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Markets Are Up Again In Anticipation Of Friendly Interim Budget

The larger expectation from the budget is obviously spending linked themes to the extent that the budget will provide some hints. The spending could be linked to infrastructure like highways which has doubled in the last three years and to rural India.

By Govindraj Ethiraj
New Update
Markets Up Budget
On today’s episode, financial journalist Govindraj Ethiraj talks to Viktor Katona, Lead Crude Analyst at Vienna based trade intelligence firm Kpler as well as G Chokkalingam, Founder of Equinomics Research.

Our Top Reports For Today

  • (00:00) Stories Of The Day
  • (01:19) Markets are up again in anticipation of friendly Interim Budget
  • (04:22) Most new investors are not buying large cap stocks, its 1 or 2 digits that are catching fancy
  • (12:09) Global oil action will now be in the Atlantic basin with India expected to drive up demand in Asia
  • (21:11) The Government finally cuts import duties on components for mobile phone manufacture
  • (22:20) RBI asks Paytm to cease most transaction linked businesses by March 15
  • (23:33) Elon Musk’s $56 Billion Salary from Tesla struck down by court


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 Gear Up For A Friendly Budget

Well, this is an interim budget and not the big one which will come after elections are held starting April and the results are out in May.

If you look back, Monday was good, remember the 1,240 point surprise jump, Tuesday saw almost being reversed and Wednesday was good again, at least sentimentally speaking.

So what to make of this? Well, it's obviously not easy because there are several factors playing including what the Federal Reserve might do and interest rate expectations in the US and Euro Zone, the tone that the Interim Budget will set ahead of general elections which the market now expect to go in favour of the BJP, or as many analysts call it, political continuity, the earnings or numbers for the third quarter that are coming out right now and of course overall capital flows. 

Broadly, weak as far as FIIs are concerned, they have sold more than $2.6 billion in January and steady as far as domestic capital goes.

Meanwhile, earnings can cause more upsets than we would have otherwise expected or imagined, as happened with HDFC when the markets almost suddenly decided that its deposit growth was not fast enough and then began dumping the stock. 

HDFC Bank by the way has the highest weightage in the Nifty 50 index among all the stocks, at 13.52 percent and 29.39 percent in the Nifty Bank index.

On Wednesday, the  Sensex rallied 613 points to end at 71,753 levels while the Nifty50, closed at 21,726, up 204 points.

Elsewhere in the region, Chinese indices have fallen to a five-year low despite expectations over stronger support measures by authorities.

In general mid caps and small cap indices are also holding strong despite all expectations and suggestions, something we shall discuss momentarily.

The larger expectation from the budget is obviously spending linked themes to the extent that the budget will provide some hints. The spending could be linked to infrastructure like highways which has doubled in the last three years and to rural India.

BSE sectoral gauges of industrial and capital goods firms have rallied more than 70% in the last one year, beating a 17% advance in the benchmark index, Bloomberg said.

Speaking of spending, India’s are spending less on pizzas and burgers, going by Q3 results of Dominos and MCdonalds with revenue and profits of their franchise owners slowing down.

All these companies saw high consumption in the period immediately after Covid and that is also distorting demand patterns, as in many other areas.

Quick-service restaurant (QSR) operators as they are called have been fighting everything including rising cost of cheese in specific and inflation in general by trimming costs and incentives but that does not seem to have worked.

New Domestic Investors Are Bullish But Focus On Penny Stocks

Most institutional investors are now recommending that people switch their investments to large cap stocks or stocks in the BSE 100 or Nifty 50 or at least thereabouts.

This could be easier said because there is an interesting conundrum.

Being that while there are millions of new investors signing up every month, many of them are taking small bets and punts. Which means they would rather buy stocks that are in single or double digits or at best three digits and surely not four digits which many large caps, like say HDFC Bank, could be.

We will come to HDFC too in a moment but the market is caught between veterans advising caution and recommending balancing investments versus youngsters or newcomers who are going by what they can afford rather than what is necessarily a seeming long term bet.

This could of course play out an entire cycle.

Anyway, I reached out to G Chokkalingam, Founder of  Equinomics Research and began by first asking him what he was expecting from the Interim Budget and onto other trends he was seeing in the market. 

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What Happens After Saudi Arabia’s Move To Hold Capacity Hike?

