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Indian Markets Spooked By Regulatory Focus On Small Cap Stocks

Global investors are focussing on U.S. inflation data on Thursday while India will release its GDP data which as per a Reuters poll has moderated to 6.6% for the October to December quarter

By Govindraj Ethiraj
New Update
Indian Markets Spooked
On today’s episode, financial journalist Govindraj Ethiraj talks to Captain Sam Thomas, President of the Airline Pilots Association of India as well as Manisha Kapoor, CEO of Advertising Standards Council of India.

Our Top Reports For Today

  • (00:00) Stories Of The Day
  • (01:00) Indian markets spooked by regulatory focus on small cap stocks.
  • (04:40) Reliance & Disney firm up joint venture valued at $8.5 billion
  • (06:37) More weight loss drugs on the way as Eli Lilly follows Novo Nordisk.
  • (09:05) 2023 was the safest year for flying but are Indian pilots in good shape?
  • (19:56) Apple scraps car projects, moves staff to generative AI projects.
  • (20:58) Patanjali ads and their claims

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 Standby For Data

As we have been discussing in the last few days, the markets world over are standing by for more data, mostly economic numbers like GDP which is expected today; remember earnings season is over.

Global investors are focussing on U.S. inflation data on Thursday while India will release its GDP data which as per a Reuters poll has moderated to 6.6% for the October to December quarter. 

One thing that spooked the markets yesterday was the news we discussed yesterday which is that Sebi is asking mutual funds running small cap and mid cap schemes to moderate inflows and rebalance their portfolios apart from disclosing cash positions so investors know who has how much if they want to run for the door. 

In 2023, midcap mutual fund schemes got inflows of Rs 22,913 crore, and smallcap schemes got Rs 41,035 crore, while largecap schemes saw an outflow of Rs 2,968 crore, says Moneycontrol.

There is a larger point to this as we discussed yesterday and I will come to that in a moment.

The BSE Sensex fell 790 points on Wednesday to settle at 72,304 levels. The Nifty50, on the other hand, shut shop at 21,951, falling 247 points or 1.11 per cent. Incidentally, for the Nifty, this was the biggest loss in 25 sessions while for the Sensex, it was the biggest loss in 21 sessions.

Now to the point about the regulators actions.

It is quite clear that regulators, whether banking or stock markets, are on heightened alert. The Reserve Bank of India is alert to small loans and potential defaults apart from other headaches like money laundering via unknown accounts in payment banking accounts.

Sebi obviously does not want small investors to pile onto small cap stocks or mutual funds investing in small cap stocks which are by nature volatile if not in some cases totally suspect and thus lose their shirt.

There are other areas where Sebi is also trying to focus, for example, the identity of foreign investors so that share prices are not propped up by overseas funds that essentially owe allegiance to owners and promoters of companies here. That of course has happened but that is not so much of a direct market risk problem.

When markets are high, valuations are high and people have stretched themselves by taking more loans that they can afford by most parameters then it is time to be concerned. As the regulators rightly are.

Sanctions On Russia Could Affect Sale Of Oil To India

The United States has imposed fresh sanctions on Russia which could affect sales of Russian oil to India, presently the biggest buyer of Russian seaborne crude, Reuters reported.

The sanctions specifically target Russia's leading tanker group, Sovcomflot, which Washington accused of being involved in violating the G7's price cap on Russian oil, as well as 14 crude oil tankers tied to Sovcomflot.

Interestingly, India did not buy much Russian oil before 2022 due to high freight costs, but things changed after the Russian-Ukraine war and a ban by Europe on Russian oil imports. Till then, India was mostly buying crude from the middle east.

Russia became India's top oil supplier in 2023, supplying almost 36% of India’s crude requirements. India imports almost 85% of its crude requirements.

Negotiations are on with Russia, also for cheaper crude varieties like the Urals but the outcome is not clear as yet.

Reliance, Disney Announce Joint Venture Valued At $8.5 Billion

A move that was much expected, awaited and speculated on with the potential to shake up India’s media industry has been announced.

Reliance Industries Limited (“RIL”), Viacom 18 Media Private Limited (“Viacom18”) and The Walt Disney Company (NYSE:DIS) (“Disney”) today announced the signing of binding definitive agreements to form a joint venture (“JV”) that will combine the businesses of Viacom18 and Star India. 

The proposed JV will have over 750 million viewers across India and will also cater to the Indian diaspora across the world.

This is obviously a binding agreement and not the final deal.

A formal Reliance release said RIL has agreed to invest at closing ₹11,500 crore (~US$ 1.4 billion) into the JV for its growth strategy. 

The transaction values the JV at ₹70,352 crore (~US$ 8.5 billion) on a post-money basis, excluding synergies. 

Post completion of the above steps, the JV will be controlled by RIL and owned 16.34% by RIL, 46.82% by Viacom18 (which Reliance also owns) and 36.84% by Disney. 

Mrs. Nita M. Ambani will be the Chairperson of the JV, with Mr. Uday Shankar as Vice Chairperson providing strategic guidance to the JV. 

The JV will bring together media assets like Colours, StarPlus, StarGOLD) and sports (e.g. Star Sports and Sports18) and of course access to highly anticipated events across television and digital platforms through JioCinema and Hotstar. 

Eli Lilly To Follow Novo Nordisk Into India For Weight Loss Drugs

Novo Nordisk’s Rybeslus has become wildly successful as an anti-obesity drug market in India with a 66% share of the value of all anti-obesity drugs.

It was launched just two years ago in January 2022. 

Not surprisingly, competition is knocking on the door.

