Stock Market Investment Shot, 25th July 2023

Stock Market

SEBI is currently working on an ambitious plan to settle secondary market trades on a real time basis. It may be recollected that only in February 2023, Indian equity markets had shifted from T+2 to T+1 rolling settlements. In the interim, the regulator also shortened the IPO cycle to list 3 days after closure of IPO, against the current 6 days. The regulator believes that with the current banking and clearing infrastructure it would be possible to undertake such an ambitious move. It is also moving mutual funds to T+1 mode.

It has been a long winter for start-up funding in India. For the first half of 2023 ended June, fintech start-up funding fell by 67% to $1.4 billion. According to a report by Tracxn, in the same period of 2022, start-up funding for Fintechs was to the tune of $4.3 billion. Incidentally, it is the early seed stage funding deals that have largely dried up in the current year with VCs and PE funds getting more cautious about the story. However, it must be noted that it was the Fintech sector that still contributed to 84% of start-up funding.

After the initial scepticism, the volumes on GIFT Nifty are picking up steam. It may be recollected that the GIFT Nifty was originally traded as SGX Nifty on the Singapore Exchange. On Monday July 24, 2023, the derivative volumes on the GIFT Nifty touched a record level of $8.5 billion with a total of 214,000 contracts traded. The number of traded contracts has grown nearly 5-fold to 6-fold in the last couple of week since the launch as global traders get more comfortable with the new market and the new settlement system.

The decision by ITC to demerge its  hotels business is expected to be value accretive. While the board has given its in-principle approval, for the demerger, the approval of the shareholders and lenders is still to be taken up. The move is expected to improve the ROCE of ITC by 20%, since hotels is an extremely capital intensive business. Once demerged, it will be the second largest hotel chain in India. As per the proposal, ITC will hold 40% in ITC Hotels, while current shareholders of ITC will hold other 60% in their holding ratios.

Even as the Sensex struggles to break above the 67,000 mark, it is the Sensex TRI index that has already gone above the 100,000 mark. The TRI (total returns index), in contrast to the price index like Sensex, also factors in the dividend income as part of the yield. For example, in the last 10 years, the Sensex has delivered CAGR returns of 12.8%, while the Sensex TRI has delivered returns of 14.3%. The difference is explained by dividends. If the TRI CAGR is factored into the Sensex Calculations, Sensex crossed 100,000.

The US Federal Open Markets Committee meets on July 25 and July 26 with the policy statement expected late on July 26. A 25 bps rate hike is almost on the cards, but it is the language of the Fed and the Fed Chair that is going to be of real interest. While the FOMC members have been hinting at a minimum of 2 more rate hikes this year, the markets have been quite emphatic that July could be the last rate hike and the Fed could call a halt after that. With consumer inflation already at 3%, that is a risk the Fed can afford.

Tata Steel saw its Q1FY24 profits fall by 91.84% to Rs634 crore as the European business took a sharp hit in the quarter. Even total revenues for the quarter fell by 6.2% to Rs59,490 crore. However, the revenues, EBITDA and the net profits are better than the Bloomberg consensus estimates. The hit on profits was on account of non-cash deferred tax charge under the British Pension Scheme. This hit de-risks Tata Steel from further liability in Tata Steel UK. While global steel demand was hit, domestic demand was robust.

Bandhan Bank appears to be a on a buying spree. After buying the mutual funds business of IDFC AMC, Bandhan Bank has now finalized plans to foray into life insurance through the purchase of Aegon Life. This is subject to the necessary regulatory approvals. It will buy the stake from Aegon India and BCCL. Aegon did not really scale up its business and its new business premiums stood at a mere Rs11.45 crore in last fiscal year. This deal will expand the portfolio of Bandhan Group, while Aegon gets a bigger balance sheet.

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