Roll Town Road
In this edition: Who blinks first?, The market rebounds, a few earnings and Moti Vaato to end it
The market rebounded from last week's decline and reached its highest level in five months, despite fluctuations in global markets. This was due to concerns surrounding the ongoing US debt ceiling negotiations, but the market found support from institutional investors, improved earnings, and the anticipation of a favorable monsoon season.
The BSE Sensex witnessed a significant surge of 772.01 points, or 1.25%, during the week, closing at 62,501.69, while the Nifty50 showed a gain of 295.9 points, or 1.62%, to reach a closing of 18,499.30. The BSE Mid-cap Index experienced a rise of 2.5%, and the BSE Small-cap Index increased by 1.4%. All sectoral indices concluded the week on a positive note. The Nifty Metal index recorded a substantial growth of 5.6%, the Pharma index rose by 4%, the Nifty Media index gained 3.8%, and both the Nifty Healthcare index and the Nifty Information Technology index saw increases of 3.8% and 3.7%, respectively.
During the week, foreign institutional investors (FIIs) made equity purchases amounting to Rs 3,230.49 crore, while domestic institutional investors (DIIs) bought equities worth Rs 3,482.21 crore. However, in the month so far, FIIs bought equities worth Rs 20,606.80 crore, while DIIs sold equities worth Rs 1,192.47 crore. The rupee closed at 82.57 against the dollar on May 26, marking a 9-paise increase from its May 19 closing of 82.66.
International Markets
On Friday, US stocks surged significantly as discussions on raising the US debt ceiling showed progress, while chip stocks experienced a second consecutive day of strong gains fueled by optimism surrounding artificial intelligence (AI).
Following multiple rounds of negotiations, US President Joe Biden and top congressional Republican Kevin McCarthy were nearing an agreement to raise the government's debt limit, currently standing at $31.4 trillion, for a duration of two years. The deal also included placing a cap on spending on most items, according to a US official cited by Reuters.
The Dow Jones Industrial Average put an end to a five-day streak of losses, while the Nasdaq Composite Index and S&P 500 closed at their highest levels since August 2022. The S&P 500 even surpassed the 4,200-point mark.
The Philadelphia Semiconductor Index surged by 6.3%, marking a gain of over 13% in the past two trading sessions. Capitalizing on the prevailing enthusiasm surrounding AI, Marvell Technology Inc. soared by 32% after announcing its intention to double its annual revenue derived from AI.
Investors closely monitored the progress of the debt ceiling talks as Biden and McCarthy still had unresolved disagreements on various issues heading into the extended weekend, with the US stock market closed on Monday in observance of the Memorial Day holiday.
The S&P 500 index advanced by 1.30%, closing at 4,205.45 points.
The Nasdaq composite index gained 2.19% and finished at 12,975.69 points, while the Dow Jones Industrial Average rose by 1.00% to reach 33,093.34 points.
Among the 11 sector indexes of the S&P 500, eight saw increases, with the information technology sector leading the gains with a rise of 2.68%, followed by a 2.38% gain in consumer discretionary.
Trading volume on US exchanges was relatively lower, with 9.8 billion shares traded compared to an average of 10.5 billion shares over the previous 20 trading sessions.
For the week, the S&P 500 recorded a 0.3% increase, while the Dow experienced a 1.0% decline and the Nasdaq saw a significant jump of 2.5%.
Data indicated that US consumer spending in April surpassed expectations and there was an increase in inflation, which could prompt the Federal Reserve to consider raising interest rates once again in the upcoming month.
Market Movers
1. RBI May Cancel Licence Of ARCS After Income Tax Report
The Reserve Bank of India (RBI) is considering the cancellation of licenses for several asset reconstruction companies (ARCs) that have received show-cause notices.
Media reports state that the RBI had previously issued show cause notices to select asset reconstruction companies, questioning why their licenses should not be revoked.
The RBI is contemplating revoking the licenses of four specific ARCs: Omkara Asset Reconstruction Pvt Ltd, Rare Asset Reconstruction Pvt Ltd, CFM Asset Reconstruction Pvt Ltd, and Invent ARC Pvt Ltd.
These potential license cancellations come after the RBI conducted a special audit following income tax department raids on the premises of these ARCs in 2021.
During the income tax department's search and seizure operations in December 2021, it discovered a connection between the borrower group and the ARCs, as well as the use of shell or dummy companies to acquire non-performing assets (NPAs), as reported in the media.
2. Domestic Steel Demand To Grow 7.5% In FY24
The Indian Steel Association (ISA) is optimistic about steel demand and expects it to grow by 7.5% to reach 128.85 million metric tons (MT) in the current financial year.
