Sensex Stays Above 80000 As Large Caps Calibrate

The current bull run has seen the return of IT and financial stocks

5 July 2024 12:30 AM GMT

On Episode 332 of The Core Report, financial journalist Govindraj Ethiraj talks to G Chokkalingam, founder of Equinomics Research.

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SHOW NOTES

(00:00) The Take

(05:03) Stories Of The Day

(05:38) Sensex stays above 80000 as large caps calibrate

(07:11) SEBI and exchanges scramble to cool the markets

(11:00) Two wheeler CNG bike is a good experiment even if it does not succeed

(13:13) The Sensex lines up for 90,000; the red lights and green lights


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, it's Friday, the 5th of July and this is Govindraj Ethiraj broadcasting and streaming from and headquartered in Mumbai, India’s financial capital.

The TAKE

On the 15th of April, 2024, we were told that car maker Tesla was looking at potential showroom spots in New Delhi and Mumbai as it was gearing up to start selling its cars later this year, which is still this year.

We were even told, via sources, that the showrooms would span between 3,000 to 5,000 square feet (280-465 square metres) with service centres in both cities.

This was the point I realised that Tesla fever for a car that was extremely unlikely to drive into the country for the foreseeable future had reached its peak. Moreover, this was only a small fraction of the exuberant reporting on Tesla’s imminent arrival in the country.

Remember, laws were also tweaked.

Import duties were slashed on electric vehicles to 15 percent from as high as 100% for automakers committing at least $500 million in investments and setting up a factory within three years.

We were also told that this was for all car makers and not just Tesla.

Except that in one of those rare cases of public grumbling - you can only imagine then, what was happening within - some Indian and overseas car companies in that period said they would like to see a level playing field.

Translated, we know you are head over heels in love with Tesla and Elon Musk but don’t forget we have been investing, making cars and creating jobs in this country for decades.

Elon Musk was supposed to visit India for two days in the third week of April.

He ditched, saying he was busy with very heavy Tesla obligations and added he looked forward to visiting later this year.

Within a week, he had landed in Beijing, signing deals and spending time, presumably with his colleagues in the country. Tesla started building its car factory in Shanghai in 2019.

Now, if you have been following The Core Report, you would recall we have been predicting precisely this, that Tesla was not likely to visit at this juncture because of the problems the company is facing in demand as well as the CEO’s own pre-occupations.

Now here comes the classic rebuff.

Bloomberg is reporting that India now does not expect Tesla to move forward with an investment in the country any time soon after executives at Elon Musk’s electric carmaker stopped contacting them, according to people familiar with the matter.

The headline is India’s hopes for Tesla Investment Cool as Musk Ceases Contact. I will leave it to you to think of the analogies that come to mind with this thoughtful turn of headline phrase.

Anyway, Bloomberg says, quoting sources, that Musk’s team hasn’t made any further inquiries with officials in New Delhi after the billionaire postponed a visit to India in late April.

The government is given to understand that Tesla has capital issues and doesn’t plan on pledging fresh investment into India in the near future, they said.

Of course just the day before we reported that Tesla reported a second consecutive drop in quarterly deliveries globally and faces heightened competition in China.

Tesla has been slashing staff in recent months and meanwhile has dangled a new carrot for investors, humanoid robots, which amazingly, many including institutional investors have lapped up immediately.

Elon Musk in June said that he foresees a humanoid population eventually outnumbering humans by a two-to-one ratio, or a higher magnitude.

"One-to-one for sure. So, which means like somewhere on the order of 10 billion humanoid robots. Maybe, maybe, maybe 20 billion or 30 billion," Musk had said at the latest annual meeting, in a report which quoted a highly amped up note by Morgan Stanley foreseeing a day where we will all perhaps only meet only humanoids and not each other.

Back home and to the present, Tesla is an investment that was and is still desirable.

Auto industry experts I have spoken to have said Tesla is surely a badge to sport. But bear in mind that this was a Rs 20 lakh car at the very least so not the small car costing much less that was supposed to hit the roads and thus shake up the whole Indian EV space. More spin doctoring.

