Our Top Reports For Today
- <00:56> The much anticipated Jio Financial listing surprises markets, this time on the downside.
- <06:04> Why Investors Should Not Try and Time Market Cycles and movements, with HDFC Asset Management’s Navneet Munot
- <14:56> The Government rapid fire responses to food prices going up, finding the method in the madness with Siraj Hussain.
- <24:56> Hmm..Softbank-investee company founder now on the run from police
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.
Ambani Stock Jio Financial Hits The Bourses
Shares of Jio Financial Services (JFS), the demerged unit of Reliance Industries (RIL), listed at Rs 262 on the National Stock Exchange (NSE) and at Rs 265 on the BSE on Monday, August 21.
With a market capitalisation of Rs 1.66 lakh crore, or almost $20 billion, Jio Financial Services (JFS) is the second-largest listed NBFC after Bajaj Finance.
As of the August 18 closing price, Bajaj Finance boasted of a market cap of Rs 4.15 lakh crore. Bajaj Finserv, which has a market cap of Rs 2.32 lakh crore, is more of a financial services holding company than an NBFC.
After listing the JFS stock went on a roller coaster ride and was locked at the 5 per cent lower circuit when compared with the price of Rs 261.85, which was discovered during a special trading session on July 20.
The stock was locked at Rs 251.75 on the BSE.
The listing of Jio is being watched for multiple reasons.
First of course is that it has been spun off from Reliance Industries in equal proportions. If you owned a share of Reliance, you would get a share of this financial company’s stock.
Second, Jio Financial is largely expected to shake up the non bank finance company space by taking on incumbents like Bajaj Finance. It also has the beginnings of a strong team led by former ICICI Chairman K V Kamath. The market value likely reflects all of this.
Deven Choksey, market analyst had earlier told me that he expected Jio Financial to grow the market dramatically and was not necessarily seeing it as a disruptor to existing companies. I will come to his projection in some more detail in a bit.
Nevertheless, Jio surprised everyone with its dramatic debut valuation, also reflecting the market’s confidence in the Ambanis as backers.
So what could the future of Jio look like and how ambitious could it get ?
This is what analyst Deven Choksey told me a few weeks ago ahead of the listing.
Meanwhile, broking firm Jefferies had put the networth of JFS at 28,000 crore. This includes 6.1 percent stake in Reliance Industries, which is a result of transfer of treasury shares from the parent.
Jio has already announced a 50:50 joint venture with Blackstone to enter the asset management industry.
Around the markets meanwhile, the BSE Sensex ended 267 points higher at 65,216 and the NSE Nifty 50 closed at 19,394 - up 83 points.
In other markets, we spoke of the rupee hitting a record low against USD. It has since recovered somewhat but despite the fall, it’s still a favoured emerging-market currency with some investors, Bloomberg is reporting.
Not just that, it is Asia’s third-best performer — because others from the Singapore dollar to the South Korean won have slipped more.
A reserves stockpile of $600 billion, more than $16 billion worth of foreign inflows for stocks this year and economic growth forecast at 6.5% are among the reasons behind the optimism for Neuberger Berman Singapore and Columbia Threadneedle Investments.
“Not only are the reserves high but the overall external balances profile has improved in the last couple of years.” Prashant Singh, senior portfolio manager for emerging-markets debt at Neuberger Berman Singapore, told Bloomberg.
Meanwhile, back in the stock market the Hang Seng China Enterprises Index, which tracks Chinese stocks listed in Hong Kong, slumped 1.9% to the lowest since November 2021.
The Hang Seng Index, which fell into a bear market on Friday, slid for a seventh straight day, the longest losing streak since November 2021, Bloomberg reported.
Modern Portfolio Theory & Its Usefulness right now.
In all this action, it can be safe to say that the Indian stock markets have paused to take a breath. How long it is not clear.
What is clear is that there are several factors at play. For one, many large brokerages have said that India’s earnings are now stretched and the initial benefits of lower input costs are now fading.
Equally, others like ICICI Securities have argued that the NIFTY50 index is consolidating just below the 20,000 mark after rallying 14% from Mar '23 lows (a modest 7% YTD return) while robust earnings expansion catches up. This Isec indicates rational behaviour and is not technically a bull market either.
