Summiting?
In this edition: Market attains new highs, Whats next?
During the past week, the stock market experienced another remarkable performance, with the Nifty index approaching the 20,000 mark and the Sensex surpassing 67,000 points for the first time. This surge was primarily driven by the favourable progress of the monsoon, satisfactory earnings from Indian companies, and consistent foreign investments, even in the face of mixed global trends. However, on Friday, there was some selling pressure as IT stocks declined following Infosys' reduced guidance for the rest of the fiscal year.
For the week, the BSE Sensex recorded a gain of 0.94%, or 623.36 points, closing at 66,684.26, while the Nifty50 rose by 0.92%, or 180.5 points, concluding at 19,745.
Throughout the week, both the Sensex and Nifty achieved new record highs, reaching 67,619.17 and 19,991.85 points, respectively. The BSE Large-cap and Mid-cap indices rose by 0.5% each, while the Small-cap index saw a gain of 1.3%.
Due to solid foreign investments (FIIs) and promising macroeconomic indicators, the domestic market saw a broad surge. Major companies like RIL and ITC unlocking their value also contributed to the positive performance of the main indices. Despite mixed signals from global markets, the Indian market remained largely unaffected due to the steady inflow of foreign investments and optimistic prospects for the Indian economy.
The bullish momentum faced a recent setback when Infosys issued weak guidance, causing concerns about the IT sector's outlook. However, the banking sector led the sectoral rally in anticipation of strong Q1 results. Globally, the US market struggled with weak earnings, making investors closely observe the upcoming FOMC meeting. While a 25-basis point rate hike is widely expected, investors are more interested in the committee's commentary on future rate actions to get clues about any potential future rate pause.
In terms of sectors, the Nifty PSU Bank, Nifty Media, Nifty Bank, and Nifty Pharma and Energy indices all recorded gains, while the Nifty IT index experienced a decline.
The equity markets displayed a consistent upward trend, setting several new all-time highs. The continuous influx of foreign investments and improved sentiment contributed to the positive outlook in the domestic equity markets. Positive factors such as strong ongoing earnings, strategic moves like the HDFC-HDFC Bank merger and Reliance demerger, indications of global inflation peaking out, and signs of a soft landing in the US economy collectively boosted the positive sentiment.
International Markets
Global markets this week were fairly optimistic due to the expectation of a pause in rate hikes by the US Federal Reserve. However, contradictory data and earnings results from the US caused some of that optimism to fade.
The US dollar rebounded from its 15-month low of 99.57 earlier in the week after an unexpected decrease in US jobless claims, indicating that the labour market remains robust and increasing expectations of rate hikes. However, housing data disappointed, as housing starts, building permits, and existing home sales all fell short of estimates in June.
Lower-than-expected UK inflation, dovish comments from the governor of the Bank of Japan (BOJ), and an official of the European Central Bank (ECB) all contributed to the dollar's recovery. ECB Governing Council member Klaas Knot suggested that monetary tightening beyond the upcoming meeting is not certain, hinting at a potential end to the current campaign of interest rate hikes. BOJ Governor Kazuo Ueda stated that the inflation target remains distant, signalling support for maintaining an ultra-loose monetary policy for the foreseeable future.
Most commodities experienced a decline from their higher levels observed last week due to the rebound in the US dollar. The declining value of the dollar, falling US Treasury yields, and escalating geopolitical tensions between Russia and Ukraine all had an impact on COMEX Gold, which rose to a six-week high of $1989.8 per troy ounce.
Similarly, Silver also saw an increase to $25.48 per troy ounce, supported by the anticipation of an earlier-than-expected peak in the fed funds rate. However, the recovery of the dollar above the resistance level of 101 resulted in a reversal of gains in precious metals. The gold-silver ratio, which is currently at a low of 79.40 as seen in May 2023, shows that silver seems more tempting in terms of price action than gold.
Crude oil prices are on track for their fourth consecutive weekly increase due to indications of limited supply despite worries about demand. Over the four weeks leading up to July 16, Russia's seaborne crude flows dropped to their lowest level in six months. Additionally, stockpiles at the storage hub in Cushing, Oklahoma, decreased by the largest amount since October 2021. Alongside this, Saudi Arabia's decision to cut production has contributed to the support of WTI prices, which are currently holding above $76 per barrel.