Our Energy Segment, IEW

On Wednesday, we spoke of Saudi Aramco  holding a plan to boost its oil capacity, a move that shocked the oil world, because of the accompanying announcements of a switch to natural gas, chemicals and renewables with all the saved funds. 

Bloomberg reported that the world’s biggest oil exporter had said just in November that it was progressing “very well” with a multibillion-dollar project to boost capacity to 13 million barrels a day by 2027 as demand in China and India continues to grow. 

Saudi Arabia currently has capacity for 12 million and is producing about 9 million a day, after it curbed output as part of OPEC in efforts to revive the global oil market and prevent a surplus.

Reuters has later reported quoting sources that price management is the priority for 2024 and 2025 for the Saudis and this was a deferral and will likely resume at a later date," the source said, adding. "This has no bearing on the view of long-term demand."

So the question is what does Saudi Arabia’s pulling back production mean ? And what is the overall outlook for demand and supply of oil in coming months.

Remember, all this affects India because we are seeing several factors at play as will be clear shortly. At the base level there is of course the price of crude. Second, also the price that the refined products from Indian refineries command and at what price they are finally sold. Reliance for example exports most of its output.

I reached out to Viktor Katona, Lead Crude Analyst at Vienna based trade intelligence firm Kpler and began by asking him what he was taking away from Saudi Arabia’s announcement.

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India Cuts Import Duties On Electronic Components, Finally

India has finally cut the import duty on some parts used in making mobile phones to 10% from 15%, a move benefiting companies like Apple.

Meanwhile, import duty on parts such as battery covers, main camera lenses, back covers, other mechanical items of plastic and metal, GSM antenna, and other parts, has been reduced to 10%, the finance ministry said in a notification late on Tuesday and reported by Reuters.

Meanwhile the import duty on inputs used to manufacture these components has been cut to zero, the notification said.

As a background, duties on mobile phone parts were the highest among six comparable manufacturing nations, including China, Vietnam, Mexico, and Thailand, making manufacturing and export from India uncompetitive. 

To make a phone in India for exports as we are and Apple is and would like to make more of them, many parts have to come from outside India. Having high import duties on them has been self defeating. 

Paytm

The Reserve Bank of India on Wednesday restricted Paytm Payments Bank Ltd from fresh deposits and credit transactions across its services, due to supervisory concerns, according to a release late Wednesday.

The circular’s reading is quite strong though, putting March 15 as an outer deadline for ceasing all services.

An audit report revealed "persistent non-compliances and continued material supervisory concerns in the bank, warranting further supervisory action," the central bank said in a release, though it did not disclose further details.

The RBI said customers could withdraw or utilise their balances without  restrictions but PaYTm’s nodal accounts would be terminated by February 29.

Which means all connected services including wallets, FastTags, national common mobility cards or any prepaid instruments and so on would cease to operate.

It is not clear to me since I don’t track this company in any sense what other businesses it has in a revenue earning sense which are not linked to above. I am sure there must be but am sure other analysts would figure it out.

As a customer, obviously, you should cease to transact and get refunds for any money in the pipeline.

Am also reckoning this is bad news for the stock.

Musk Salary Struck Down

In some international and Elon Musk news, a Delaware judge struck down Elon Musk’s $55 billion pay package at Tesla after finding the process for securing its approval “deeply flawed,” a major setback for the chief executive of the world’s most valuable automaker, the WSJ reported.

The decision, issued Tuesday in the Delaware Court of Chancery, calls into question how Tesla’s board plans to compensate Musk, a serial entrepreneur with an array of other business interests.

It also raises questions about whether his ties to his board are too close, and puts greater attention on Musk’s personal wealth. Musk doesn’t accept a salary from Tesla, and while in recent years he has ranked as the world’s richest person, most of his assets are tied up in shares of his companies. 

Tesla, as a publicly traded company, is a financial pillar of his business empire. Musk has also borrowed against his stake in the electric-car maker.

Tesla shares fell more than 2% in after-hours trading Tuesday. 

The ruling could mean the electric-vehicle maker will have to draft a new compensation package for the chief executive, throwing into question how Musk, deeply tied to the automaker’s early days, should be rewarded. 

Musk had begun pushing for greater control over Tesla, where he is the largest shareholder with 13% ownership, the WSJ said, quoting him saying he felt uncomfortable transforming Tesla into a leader in artificial intelligence and robotics without controlling around 25% of the company. 

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That’s it from me, see you tomorrow with a Budget analysis edition