The ISA attributes the increased steel demand in FY23 to higher production and domestic demand, which resulted in a growth of approximately 13.3% to 119.86 MT.
The association predicts that with the strong momentum in infrastructure spending and sustainable growth in urban consumption, steel demand in India will continue to expand by 8–9 MT annually. The next two financial years are considered crucial, and the ISA anticipates a 6.3% expansion in FY 2024–2025, reaching 136.97 MT.
The ISA's forecast takes into account the demand from various steel-using sub-sectors. The association expects all sub-sectors to grow at 6% or above in both FY 2024 and FY 2025.
Highlighting the strong correlation between steel demand and GDP growth, the ISA emphasizes that despite the gloomy global economic environment, the steel industry in India remains a bright spot. India's GDP grew by 9.1% in FY 2021–2022, is projected to grow by 7% in FY 2022–2023, and is forecast to grow by 6.4% in FY 2023–2024, according to the steel association.
3. RBI May Lower Interest Rates Before End Of Fiscal Year
There are hints that the Reserve Bank of India (RBI) is likely to reduce interest rates towards the end of the financial year, despite inflation moderating. Although overall inflation has decreased, core inflation remains somewhat elevated. He believes that the RBI may wait for a longer period before implementing a rate cut, possibly considering it towards the end of the fiscal year.
In the previous financial year, the RBI raised its key policy rate by 250 basis points (bps), but surprised the markets by pausing in April instead of an expected 25 bps hike.
India's retail inflation reached an 18-month low of 4.7% in April, and the May reading is anticipated to further ease to around 4.2%.
The central bank's mandate is to bring down inflation to 4% over the medium term, but it maintains a range of 2% to 6% for inflation at all times. However, retail inflation remained above 6% for most of the previous year. Additionally, the Indian rupee is currently facing downward pressure.
Research?
Is there ever a good time to buy stock?
Determining the "correct" time to buy a stock is a challenging task and is subject to various factors and individual circumstances. While it is not possible to predict the exact bottom or peak of a stock's price, there are strategies and considerations that can help inform your investment decisions. Here are a few points to keep in mind:
Fundamental Analysis: Conduct thorough research on the company whose stock you are interested in. Assess its financial health, growth prospects, competitive position, and industry trends. This analysis will provide insights into the stock's intrinsic value and help you make an informed decision.
Long-Term Perspective: Instead of attempting to time the market, focus on long-term investing. The stock market tends to fluctuate in the short term, but historically, it has shown an upward trajectory over extended periods. By investing for the long term, you can potentially benefit from the market's overall growth.
Rupee-Cost Averaging: Rather than investing a lump sum at once, consider implementing a strategy called rupee-cost averaging. With this approach, you invest a fixed amount of money at regular intervals (e.g., monthly or quarterly), regardless of the stock's price. This strategy can help mitigate the impact of short-term market volatility.
Market Conditions: Keep track of general market conditions and investor sentiment. Economic indicators, company earnings reports, geopolitical events, and other factors can influence stock prices. While you cannot predict these events with certainty, staying informed can help you make more informed decisions.
Risk Tolerance and Diversification: Consider your risk tolerance and diversify your portfolio. Investing in a mix of stocks across different industries and geographical regions can help spread your risk. It is essential to choose investments that align with your risk tolerance and financial goals.
Remember, the stock market involves risks, and prices can be influenced by multiple factors, including market sentiment, economic conditions, and unforeseen events. It is crucial to consult with a financial advisor or conduct thorough research before making any investment decisions.
How to “time” the market
Timing the market refers to attempting to buy or sell stocks based on predictions about future price movements. However, it is important to note that successfully timing the market consistently and accurately is extremely challenging, if not impossible, for most investors. Even professional investors and financial experts struggle with market timing.
Here are a few reasons why market timing is difficult:
Unpredictability: The stock market is influenced by a wide range of factors, including economic conditions, geopolitical events, company news, investor sentiment, and more. Predicting how these factors will interact and impact stock prices accurately is challenging.
Emotional Bias: Emotions, such as fear and greed, can cloud judgment and lead to irrational investment decisions. Market timing often involves making quick decisions based on short-term fluctuations, which can be influenced by emotional biases.
Information Dissemination: News and information affecting stock prices spread rapidly in today's interconnected world. By the time individual investors receive and process the information, it may already be reflected in the stock price.
Transaction Costs and Taxes: Frequent buying and selling of stocks can lead to increased transaction costs, such as brokerage fees, and potential tax implications. These costs can eat into investment returns, especially if market timing attempts result in frequent trading.
Instead of focusing on market timing, many experts recommend adopting a long-term investment strategy based on fundamental analysis and diversification. By investing in a diversified portfolio of high-quality companies with solid growth prospects and holding investments for the long term, you can potentially benefit from the market's historical upward trajectory.