Traders are gearing up for a significant week ahead, with major central bank meetings scheduled. While it is widely anticipated that the Federal Reserve will announce a 25 basis point rate hike, the markets will closely monitor the US Advanced GDP and Core PCE data to better understand the monetary policy outlook and set expectations for the September meeting. Furthermore, the flash manufacturing PMI reports from the EU, UK, and US will provide early insights into factory activity in July.
Of utmost importance is the anticipation of additional stimulus measures from China's politburo meeting, which is scheduled for the end of July. Recent data releases have raised concerns about China's ability to achieve its 2023 growth target of 5 percent, which is already the lowest in decades. Market participants are closely observing this meeting for any potential measures to bolster the Chinese economy.
Market Movers
1. Global investors tell Modi that his plans to pump in $4 billion are at risk due to gaming tax
A group of 30 foreign and domestic investors, including Tiger Global, Peak XV, and Steadview Capital, have written a letter to Indian Prime Minister Narendra Modi, urging him to reconsider a recently imposed 28% gaming tax. The investors argue that this tax could have a negative impact on potential investments amounting to $4 billion in the gaming sector. The tax, which was introduced last week, is levied on the money that online gambling companies get from their clients. Games like fantasy cricket have gained popularity in India, but concerns about addiction among players have also arisen.
The letter expresses the investors' shock and disappointment regarding the tax decision, stating that it could significantly reduce investor confidence in supporting the growth of the gaming sector within the Indian tech ecosystem. The investors contend that the tax move will adversely affect potential investments in the gaming industry over the next 3–4 years.
Tiger Global and Peak XV, previously known as Sequoia Capital India, have invested in Indian gaming companies such as Dream11 and Mobile Premier League.
Despite industry pleas, the Indian government has asserted that many ministers in the government tax panel consider betting on online gaming platforms a "social evil," and there is no intention to further consult with the gaming industry on the matter.
2. India's rice-export curbs put contracts for 2 million tonnes at risk, dealers say
India's recent decision to ban exports of non-basmati white rice is expected to lead traders to cancel contracts for approximately 2 million metric tonnes of the commodity, valued at $1 billion, in the global market. The ban was imposed to stabilise domestic rice prices, which have reached multi-year highs due to unpredictable weather conditions affecting production.
Traders had anticipated potential export restrictions and secured letters of credit (LCs) in recent days. However, they did not expect the government to impose the ban so soon, as they were anticipating it to take effect in August or September. Consequently, traders are forced to use the force majeure clause to cancel their contracts, citing unexpected external circumstances that hinder their ability to fulfil obligations.
Around 2 million metric tonnes of rice, worth $1 billion, are at risk of being cancelled, according to four dealers. Beginning on July 20, the limitation will only allow ships that are already loading to continue with exports; forthcoming cargoes supported by LCs will not be permitted. Prior to the ban, India used to export approximately 500,000 metric tonnes of non-basmati white rice per month.
Around 200,000 metric tonnes of rice currently being loaded at various Indian ports will be permitted for export. However, the government is unlikely to grant exemptions for exporters with valid LCs to ship out their cargo.
Some exporters had purchased rice at higher prices as global buyers rushed to secure supplies, offering a premium. With the ban in place, prices are expected to decline, and traders may incur losses. Global prices may rise due to India's export ban, while local rates are likely to drop.
Major importers of Indian non-basmati rice include Benin, Senegal, Ivory Coast, Togo, Guinea, Bangladesh, and Nepal. Over 3 billion people consume rice as a staple food, and Asia produces the majority of this water-intensive crop, which is susceptible to El Nino weather patterns that cause less rainfall.
3. India aims to trade electricity with Southeast Asia
India is exploring the possibility of trading power with Southeast Asian countries through grid linkages passing through Myanmar and Thailand. The move comes as India aims to leverage its growing renewable energy capacity to enhance its diplomatic engagement with the region. The power trading initiative is part of India's efforts to strengthen political and economic ties with neighbouring countries and counter China's increasing regional influence.
