Tag: Stocks

Market fall rooted in stock-specific negatives, not Sebi FPI disclosure norms

KV Prasad Jun 13, 2022, 06:35 AM IST (Published)

Listen to the Article (6 Minutes)

Market chatter may have blamed the fall over the past few sessions on foreign portfolio investors (FPIs) selling down stakes to comply with the Securities and Exchange Board of India’s (Sebi’s) new disclosure norms, a Moneycontrol analysis shows that is not be the full story.

Of the top 10 biggest losers from the BSE 200 list, three stocks — Zee Entertainment, IndusInd Bank and LTIMindtree — are part of corporate groups that have FPIs who are not exempt from making additional disclosures on beneficial ownership.

Of the top 25 losers, eight are exposed to FPIs which have more than 50 percent of their corpus invested in their respective corporate groups.

While some selling may have happened from FPIs paring stake to comply with the new regulations, analysts said the big fall over the past few sessions was triggered by stock-specific negative news.

“The FPI selloff quantum in the past few days is significantly lesser than Sebi’s estimate of FPI AUM required to make additional disclosures. The counters are also different. The ones beaten down most have low FPI ownership,” said Nirav Karkera, head of research, Fisdom.

Sebi initially estimated that the quantum of FPI stake that will have to comply with additional disclosure norms at around Rs 2.46 lakh crore. Sources at Sebi, however, told Moneycontrol that the amount was a conservative estimate. The amount was now significantly lower despite a significant escalation in the market’s overall market-cap, as more FPIs got eliminated on additional exemption criteria.

Deepak Jasani, head of retail research at HDFC Securities, said Sebi norms could be one of the triggers but one must also note that FIIs were selling across emerging markets (EMs).

“The global FII view is to reduce exposure to EM equities, maybe because they feel markets are overvalued. India is also at the receiving end,” he said.

During the January 15-23 period, the Nifty lost 4 percent and the Nifty Midcap 100 2.5 percent. FIIs pulled out Rs 32,000 crore and DIIs bought stake worth Rs 17,000 crore.

After a very strong rally and the Nifty scaling 22,000, the markets had moved to an overbought situation and needed an excuse to pullback a bit, Gaurav Dua, SVP – Head Capital Market Strategy at Sharekhan told Moneycontrol.

“The volatility in global markets and the post results correction in some heavyweights in banking sector seem to have provided the required trigger for the correction. The reports related to FPI norms seem to have only added to weakness in sentiments,” Dua said.

Stock-specific triggers

Much of the market fall has been triggered by negative news about specific stocks. Zee Entertainment Enterprises, for instance, saw a 38 percent drawdown largely on the back of the Sony deal fallout. Data compiled by Prime Database shows only two FPIs holding more than 50 percent of their corpus in Essel group, which amounts to total of Rs 63 crore. Zee’s total market cap loss over this period is more than Rs 7,000 crore.

In the case of HDFC, two FPIs have concentrated holdings — Aberdeen and Invesco — amounting to Rs 18,210 crore. Both are exempt from making additional disclosures, as per Sebi. HDFC Bank has fallen close to 15 percent after it announced its third quarter results as the Street was disappointed with its margin performance.

Oberoi Realty, which does not have concentrated FPI holding, has tumbled 10 percent in the past weak after its December quarter net profit tanked close to 49 percent from last year. On the other hand, Adani group companies that have highest amount of concentrated FPI bets have fallen between 2 and 5 percent.

For several stocks, one cannot make a direct connection between concentrated FPI holding and the recent selloff. That said, the numbers could be an under representation of opaque structures as they include only FPIs with greater than 1 percent holding. Data for this study was compiled by Prime database, based on public disclosures.

What are Sebi FPI norms and what are the deadlines?

Sebi wants additional disclosures from FPIs to prevent companies from manipulating the rules on minimum public shareholding and also to prevent overseas entities from indirectly controlling Indian companies through a chain or web of shell firms.

