial phase, which will generate 3,500 jobs in the Tuticorin region.

The plant will have a capacity to produce 1.50 lakh vehicles once it becomes operational.

As we reported yesterday, companies setting up manufacturing facilities for EV passenger cars will be allowed to import a limited number of cars at lower customs/import duty of 15 per cent on vehicles costing USD 35,000 and above for five years from the date of issuance of the approval letter by the government.

Current customs duty on imported cars range from 70-100 percent, depending on the engine size and cost, insurance and freight value.

Meanwhile and not surprisingly at all, German and some other multinational companies expressed their concern that they may not get a “level-playing field” as special import duty rates would be given only to new entrants but may not be extended to existing players, reported ToI.

Auto giants such as BMW, the Volkswagen group and Mercedes-Benz are already considering their official position on the matter, with their Indian subsidiaries briefing global headquarters about the new tax regime that was announced by the Indian government last week, sources told TOI.

Other companies such as Korean Hyundai and Kia, apart from some of the Indian homegrown makers, feel their “early investments in the electric space should be counted” retrospectively. 

“The companies feel that they should not be ‘penalised’ just because they were the early ones to invest in electric vehicles production and localisation in India in line with the government's thinking. The companies want the government to take into account funds they have already put towards green technology in their local set-ups here,” one of the sources said to ToI.

So maybe they are included or maybe they are not but the policy announced over the weekend seemed silent on it or at least was by inference as the car makers would have known.

This was avoidable. 

The policy has been clearly tweaked  and garnished for Tesla and that is fine since Tesla does bring badge value and appeal but the policy could have surely contained clear references to existing investments, including of overseas car makers who have been here almost three decades.

Exports Are Up

India reported a 12% annualised growth in merchandise exports at $41.4 billion in the month of February.

The main drivers of exports in the month were engineering goods, electronic goods, chemicals, petroleum products, drugs and pharmaceuticals. 

Imports rose by over 12% to $60.11 billion showing a four-month high growth.

Engineering goods exports in February grew 16% year-on-year growth, while about 55% growth was witnessed in electronic goods. Data showed that in exports of electronic goods, particularly, smartphones.

The last time the figures showed such a higher growth was in March 2023, when it was at $41.96 billion. 

I reached out to Ajay Sahai, Director General and CEO of the Federal of Indian Export Organisations and began by asking him what stood out in the month of February before coming to the outlook.