Additionally, strategies like rupee-cost averaging, as mentioned earlier, can help mitigate the impact of short-term market volatility and reduce the emphasis on market timing.
It's important to note that market timing requires making predictions about the future, which is inherently uncertain. It is generally recommended to consult with a financial advisor or do thorough research before making any investment decisions.
Motabhai ni Moti Vaato
Last week, after a period of consolidation, the benchmark indices closed in positive territory on Friday. The market started strongly but traded within a range throughout the week, influenced by mixed global cues. However, a strong recovery in the final session changed market sentiment.
The Nifty index successfully surpassed the resistance level at 18,400 and settled near the week's high of 18,499.35, while the Sensex closed the week at 62,501.69. The recovery was broad-based, with sectors like metals, pharmaceuticals, and IT leading the way.
In the coming week, the focus will be on earnings announcements, particularly in the small and midcap segments, as more than 1,700 companies are set to disclose their quarterly results. Additionally, market movements will be influenced by data on auto sales, GDP growth rate, and PMI from a macro perspective.
The performance of US markets following the White House's agreement with Republicans to avoid a debt ceiling crisis will also play a significant role in guiding global markets.
As we approach the final week of the earnings season, more than 1,700 companies are expected to announce their quarterly results by June 4. While most of these companies belong to the small-cap segment, there are also a few major names among them.
Traders will closely monitor the auto sales numbers for May, which will be disclosed by companies starting June 1. The Indian auto industry has experienced sluggish volume growth in the domestic market over the past few months, while the export market has remained weak.
This week, India will reveal its GDP growth data for the quarter and fiscal year ending in March. Analysts predict that the country's GDP growth for FY23 will exceed the previously projected rate of 7 percent, which would improve the overall economic outlook. If this occurs, it may have a positive impact on the market.
US President Joe Biden and top congressional Republican Kevin McCarthy have reached a preliminary agreement to raise the US federal government's debt ceiling of $31.4 trillion, ending a prolonged deadlock. This deal would prevent a potentially destabilizing default, but it needs to be passed through Congress before the Treasury Department runs out of funds to cover its obligations by June 5. Failure to pass the deal would have significant negative consequences for the market.
Market participants will also pay attention to the manufacturing Purchasing Managers' Index (PMI) data for May, which will provide insights into the demand situation at the factory level. The PMI is expected to show a positive reading but may be lower than the previous month.
India will release infrastructure output data for April on May 31, while foreign exchange reserves for the week ending May 26 and bank loan and deposit growth for the fortnight ending May 19 will be disclosed on June 2.
Foreign investors have shown bullishness in the Indian market this month, boosting sentiment on Dalal Street. They purchased equities worth Rs 37,317 crore during May and have been net buyers for the past three months.
Word Wise
Asset Reconstruction Company (ARC)
An Asset Reconstruction Company (ARC) is a specialized financial institution that plays a crucial role in the resolution of non-performing assets (NPAs) or distressed assets. Its primary objective is to acquire and resolve NPAs from banks and other financial institutions. These NPAs are typically loans or other financial assets that have turned into bad debts due to default or non-payment by borrowers.
The functioning of an Asset Reconstruction Company involves the following key activities:
Acquisition of Distressed Assets: ARCs acquire NPAs from banks and financial institutions at a discounted price. The acquired assets can include loans, mortgages, corporate debt, or any other form of distressed debt.
Resolution and Restructuring: Once the ARCs acquire these distressed assets, they undertake efforts to resolve and restructure them. They employ various strategies, such as debt restructuring, rescheduling of repayments, refinancing, or selling the assets to interested buyers.
Asset Management: ARCs manage the acquired assets to maximize their value. They may work towards reviving the business of the defaulting borrower, recovering dues through legal means, or liquidating assets to generate cash flows.
Securitization: ARCs may securitize the acquired assets, which involves packaging them into tradable securities or bonds. These securities are then sold to investors, enabling ARCs to raise funds for further acquisitions.
Debt Recovery: Asset Reconstruction Companies employ debt recovery mechanisms to recover the outstanding amounts from defaulting borrowers. They may resort to legal action, negotiation, or settlement to achieve debt recovery.
Capital Infusion: ARCs can raise capital from various sources, including banks, financial institutions, private equity funds, and individual investors. The funds raised are used to acquire distressed assets and support their resolution.
ARCs play a significant role in the banking and financial sector by helping to reduce the burden of NPAs on banks, improving their financial health, and facilitating the efficient allocation of capital. They contribute to the overall stability of the financial system by resolving distressed assets and providing an avenue for investors to participate in the distressed debt market.
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Motabhai.
Awesome as always