Disclosures on beneficial ownership have to be made by FPIs whose 50 percent of equity assets under management are invested in a single Indian corporate group, or FPIs that have invested over Rs 25,000 crore in the Indian stock market.

Sources on January 24 said there is no immediate deadline or cliff for FPIs to liquidate any holdings.

FPIs which meet the criteria for enhanced disclosures as of October 31, 2023 have time till January-end to rebalance their holdings, if they so wish. “If they continue to meet the criteria for enhanced disclosures as of January end, they shall be required to make the additional disclosures within 30 trading days,” sources said.

Even thereafter, if they fail to provide any details, they will have another six months to reduce their holdings.

Elon Musk forms several ‘X Holdings’ companies to fund potential Twitter buyout

3 Mins Read

Thursday’s filing dispelled some doubts, though Musk still has work to do. He and his advisers will spend the coming days vetting potential investors for the equity portion of his offer, according to people familiar with the matter

KV Prasad Journo follow politics, process in Parliament and US Congress. Former Congressional APSA-Fulbright Fellow

Global stocks edge down with data boost fading, shutdown and quarter-end in focus

KV Prasad Jun 13, 2022, 06:35 AM IST (Published)

Listen to the Article (6 Minutes)

MSCI’S global equities ended Friday’s choppy session slightly lower as investors prepared for a likely US government shutdown and adjusted portfolios for the quarter’s end.

Hardline Republicans in the US House of Representatives on Friday afternoon rejected their leader’s proposed bill to temporarily fund the government, making it all but certain that federal agencies will partially shut down beginning on Sunday.

Underlying US inflation pressures moderated in August, with the annual rise in prices excluding food and energy falling below 4.0% for the first time in more than two years – seen as welcome news for the Federal Reserve as it ponders the monetary policy outlook.

Earlier data also showed headline inflation in Europe rising more slowly than expected and at its lowest level in two years.

But an earlier boost to stocks from signs of subsiding inflation faded as the session wore on.

While New York Fed President John Williams said the central bank is likely at or near peak rates, he said he still expects it will need to stay restrictive “for some time.”

“What’s driving everything is interest rates, and what the Fed finally got markets to buy is that lower inflation is not a reason to lower interest rates,” said Robert Phipps, director at Per Stirling Capital Management, who saw the comments by Williams as the biggest drag on stocks on Friday as it reminded investors that rates will likely stay higher for longer.

On top of this, Phipps also cited end-of quarter portfolio adjustments, the prospect of a government shutdown, and an expansion of Detroit’s auto workers’ strikes as incentives for traders to sell shares going into the weekend.

Traders were betting on an 85.8% probability that the Fed would keep rates steady at its next meeting in November compared with an 80.7% probability on Thursday, according to the latest data from CME Group’s Fedwatch tool.

The Dow Jones Industrial Average fell 158.84 points, or 0.47%, to 33,507.5, the S&P 500 lost 11.65 points, or 0.27%, to 4,288.05 and the Nasdaq Composite added 18.05 points, or 0.14%, to 13,219.32.

MSCI’s gauge of stocks across the globe shed 0.04% on the day. For the month of September it fell 4.3%, which was its biggest monthly decline in a year. For the quarter it lost 6.6%, for its first quarterly decline in a year.

In currencies, the dollar was headed for its biggest quarterly gain in a year and gains for the 11th consecutive week while Japan’s yen remained under scrutiny for potential government intervention.

The yen weakened 0.07% versus the greenback at 149.43 per dollar. The dollar index, which measures the greenback against a basket of major currencies, rose 0.038%, with the euro up 0.09% to $1.0568.

Sterling was last trading at $1.22, up 0.02% after data showed Britain’s economic performance since the start of the COVID-19 pandemic was stronger than previously thought.

In U.S. Treasuries, Benchmark 10-year yields were well above their lows of the day but still down 1.6 basis points at 4.581%, from 4.597% late on Thursday. The 30-year bond was last down 2.3 basis points to yield 4.7065%. The 2-year note was last was down 1.3 basis points to yield 5.0582%.