U.S. drugmaker Eli Lilly says it will launch Mounjaro, its blockbuster diabetes drug and popular obesity treatment, in India as early as next year after it clears an ongoing regulatory review, CEO David Ricks told Reuters on Wednesday.

One in four adults in India is overweight today. Some 22% of all males in India, 23% of females and 11% of children in India are overweight.

The market, as we have discussed before, is large.

Ricks told Reuters they were open to authorised generic versions of drugs containing tirzepatide, the active ingredient in popular diabetes and weight-loss drugs, including Mounjaro.

Mounjaro is currently sold in the UK and Europe under the same brand name for both conditions. However, it is sold as Zepbound for weight loss in the U.S.

These drugs were primarily meant for Type 2 diabetes but are being used world wide for weight loss as they slow digestion.

2023 Was Among Safest Years In Aviation

The International Air Transport Association (IATA) has released its 2023 Annual Safety Report for global aviation saying several 2023 parameters showed best ever results.

There were no hull loss or fatal accidents involving passenger jet aircraft in 2023, IATA said and one single fatal accident involving a turboprop aircraft with 72 fatalities.

This is amidst some 37 million aircraft movements, up 17% over the previous year.

IATA says the all accident rate was 0.80 per million sectors in 2023 (one accident for every 1.26 million flights), an improvement from 1.30 in 2022 and the lowest rate in over a decade. 

I know this is a lot of numbers but the one to perhaps note is that the fatality risk has improved to a point that, on average a person would have to travel by air every day for 103,239 years to experience a fatal accident. 

Speaking of safety…

Airlines Say They Will Have To Hire More Pilots To Meet Safety Rules

Major Indian airlines have asked regulator Directorate General of Civil Aviation (DGCA) to defer the implementation of new rules on pilot rest and duty period by a year, the Economic Times reported.

The Federation of India Airlines (FIA), a lobby group which consists of IndiGo, Air India, Vistara and SpiceJet that together carry 95% passengers, have apparently said the new rules will require them to increase number of pilots by 25% and hiring and training them will not be possible by June 1, forcing them to cancel up to 20 % of the flights.

FIA also claimed according to this report that the new rules are ambiguous and more restrictive than anywhere in the world and will make the Indian aviation industry less competitive than other countries.

The new flight duty rules were announced by DGCA in January and rewrites the definition of night period, extending it by an hour - from 12 AM-5 AM to 12 AM- 6AM - and limits the duty period to 10 hours.

It also caps the number of landings a pilot can do to two.

There are some differences between Indian and international regulations, for example, US and Europe do not restrict the number of flights, among others.

The larger issue of course is safety and pilots being in good form and shape as they fly hundreds of passengers at a time, including through the oddest of hours.

I reached out to Captain Sam Thomas, President of the Airline Pilots Association of India and began by asking him how he was seeing the new regulations on one end and if airlines would find it commercially viable with so many more pilots.


Mumbai Delays Down, Says Aviation Ministry

Sticking to aviation, the civil aviation ministry has said that the air traffic situation has improved and delays in flight arrivals have been reduced at the Mumbai airport, nearly two months after directions, including a reduction in flights, were issued to tackle congestion at the airport.

During the February 16-24 period, the ministry said there were 4,337 arrivals at the airport, and out of them, there were no delays of more than one hour while 178 planes were delayed for 30-60 minutes.

As many as 570 aircraft came before schedule while others were partially delayed. This number was higher between November and December last year, proportionately.

Interestingly, the official statement said that aircraft operating earlier than the approved slot (marked as before schedule in the data) lead to congestion and delay for other aircraft adhering to the schedule, which in turn will have a cascading effect on the other schedule movements.

Mumbai has the distinction of having one single runway operation with a peak hour declared capacity of 46 aircraft movement -- arrival and departure -- per hour during High Intensity Runway Operations (HIRO).

Apple Scraps Car Project, Moves Staff To Generative AI Projects.

Apple Inc. is cancelling a decade-long effort to build an electric car, Bloomberg is reporting, abandoning an ambitious project in the history of the company.

Apple made the disclosure internally Tuesday, surprising the nearly 2,000 employees working on the project. 

Many employees on the car team — known as the Special Projects Group, or SPG — will apparently be shifted to the artificial intelligence division and focus now on generative AI projects, an increasingly key priority for the company.

Investors welcomed the move, not surprisingly and the stock was up on Tuesday after Bloomberg reported the news. Elon Musk, head of Tesla Inc., also celebrated the move with quite predictably an emoji on X.

The project has apparently struggled from the start though it had a working product but right now  it also faced a cooling market for EVs, says Bloomberg, a fact that is quite well documented now. 

Patanjali Ads and Their Claims

India’s Supreme Court on Tuesday barred consumer firm Patanjali Ayurved, co-founded by yoga guru Baba Ramdev from publishing advertisements for its traditional ayurvedic medicines that claim to cure some diseases.

The Supreme Court order came after a lawyer for the Indian Medical Association told the court that Ramdev's firm had continued to publish newspaper ads claiming to offer a "permanent solution" for conditions, such as blood pressure, asthma and diabetes.

The judges also asked Patanjali to explain why it should not initiate contempt of court proceedings against the company, REuters reported.

Mr  Ramdev has accused some doctors of spreading propaganda against traditional medicines, which are hugely popular in India.

The court said Patanjali violated its assurance to judges last year in the ongoing case that it would not publish advertisements that make "casual statements claiming medicinal efficacy".

I reached out to Manisha Kapoor, CEO of Advertising Standards Council of India.