The grid linkages, which may take around four years to complete, are similar to India's ongoing efforts to trade power with Middle Eastern nations, such as the United Arab Emirates. Indian energy officials are currently discussing regional power grid interconnections with some countries at the Group of 20 (G20) ministerial meetings in the state of Goa.
India has appointed France's EDF to develop a regulatory framework to address key challenges, including pricing, and is expected to receive the report by the end of this year. While cross-border grid linkages have drawn interest and investment in various regions, the cost of building subsea cables and geopolitical tensions pose potential challenges to the viability of such projects.
Members of the Association of Southeast Asian Nations (ASEAN) have been attempting to establish a regional grid for decades, but progress has been limited to bilateral deals between countries. India aims to increase its renewable and hydropower capacity to 500 gigawatts by 2030, and solar parks are expected to contribute significantly to this expansion.
The integration of renewable energy across the region would be facilitated by both undersea and on-land interconnections and the pooling of resources. This initiative would enable India to significantly increase power exports to countries like Myanmar, Bangladesh, Nepal, and Bhutan while also reducing fossil fuel dependence by providing solar power for longer periods. However, challenges such as transmission charges on interconnected power supplies need to be addressed for the success of the project.
Research?
Grey Markets
A grey Market, also known as a parallel market, refers to an unofficial trading platform for stocks and applications. Here, investors engage in the buying and selling of shares or applications before they are officially available for trading on the stock exchange. The trading of grey market stocks in India is conducted in cash and through in-person transactions without the involvement of third-party entities such as Stock Exchanges or SEBI. In the Initial Public Offering (IPO) of Grey Market, two prominent terms are Kostak and Grey Market Premium.
Grey markets operate on the principles of demand and supply, allowing traders and retail investors to purchase shares before they are officially listed. If someone wishes to exit their IPO investment for any reason, the grey market provides an avenue for doing so. Additionally, individuals can still buy IPO shares even after the official deadline has passed.
Before a company gets listed, it can engage in trading its stocks and applications in the grey market. These markets also offer underwriters a chance to assess the company's performance and trajectory after its listing.
Grey market stock refers to a situation where a company's shares are informally offered and bid on by traders. When a company presents its stock through traders before the shares are officially issued in an Initial Public Offering (IPO), it falls under the category of Grey Market Stock.
Typically, a small group of individuals oversees the grey market stock, and transactions are based on mutual trust among them. Trading grey market stocks in India is legal but unofficial. It's important to note that the trades executed in this market cannot be settled until official trading officially begins.
How are IPO Shares traded in the Grey Market?
The process of trading IPO shares in the grey market involves the following steps:
Investors apply for shares through the IPO, which carries a financial risk as the shares may be allocated below the issue price. These individuals are known as sellers.
Some individuals believe the shares' value will be higher than the issue price. They acquire these shares before the IPO allotment process, and they are referred to as buyers.
Buyers express their interest in purchasing IPO shares by placing orders with grey market dealers at a specified premium.
The dealer contacts the sellers who have applied for the IPO and offers to buy their shares at a premium in the grey market.
Sellers, who may not want to face the risk of stock market listing, have the option to sell their IPO shares to the grey market dealer at a predetermined amount.
After receiving the application details, the dealer notifies the buyer about the shares they have purchased.
If the shares are allocated to the seller, they have the choice to sell them at a specific price or transfer them to the buyer's Demat account.
The deal will be cancelled automatically if no shares are allocated to the seller.
Motabhai ni Moti Vaato
During the week ending on July 21, the market continued its upward trend for the fourth consecutive week, except for a 1 percent dip on Friday due to disappointing guidance from Infosys and HUL's quarterly earnings report. Despite this, several factors contributed to the positive sentiment throughout the week, including the unlocking of value by heavyweight Reliance Industries, consistent investments from foreign investors, encouraging domestic macroeconomic data, and optimism surrounding Q1 results in the banking sector.
Both benchmark indices, the BSE Sensex and Nifty, reached record closing highs for the week, although the Nifty fell short of the 20,000 mark. The BSE Sensex saw a significant rally of over 600 points, closing at 66,684, while the Nifty50 surged 180 points to 19,745. Additionally, the Nifty Midcap 100 index rose by 0.7 percent, and the Smallcap 100 index saw an increase of 1.8 percent.