In energy markets, U.S. crude oil prices settled 1% lower due to macroeconomic concerns and profit taking, but rose about 30% for the quarter as OPEC+ production cuts squeezed global crude supply.

U.S. crude settled down 1% at $90.79 per barrel and Brent ended at $95.31, down 0.07% on the day.

In precious metals, gold prices were lower on the day and eying monthly and quarterly declines on expectations that the U.S. central bank may keep interest rates higher for longer.

Spot gold dropped 0.9% to $1,848.59 an ounce. U.S. gold futures fell 0.77% to $1,846.10 an ounce.

Elon Musk forms several ‘X Holdings’ companies to fund potential Twitter buyout

3 Mins Read

Thursday’s filing dispelled some doubts, though Musk still has work to do. He and his advisers will spend the coming days vetting potential investors for the equity portion of his offer, according to people familiar with the matter

KV Prasad Journo follow politics, process in Parliament and US Congress. Former Congressional APSA-Fulbright Fellow

Retail investors find solace in penny stocks as largecaps consolidate

KV Prasad Jun 13, 2022, 06:35 AM IST (Published)

Listen to the Article (6 Minutes)

Retail-investor dominated penny stocks seem to have regained momentum, even as the surging crude prices begin to temper the optimism over corporate earnings and reignite inflation concerns.

Many small stocks including Vodafone Idea, Jaiprakash Power Ventures, Reliance Power, Hathway Cable and Datacom, Jaiprakash Associates, Media Matrix Worldwide and SEPC Ltd have rallied anywhere between 35 percent to 90 percent over the last three months. That compares with five to seven percent gains clocked by the benchmark Nifty 50 and the broader NSE 500 index during the same period.

Interestingly, barring five stocks, all companies in the sample have yielded positive returns over the last three months, with stocks like IFCI, GVK Power & Infrastructure, Unitech and Sarveshwar Foods more than doubling during the same period. Indeed, the sample comprises only those companies with minimum market capitalisation of Rs 500 crore and having a stock price, which is less than Rs 25. Further, the aggregate market capitalisation of these 44 small stocks in the sample has surged nearly 30 percent to Rs 1.9 lakh crore over the last three months.

To put this in perspective, about 20 percent of the Nifty 50 constituents are in the red since June 26, with stocks like UPL, Britannia Industries, Hindustan Unilever and HDFC Bank declining up to nine percent.

Shares of Vodafone Idea surged as much as seven percent in Tuesday’s trade. The stock, which has been trading at above Rs 10 for the last three weeks has more than doubled from its March lows. Vodafone, which commands close to Rs 60,000 crore market cap, along with Yes Bank account for 57 percent of the sample’s market capitalisation.

However, analysts remain cautious over investors’ frenzy over small stocks as majority of them have been reporting losses and are thinly traded on the bourses. Moreover, institutional holdings in these stocks are miniscule, making the exit cumbersome for investors.

Also Read:Change of guard at India Inc on a rise in 2023

Elon Musk forms several ‘X Holdings’ companies to fund potential Twitter buyout

3 Mins Read

Thursday’s filing dispelled some doubts, though Musk still has work to do. He and his advisers will spend the coming days vetting potential investors for the equity portion of his offer, according to people familiar with the matter

KV Prasad Journo follow politics, process in Parliament and US Congress. Former Congressional APSA-Fulbright Fellow

Shilpa Medicare shares hit a 10-month high after UK approval for drug to treat hearing loss

KV Prasad Jun 13, 2022, 06:35 AM IST (Published)

Listen to the Article (6 Minutes)

Shilpa Medicare gained nearly 3 percent in morning trade on Monday, to its highest level since October 2022, after the United Kingdom’s Medicines and Healthcare Products Regulatory Agency (MHRA) allowed the company to sell Betahistine Dihydrochloride Orodispersible Films, a drug used for treating hearing loss.