Foreign direct investment that brings in cutting edge technology is critical and welcome in India. Even if it is in the hands of whimsical, to put it mildly, tech entrepreneurs like Elon Musk.

But Tesla in 2024 is not the same as Tesla in 2018 or so. Other car makers have in many ways caught up and have much stronger and reliable distribution and service presence in India, whether it is Hyundai and Kia or Tata - the largest in four wheelers and Mahindra and Mahindra.

To give local manufacturers, who are of course foreign and domestic - a feeling that they were being brushed aside to welcome a tech titan was unfair and unnecessary.

The lesson from the Tesla episode is that India must surely be aggressive in courting foreign investment as other countries also have been with Tesla but also recognising India’s own market structure and challenges in doing so. Apart from recognising the contribution of those who have been around for decades.

The nature of build-up, at least in retrospect, is a lesson, for all to see.

India’s market is large, deep and attractive to all manner of companies, particularly automotive. Even right now, as some European car makers are suggesting they may pull back a little, others are ramping up. That is the nature of a competitive, value focussed market. Whether in automotive or mobile phones or colour televisions and air conditioners.

The big players will come, whether we go desperately chasing them or not.

Sensex Stays High

The bull run continued into Thursday though with some shifts with Information Technology stocks staying strong.

As we have been discussing, the current run has seen the return of IT and financial stocks, particularly all the big ones, also being the ones that were being shrugged off just a few months ago.

But institutional money has come back into these stocks and with that, everyone else has joined the party. Or so it seems.

The BSE Sensex index closed at 80,050, up 63 points after hitting a record high of 80,393 in the intraday trade.

The NSE Nifty50, on the other hand, hit a record high of 24,401 before ending at 24,302, up 16 points.

The broader markets outperformed the benchmarks with the BSE MidCap and SmallCap indices closing 0.6 per cent higher each.

So here is the interesting thing to note for now and in future.

Did you know which stocks drove the last 10,000 points from 70K to 80K ?

Only five stocks have accounted for 50 percent of rise in the valuation of the benchmark Sensex. Moneycontrol has compiled.

The next eleven stocks in terms of highest rise in market capitalisation contributed another 30 percent to overall valuation.

The five Sensex stocks were Reliance Industries, Bharti Airtel, State Bank of India, Mahindra & Mahindra and ICICI Bank.

The youngest company in this lot is perhaps 30 years old. The oldest private company is Mahindra & Mahindra, set up in 1945 and went public in 1956.

All these dates are only to reiterate as I usually do on those rare nostalgia filled moments that investing in the markets is a long game.

SEBI And Exchanges Scramble To Cool Markets

We may love it but the regulators are obviously searching to find ways to cool the market, directly and indirectly as they have in recent months.

The latest steps come from the NSE and the SEBI and I am quite sure there will be more in coming months if the markets keep rising like this.

The National Stock Exchange (NSE) said on Thursday it was putting an overall cap of up to 90 per cent over the issue price for SME initial public offers (IPOs) during the pre-open session. SME stands for small and medium enterprises.

The move, NSE said, aims to standardise the opening price discovery across exchanges during the special pre-open session for IPO for the SME platform, Business STandard reported..

“The price control cap of 90 per cent shall be applicable only to the SME segment and not for Mainboard IPOs/Relisted Securities/Public Debt,” NSE said in its circular issued today, adding it was coming into force with immediate effect.

In the first half of this calendar year, 37 companies raised around Rs 32,000 crore, according to data provided by PRIME Database.

In 2007 — the peak of the bull market — 54 companies had raised Rs 20,833 crore, according to Business Standard compilations.

On the other hand, in 2024, around 120 SME companies have launched their IPOs. Of these, 98 SME IPOs listed at premium, while 18 listed at discount over issue price.

Meanwhile, the Sebi has said that stock brokers will soon need to put in place specific measures to prevent and detect fraud or market abuse.

Sebi said stockbrokers should have systems for surveillance of trading activities and internal controls, escalation and reporting mechanisms and a whistle blower policy.