Strong performance in industries like banking and financial services, energy, infrastructure, oil and gas, and pharmaceuticals helped the market. However, gains were limited due to selling pressure in technology stocks.
The market's initial response on Monday will be determined by the quarterly profit reports released on Friday and Saturday by Reliance Industries, ICICI Bank, and Kotak Mahindra Bank. Throughout the week, the market is expected to undergo some consolidation ahead of the outcome of the FOMC meeting, and will closely observe ongoing earnings releases. Despite this, the overall trend remains positive, supported by the performance of banks and strong foreign institutional investments. The monthly F&O expiration next week may contribute to market volatility.
The focus on the domestic front will mainly be on the quarterly earnings of various companies, as a significant number of announcements are expected. Around 380 companies, including prominent names like Larsen & Toubro, Tata Motors, Tata Steel, Axis Bank, Bajaj Finance, Asian Paints, Dr. Reddy's Laboratories, and many others, will release their quarterly results in the upcoming week.
A critical market-moving event will be the interest rate decision by the US Federal Reserve on July 26. Most global experts anticipate a 25 basis point increase in the Fed funds rate during the July policy meeting, followed by a pause. This move comes as inflation in the US dipped to 3% in June, down from 4% the previous month, though the decline was partly influenced by high base effects. Core inflation also saw a notable decline to 4.8%.
The equity markets received significant support from Foreign Institutional Investors (FIIs), who infused over Rs 3,100 crore in the cash segment during the past week. This buying activity has been consistent, with a total of Rs 17,700 crore invested in July so far, marking the fifth consecutive month of buying. If this buying trend continues, despite occasional profit-taking, it is likely to provide substantial support to the market in the future, according to experts.
On the other hand, domestic institutional investors opted to book profits, selling nearly Rs 800 crore worth of shares during the same week.
Oil prices have been on a four-week rally, with Brent crude oil futures reaching $81 a barrel on Friday. India, being a net oil importer, closely watches these price movements. International factors, such as a decline in Russia's crude flows and production cuts by Saudi Arabia, have contributed to the increase in oil prices.
China's stimulus measures to boost its economy and rising oil imports have positively influenced investor sentiment. However, experts express concerns about the potential impact of a softening macroeconomic environment in Europe and the US on the global economic recovery.
Various domestic economic data points, including foreign exchange reserves for the week ending July 21, infrastructure output for June, and bank loan and deposit growth for the fortnight ending July 14, are scheduled to be released on July 28.
In the foreign exchange market, India's reserves have crossed $600 billion once again after several months. Forex reserves reached $609.02 billion in the week ending July 14, with a significant increase of $12.74 billion compared to the previous week, primarily due to a surge in foreign currency assets, a major component of the reserves.
Next week, Dalal Street is set to witness the launch of five public issues amounting to Rs 857 crore, in addition to three company listings. In the mainboard segment, Yatharth Hospital and Trauma Care Services, a Noida-based hospital chain, will initiate its Rs 687 crore public issue on July 26. The price band for the shares will be Rs 285–300 per share, and the offer will conclude on July 28.
Netweb Technologies India, a provider of high-end computing solutions, will make its much-anticipated debut on the stock exchange on July 27. Its shares were reportedly available in the grey market at a 75 percent premium over the expected final issue price of Rs 500 per share, as per analysts who chose to remain anonymous.
In the SME segment, Chennai-based jewellery products maker Khazanchi Jewellers will be the first to open its IPO for subscription on July 24, with an issue price of Rs 140 per share. The Rs 97 crore offer will close on July 28.
Yasons Chemex Care, a dye manufacturer, will also launch its Rs 20.57-crore initial public offering on July 24, with the last day for subscription being July 26.
Shri Techtex will open its Rs 45-crore IPO for subscription from July 26 to July 28, with a price band of Rs 54–61 per share. Additionally, Innovatus Entertainment Networks, a direct marketing solution provider, will begin its public issue on July 25, aiming to raise Rs 7.74 crore. The offer will close on July 27, and the issue price is set at Rs. 50 per share.
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Motabhai.
Awesome Motabhai indepth analysis of the week gone by
Here there everywhere Keep up the good work Jai Ho