In a filing to the stock exchanges on Friday, the Hyderabad-based Shilpa Medicare said it is the first company to get approval for the 24 milligram strength as a film formulation in the UK. The supply will go from its plant in Dabaspet, Bengaluru in Karnataka.

Orodispersible films allow compliance as well as ease of administration. Betahistine is used for the treatment of vertigo, tinnitus, hearing loss, and nausea associated with Meniere’s syndrome. This is available in tablets and oral liquid dosage forms in several strengths across the UK and Europe.

Separately, the company (market value of over Rs 3,200 crore) announced that its subsidiary, Shilpa Pharma Lifesciences Ltd’s active pharmaceutical ingredient (API) manufacturing facility at Raichur in Karnataka has undergone a GMP (Good Manufacturing Practices) inspection by PMDA, Japan.

The inspection began on August 29 and concluded on September 1 without any critical observation.

The Karnataka-based firm said that it remains committed to maintaining the GMP status and quality standards as per the expectations and standards of global regulatory authorities.

Shares of Shilpa Medicare were trading 0.98 percent higher at Rs 374.60 apiece on BSE on Monday at 9:56 AM. The stock is up over 34 percent this year so far but slightly below (about 2 percent) the price it was trading at, this time last year.

Elon Musk forms several ‘X Holdings’ companies to fund potential Twitter buyout

3 Mins Read

Thursday’s filing dispelled some doubts, though Musk still has work to do. He and his advisers will spend the coming days vetting potential investors for the equity portion of his offer, according to people familiar with the matter

KV Prasad Journo follow politics, process in Parliament and US Congress. Former Congressional APSA-Fulbright Fellow

Why have textile stocks been buzzing of late?

KV Prasad Jun 13, 2022, 06:35 AM IST (Published)

Listen to the Article (6 Minutes)

Textile-related stocks such as Gokaldas Exports, Himatsingka Seide, Arvind Limited, Vardhman Textiles, and KPR Mills have experienced a rally of 4 percent to 12 percent in the past week. KPR Mill, in particular, has garnered increased attention following Fidelity’s acquisition of a 1 percent stake in August 2023. There are numerous factors that have contributed to the excitement surrounding these stocks, so let’s list a few.

1. Global retailers have continued efforts to reduce excess inventory of books.

TJX, Nike, Walmart and Target have been able to achieve lower inventory. Additionally, other large retailers have reduced their inventory levels due to their cautious approach towards fresh procurement.

2. Outlook mixed though Walmart has revised guidance

The demand outlook remains mixed, with Walmart increasing its full-year guidance to reflect Q2 performance in expectations for Q3. TJX also anticipates overall comparable store sales to rise by 3 percent to 4 percent for FY24. Meanwhile, Target expects its comparable sales to experience a wide range, with a mid-single-digit decline projected for the rest of the year.

3. Indian textile players expect demand revival from the second half of FY2

Indian textile industry leaders are optimistic about a resurgence in demand starting from the second half of FY2, as conveyed in their recent commentaries:

Gokaldas: “Looking at third-quarter bookings, we are very encouraged by the discussions that we are having with the customers”

Welspun India: “Quarter 2 definitely has an upside owing to the festive season, due to events like Black Friday and Christmas across the globe.“

Himatsingka Seide: “Demand environment remains stable.”

Indo Count: “In the current Q2, we are witnessing incremental business, and our order book’s position continues to improve. Despite a 5 percent volume increase in Q1, we expect to achieve double-digit growth in the next three quarters, thus meeting our volume guidance of 85 to 90 million meters for FY ’24.”

4. FTA discussions picking pace: 

FTA discussions are gaining momentum as India plans to engage in talks with the United Kingdom, Canada and the European Union on the sidelines of the G20 Summit. Should an FTA with the UK be established, it would enable duty-free exports to the UK, thus enhancing India’s competitiveness. Presently, the UK presents a $21 billion opportunity in the apparel segment, yet India’s current share is merely $1.1 billion. In contrast, the UK imports $3 billion worth of goods from Bangladesh and $4.5 billion from China. The primary factor behind this discrepancy is that Indian businesses face lower market penetration in the UK due to tariff disadvantages when compared to Pakistan, Turkey, and Bangladesh.