On the other hand, a bull market frenzy is visible in the mid, small and micro-cap indices, which have risen 25%, 29% and 42% respectively from Mar’23 lows. Technically, a more than 20% upside indicates a bull market.
So how should investors play it ? Should one dump and run or stay put ?
Navneet Munot, MD & CEO of HDFC Asset Management which runs HDFC Mutual Fund in a letter to unitholders of his fund last week wrote that over the past few months, quite a few investors, being wary of equity valuations, stayed on the sidelines, expecting an impending correction. However, the rally in equities continued unabated without taking a breather.
Episodes like this show how investors often make the mistake of trying to time the market and asset class cycles, when it is quite difficult for them to do so.
The best way to avoid this predicament, he says , is to have a strategic diversification across asset classes, and within equities, across market-cap segments and sectors. Trying to change lanes, with a rear-view mirror, has historically turned out to be a costly exercise.
Munot whose fund runs assets under management of close to Rs 500,000 crore and over 11% of the mutual fund universe refers to the term Modern Portfolio Theory to address this conundrum of what to do when at an investing crossroads.
I caught up with him and began by asking him to explain this approach, to someone who is not an active investor.
Where are food prices going?
In the last few months, the Government has intervened to bring down prices of a host of vegetables and cereals including rice, wheat, tomatoes and onions. It has banned the export of non-basmati rice and slapped a 40% export duty on onions. Elsewhere, it is contemplating importing wheat in a higher quantity than one would expect. Exports of wheat have been banned since last year in any case.
The reason for these interventions is obviously runaway food inflation, particularly in cereals and pulses. A quick dive into some numbers.
Vegetables inflation, which was in the deflation zone for eight straight months, surged to 37.3% in July from - 0.7% in June led by a sharp increase in tomato prices.
Inflation also accelerated in onions to 11.7% (vs 1.7%).
Inflation in cereals rose to 13% in July led by accelerating inflation in rice (14% in non-PDS rice) which has the highest weight among cereals.
On the other hand, inflation in wheat from non-PDS sources eased to 11.9% from 12.4%, led by arrival of rabi stocks.
Inflation in pulses rose to 13.3% as inflation picked up in turn (34.1% vs 27.5%) Milk is at 8.3%, a figure that has stayed there for a while. To add some mirchi as we say back home, Inflation in spices accelerated to 21.6% in July from 19.2% in June.
With prices zooming like this, how effective are the tools the Government is using, which could appear a little knee jerk at times. Between banning or inhibiting exports to increasing supply, what has worked better.
To understand this, I reached out to Siraj Hussain, former Agricultural Secretary of the Government of India and began by asking him what he felt about the Government’s responses at this point.
Meanwhile, as former Agriculture Secretary Mr Hussain pointed out, farmers are now protesting the dramatic fall in prices for both tomatoes and onions.
Tomato farmers in states like Maharashtra have already started agitations and asking more farmers to join in.
Earlier, the Government started buying tomatoes from farmers and sold them at lower prices and also imported some from Nepal.
MAN ON THE RUN
And hmm..the Mumbai Police's Economic Offences Wing (EOW) has lodged an FIR and issued a look out notice against Rahul Yadav and his colleague for allegedly cheating an advertising firm of more than Rs 10 crore, the Business Standard is reporting.
Rahul Yadav is best known as the founder of Housing.com. He started the real estate advertising platform in 2012 and Softbank, a firm that has claimed it would invest at companies that are at the cutting edge of artificial intelligence where they take over humans on the planet, invested $90 million in 2014.
The complainant in the case is Rajasthan-based Vikas Om Prakash Noval.
The company in question is Yadav’s company 4B Networks is a prop-tech company with a platform that facilitates, enables and empowers brokers and developers.
Amazingly, audit firm Deloitte was involved in Housing.com too, though they came in after the party was over, so to speak and an investor, InfoEdge appointed Deloitte Touche Tohmatsu India as the forensic auditor.
Well, that’s it from me for now.