Qualified stock brokerages (QSBs), typically the large and very active ones, will need to implement this from August 1, 2024.

Other brokerages will roll this out between January 1, 2025, and April 1, 2026, Sebi said.

Unemployment Rises

The stock markets are soaring and so is unemployment, which rose to an eight-month high of 9.2 per cent in June 2024, up from 7 per cent in the previous month, according to the Centre for Monitoring Indian Economy data reported by Business Standard.

It was 8.5 per cent in June 2023, according to data from the Centre for Monitoring Indian Economy (CMIE).

The numbers are based on the Consumer Pyramids Household Survey that CMIE conducts periodically.

The unemployment rate measures the number of people who are unemployed and actively looking for a job among those in the labour force.

Interestingly and perhaps worryingly, the female unemployment rate was higher than the national average at 18.5 per cent in June 2024 compared to 15.1 per cent in the same month last year.

The male unemployment rate stood at 7.8 percent compared to 7.7 per cent in the same month last year (chart 1).

Rural areas continue to experience higher unemployment rates.

Moreover, the rise in unemployment comes even amid a higher Labour Participation Rate (LPR).

The LPR refers to those working or willing to work and actively looking for a job among the total working-age population (15 years and above).

The labour participation rate improved marginally, rising to 41.4 per cent in June 2024 from 40.8 per cent in May. It was 39.9 per cent in June 2023.

Male and female labour participation rates reached 68.1 percent and 11.3 percent, respectively, in June (chart 2).

Why CNG Bikes Is A Good Experiment

Indian two wheeler companies, particularly the likes of Bajaj Auto and Hero are perhaps world leaders in R&D on fuel efficiency in two wheeler motorbikes.

I don’t have hard data with me for now but one can safely say that Indian two wheelers are amongst the most fuel efficient in the world, being such a large and value conscious market.

After all, the only question that people ask when you procure a new bike or car, even the most expensive, is how much does it give…or what is the mileage.

In keeping with better mileage, cheaper and of course now cleaner fuel, Bajaj Auto is now set to launch the first CNG bike, expected to be called Freedom 125 and in the 125 cc segment.

The bike is likely to have flexible fuel options, featuring two separate switches for petrol and CNG. Bajaj Auto has said earlier that they are aiming to bring the bike in an affordable segment. In March, Bajaj Auto managing director Rajiv Bajaj had said that compared to gasoline, in a CNG bike carbon dioxide emissions are down by almost 50 per cent, carbon monoxide by 75 per cent, and non-methane hydrocarbons by 90 per cent. He had also said it would effectively double mileage or halve the cost of fuel for the aam aadmi (common man).

“As a fuel, CNG is cheaper, cleaner, and more efficient compared to other gasoline options…[and] CNG two-wheelers will mean another fuel-variant option available with buyers,” Anuj Sethi, Senior Director, CRISIL Ratings told my colleague Jessica Jani in April in the context of the imminent Bajaj bike launch.

The price is said to be slightly more than a petrol bike, as any manufacturer would.

How the bike will do in the marketplace given that CNG is not as easy to find or fill as petrol is obviously remains to be seen.

This is also a good test to see how far India’s value conscious two wheeler customers are willing to go and the inconvenience they are ready to bear.

Whether it is a full or partial success or even a flop, the experiment is a good one.

Auto makers must and must be encouraged to experiment with new fuels in full blown commercial scale - previous CNG experiments have been pilots and of course they have worked in cars and auto rickshaws.

Earlier, it was only about cost, now it is also about sustainability and clean mobility.

Dissecting The Market’s Growth, Can it Go to 90,000

If you were to run just the numbers, which is how companies are growing and extrapolate profits to stock prices, the markets still look like they have steam.

Of course, in the real world, many things can cause the sudden application of brakes or even reversals. Extreme events like the pandemic and sudden shocks like election results or outcomes, even if temporary.

Investing long term obviously is more a matter of head than heart. Applying some theory to investing is also important. I reached out to G Chokkalingam, founder of equinomics research and asked him a straight question, what were the green lights and the red lights ahead?

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