5. Advantage INDIA! 

India’s share in the United States’ imports has increased in a couple of categories, such as cotton sheets and terry towels. In the case of cotton sheets, India’s share in US imports has risen from 52 percent in 2022 to 59 percent in 2023, while India’s share in US imports of terry towels has grown from 39 percent to 45 percent. India has gained at the expense of China.

6. Decline in cotton prices gives hope that spreads will improve from here on

India yarn/cotton prices 

Risks persist as a recession in the US remains a concern, while cotton yarn spreads are weak as of now. Additionally, the possibility of recovery being delayed beyond Q3 is also a potential concern.

Elon Musk forms several ‘X Holdings’ companies to fund potential Twitter buyout

3 Mins Read

Thursday’s filing dispelled some doubts, though Musk still has work to do. He and his advisers will spend the coming days vetting potential investors for the equity portion of his offer, according to people familiar with the matter

KV Prasad Journo follow politics, process in Parliament and US Congress. Former Congressional APSA-Fulbright Fellow

Explained | How smallcases work and should you invest?

KV Prasad Jun 13, 2022, 06:35 AM IST (Published)

Listen to the Article (6 Minutes)

• Asset allocation-based smallcases like All Weather Investing, Equity and Gold, Equity and Debt, Horizon, Top 100 Stocks, Top 250 Stocks
• Sectoral smallcases like FMCG tracker, Banking tracker
• Thematic smallcases like Rising Rural Demand, Electric Mobility

Elon Musk forms several ‘X Holdings’ companies to fund potential Twitter buyout

3 Mins Read

Thursday’s filing dispelled some doubts, though Musk still has work to do. He and his advisers will spend the coming days vetting potential investors for the equity portion of his offer, according to people familiar with the matter

KV Prasad Journo follow politics, process in Parliament and US Congress. Former Congressional APSA-Fulbright Fellow

Bottomline: Need for pragmatism on finfluencers

KV Prasad Jun 13, 2022, 06:35 AM IST (Published)

Listen to the Article (6 Minutes)

SEBI Chairperson Madhabi Puri Buch in a press meet following the regulators board meet weighed in on the hot topic of influencers in the investment arena. What was notable about her remarks was that she distinguished between influencers focusing on “investor education” and those offering “inducements”. That is a fine balance that will need to be maintained while framing rules and regulations as well, lest a few black sheep lead to the entire herd being branded in one light and an important initiative to educate the masses being nipped in the bud.

There’s good influence out there

I did a cursory check, with not very high expectations, on the content being put out there by some of the leading influencers. And I was positively surprised. There is some sage advice and good knowledge being spread there, and more effectively than in several of the staid investor camps.

For the first time, in a long time, there are many people with knowledge of investing taking the right kind of information to the masses to increase financial literacy. Killing this initiative before it has had the opportunity to achieve its true potential can be detrimental to the entire nation. It can increase participation in the capital market and help mobilise savings for productive use in a capital-starved country.

But a need to level the field

Influence is good for those who wield it. It gets them the power to influence the actions of several others. But like with every other power, there must come responsibility. It should not be that we have two parallel systems, one regulated and one unregulated co-existing. That cannot be. Here it may be noted that some of the bigger influencers have now got organised as enterprises and registered with SEBI, but there is a big ecosystem out there that operates without any checks and balances.

Hence, there must be rules that align the minimum qualifications of investment advisors registered with SEBI and those offering advice as influencers. And, perhaps, a separate set of rules for those not looking to offer advice but only educate investors. But no one in the capital market system should be outside the purview of the regulator, as that poses a risk to both individual investors and the entire ecosystem.

Present SEBI regulations require investment advisors to have a relevant qualification in finance from a recognized institution to be eligible for a license. Advisers also need to have a minimum five years of relevant professional experience in the financial or securities sector and must have a minimum networth of Rs 5 lakh. There are no such rules for influencers, all you need is a social media account to get started. Such dichotomy must not continue.

The rules may be revised to align them, but no one should have a free run while another set is asked to also comply with a general set of responsibility obligations scripted by the regulator. This should help address the issue of “inducements” and “misrepresentation” by certain influencers.

Influencers and risks of oversimplification

In my reviews of content offered by some influencers I found a few cases where well-intended effort was made to simplify concepts and investing for the uninitiated. For instance, age-old stock market wisdoms of invest in businees you understand or the Peter Lynch doctrine of buy brands you use and like were contextualized for the lay investor. However, some of this tends to oversimplify the investment and stock identification process. Imagine buying Hindustan Unilever just because you like Dove soap or buying Nestle because you like Nescafe. That’s hardly reflective of the companies in their entirety. Several lay investors may not even be aware of the entire portfolios of these companies. Often limited information can be more dangerous than no information at all.

A conservation from an ace fund manager spotlighted a folly several individual investors make, of using casual advice/comments from smart investors on stocks as buy recommendations. These money managers take a portfolio approach and hence their bad bets will often be more than offset by their right bets. An investor who picks one of the losers may suffer a much worse fate. Hence, for most investors taking the mutual fund route or being guided by a professional investment adviser is the best option. Dabbling in stocks directly should be generally avoided by individual investors unless they are equally qualified as an investment advisor to judge the merits of a specific stock investment and the risks associated.

Go passive, invest wisely.

Elon Musk forms several ‘X Holdings’ companies to fund potential Twitter buyout

3 Mins Read

Thursday’s filing dispelled some doubts, though Musk still has work to do. He and his advisers will spend the coming days vetting potential investors for the equity portion of his offer, according to people familiar with the matter

KV Prasad Journo follow politics, process in Parliament and US Congress. Former Congressional APSA-Fulbright Fellow

Imagicaa shares rally nearly 15% in 2 days as co gets nod for proposal to write off Rs 571 crore debt

KV Prasad Jun 13, 2022, 06:35 AM IST (Published)

Listen to the Article (6 Minutes)

Shares of Mumbai-based theme park and entertainment company,  Imagicaaworld Entertainment have climbed nearly 15 percent over the last 2 days. The spike started on Wednesday, when the stock rose 10 percent after the company announced it had received approvals to write-off debt to the tune of Rs 571.76 crores. The stock rallied a further 4 percent on Thursday.

The write-off is part of a debt resolution plan entered into by Malpani Parks and Aditya Birla ARC (Asset Reconstruction Company) a year ago in June 2022. “As the residual leg of the resolution plan, we have now written back remaining debt of Rs 571.76 crores which will reflect in our balance sheet and show the true picture as on date,” said Malpani Parks’ MD Jai Malpani. The Malpani Group had acquired a majority 66.25 percent stake in ImagicaaWorld in June 2022 through a preferential allotment of shares aggregating Rs 415 crores.

The write-off comes as good news for investors as it removes a year-long overhang over the company regarding legacy debt, and allows the management to embark on expansion plans. Malpani added, “We aim to solidify our position as a leader in the entertainment park industry, known for pushing the boundaries of entertainment.”

ALSO READ: Market capitalisation of BSE-listed companies climbs to a record high

Shares of the company closed Thursday’s trading session at Rs 49.20 per share.

Elon Musk forms several ‘X Holdings’ companies to fund potential Twitter buyout

3 Mins Read

Thursday’s filing dispelled some doubts, though Musk still has work to do. He and his advisers will spend the coming days vetting potential investors for the equity portion of his offer, according to people familiar with the matter

KV Prasad Journo follow politics, process in Parliament and US Congress. Former Congressional APSA-Fulbright Fellow

Bottomline | Stocks may have some more to run

KV Prasad Jun 13, 2022, 06:35 AM IST (Published)

Listen to the Article (6 Minutes)

You shouldn’t drive ahead with an eye on the rear view mirror, but drawing from your experience of the distance covered isn’t such a bad thing. No one knows for sure what lies ahead, that’s why projections can often go wrong. In this context historical data can be a good benchmark for future estimation. We look at historical valuations to try and assess where the market is positioned.

For this we used BSE frontline and sector indices. The findings offer interesting insights.

SOME MORE TO RUN

Stocks after their recent rally may still have more legs to run, if we go by historical price-to-book valuation of the BSE-Sensex. This because the average for the ongoing fiscal at 3.28x is in-line with the historical average of 3.27x for the past 26 years. And if we look at the higher averages of the more recent years, a range of 3.4-3.75x seems like an attainable band. This would translate into a 4 percent to 15 percent upside.

That’s for the frontline index. A broader market gauge, the BSE-500, too suggests a similar likelihood. The current BSE-500 price-to-book value ratio at 3.1x is near its average of 3x, and the previous high range suggests a possibility of an 8 percent to 17 percent upside.

So, if the market is to break out to a new high, some more gains beyond that are quite possible before stocks pull back. Given that this feat is just 1.7 percent away, a further run-up seems plausible.

VALUATION COMFORT ZONES

If the market does head higher, where does valuation comfort lie? We looked at sector indices to gauge how current valuations compared with historical trends. Here are some findings.

AUTO

The price-to-book value after the recent run-up at 4.53x is well above the historical average of 4x and sharply higher than the low of 2.6x. That said, valuations have scaled beyond 5x in a couple of years, but that might be hoping for a little much.

BANKS

Banks have been the recent favourite of most fund managers, but going purely by historical valuations, at 2.36x the lenders are trading above their historical average of 2.23x and above past lows near 1.76x. The ratio crossed 3x only in 2007-08, a year when valuations across sectors saw a peak.

CAPITAL GOODS

Capital goods stocks have traded at lofty valuations during the 2005 to 2010 period, which ranged from 5x to 12x, but since then the range has been mostly between 2.3x to 4x. The present reading of 5x is well above the average of 4.5x, but if we are entering a high valuation cycle this could be near the bottom of the range.

FMCG

Stocks in the FMCG sector have always traded at a premium to most other market segments. While on a price-to-book value basis at 8.6x they trade above the average of 8.2x, on a dividend yield basis, the 1.72 percent offered compares favourably with the average of 1.6 percent.

HEALTHCARE

The healthcare sector has some room for upside with the current price-to-book ratio at 3.8x versus the historical 4.1x. The annual average low for the sector in the past 8 years has been 2.8x and the high 5.7x. Also, in 4 of the nine years, the average was above 4x. So, there could be some steam left here.

IT SERVICES

While IT services stocks don’t look cheap from a price-to-earnings or price-to-book value perspective, with the latter at 6x compared to the average of 5.2x over the past 8 years, the dividend yield offered now at 2.2 percent is higher than in any of the past 8 years.

METALS

Metals tend to see high variations in valuation multiples, given the cyclical nature of the sector. These stocks have traded in a price-to-book range from 0.77x to 4.65x over the past 23 years, with a high valuation period followed by a long decline. At 1.58x these stocks are near their lower end, but even from here the historical lows are a good distance away.

OIL & GAS

This is one sector that’s clearly trading well below averages. While the current price-to-book value is at 1.33x, the historical average is 1.9x. The historical range is 1.27x to 4.1x. On a dividend yield basis too, the 4.3 percent is quite attractive.

REALTY

This is a peculiar one. In 2007-08, the index averaged 34x price-to-book value. If we exclude this, the historical average is 2.2x which is lower than the current 2.9x. But that’s just half the story. In the 2008-2010 period, the ratio ranged between 3.3x and 6.4x, after which the range was mostly between 0.7x to 1.8x. If we are back in a realty upcycle, comparing the ratio to earlier boom phases may be more appropriate.

INVEST IN BUSINESSES

As Warren Buffett has long espoused, investing in stocks is akin to investing in businesses. So, while the above valuation data and insights may be useful to gauge the current relative attractiveness of certain sectors, these should not be taken as a guide to where you must put your money. Once you do your homework and decide to invest in a business, such relative valuations can merely aid you in timing your purchases. Similarly, market peaks are often a good time to get out of businesses you wish to exit.

Happy investing!

Elon Musk forms several ‘X Holdings’ companies to fund potential Twitter buyout

3 Mins Read

Thursday’s filing dispelled some doubts, though Musk still has work to do. He and his advisers will spend the coming days vetting potential investors for the equity portion of his offer, according to people familiar with the matter

KV Prasad Journo follow politics, process in Parliament and US Congress. Former Congressional APSA-Fulbright Fellow

Markets maintain buoyancy for the 9th consecutive day, with Banking pack leading the recovery but IT stocks drifting low

KV Prasad Jun 13, 2022, 06:35 AM IST (Published)

Listen to the Article (6 Minutes)

Markets reacted to innumerable news flows on Thursday with the Nifty opening tad lower in reaction to Wednesday post-market-hours data flow, on macro-economic statistics and India’s largest IT services player TCS announcing fourth quarter results. While inflation print for both US and India were better than expected, TCS disappointed the street with negative commentary on challenges in the North American markets which are expected to linger in the near term hinting at an uncertain outlook for FY24.

Alongside, FOMC latest meeting minutes prompted towards a recession this year owing to the ongoing banking crisis. “Given their assessment of the potential economic effects of the recent banking-sector developments, the staff’s projection at the time of the March meeting included a mild recession starting later this year, with a recovery over the subsequent two years,” the meeting summary said.

Nifty traded lower until noon and marked the low point of the day at 17,731. Post which, the index leaped nearly 100 points in remaining half of the session in response to AMFI’s strong mutual funds data for March and SIAM’s auto sales numbers for March and financial year 2023. Though Nifty ended the day tad higher with modest 15 points gain, it marked the ninth consecutive day of rise. The last instance of the Nifty ending higher was from 30^th September to 14^th October 2020 for ten sessions. The Nifty today touched a 7-week high.

A spike in COVID cases with over 10,000 new infections was a sentiment negative blow, while Commerce Ministry announcement nearly an hour before the market close on India exceeding export target of $750 billion in FY23, uplifted the market mood.

Among all indices, the banking pack maintained its buoyancy with Nifty PSU bank gaining 1.45 percent, followed by Nifty Realty. It is noteworthy that the Nifty Realty index has not witnessed a single session of fall in trade since the MPC’s meeting previous week to keep repo rate unchanged. The auto index ended less than half percent higher in reaction to SIAM’s March data sales which depict exports as a concern for the auto sector and entry-level segment continuing its suffering.

Nifty IT was the biggest loser of the day descending 2.2 percent with all 10 stocks ending in red. 4 of these IT stocks were among the top 5 Nifty 50 losers for the day. TCS witnessed selling pressure marking a humble fall of 1.53 percent. TCS’s outgoing CEO, Rajesh Gopinathan, in an interaction with CNBC-TV18 today morning said its constant currency growth of 0.6 percent was lower than expected 1.5 to 2 percent.

The NSE stays shut tomorrow on account of Ambedkar Jayanati, but investors shall wait for reaction on Monday, for Infosys results to be announced today post market closing.

Elon Musk forms several ‘X Holdings’ companies to fund potential Twitter buyout

3 Mins Read

Thursday’s filing dispelled some doubts, though Musk still has work to do. He and his advisers will spend the coming days vetting potential investors for the equity portion of his offer, according to people familiar with the matter

KV Prasad Journo follow politics, process in Parliament and US Congress. Former Congressional APSA-Fulbright Fellow