- In a significant move, SEBI has signaled tougher rules for futures & options. For starters, SEBI plans to prescribe stricter norms for inclusion of stocks in the F&O list. Today, a number of the F&O stocks have relatively low and concentrated liquidity in cash markets. SEBI also wants to put restraints on trading in stock futures and stock options, which is a bulk of retail participation in F&O. Currently, about 182 stocks are permitted to trade in derivatives segment, bit the list itself has not been reviewed for last two years.
- Ending days of uncertainty, Narendra Modi returned to power for the third term, as part of the Modi 3.0 government. Only Jawaharlal Nehru in the past managed 3 terms in a row. Apart from swearing in as the prime minister, a 72-member cabinet was also sworn in on Sunday. Of the 72 berths, 11 were allocated to the allies of the BJP and 61 berths were allocated to BJP winners. As BJP has already underlined, it will retain the key portfolios like Defence, Home, Finance, and Commerce. Of these, 30 will be of cabinet rank.
- Foreign portfolio investors (FPIs) took out Rs14,800 crore in the first week of June 2024; on concerns over steep valuations in the Indian markets and the relative attractiveness of Chinese markets. For FY24, Nifty EPS was at Rs1,005, which discounts the current Nifty at around 23 times earnings, but a quite attractive if you factor in FY25 and FY26 projections of Nifty EPS. This week could be a lot more decisive for flows with the NDA government being sworn in. The next trigger will be the major economic announcements and the full budget in July 2024.
- In line with the revised CDS framework issued by the RBI, SEBI may look to open the CDS market for mutual funds in India. Credit Default Swaps (CDS) were quite popular in the US and also partially instrumental in exacerbating the global financial crisis of 2008. However, CDS also offers a good channel to manage the default risk. This will also help deepen the corporate bond market. In the CDS market, investors can swap the credit risk in their portfolios with another party for a cost. It will be useful for sub-AA rated portfolios, where liquidity is quite low now
- With inflation continuing to be sticky and RBI language very cautious, economists are expecting that the first-rate cuts by RBI may not happen before December 2024. Ahead of the monsoons and the Kharif data coming in, the RBI opted to maintain inflation expectations for FY25 at 4.5%, while GDP growth estimates for FY25 were raised by 20 bps to 7.2%. The RBI may wait for the full budget to be announced before evaluating rate cuts. Repo rates are 135 bps above pre-COVID rates with real rates above 2%.
- Rosneft believes that India’s end-use energy consumption will grow by 90% from the current levels by the year 2050. One of the reason the OPEC output cuts have had little impact on crude prices is that the US and Asian economies have already built huge cache of oil inventories, which has helped stabilize prices. Rosneft pointed out that even amidst the shift to renewable energy sources, the demand for coal and crude oil had been rising. Russia emerged as the largest oil supplier of crude to India, post the Ukraine war.
- Inox Air Products plans to substantially expand its green hydrogen business. It will complete its capex target of Rs3,000 crore this year and will then invest Rs1,000 crore each year. Inox Air has recently signed a 20-year agreement for green hydrogen with Asahi India Glass of Japan. It will be commissioning the green project in 3 months. Inox Air has also signed a $3 billion agreement with Maharashtra government for setting up a green ammonia plant in the next 5 years. This will be exported to Japan, Korea, and Europe, as demand in these countries is fairly elevated.
- Despite the warnings of health hazards, energy drinks are emerging as the new colas. For example, a 250 mg can of Sting contains nearly 72 mg of caffeine, which is a short-term energy booster, but also has negative health implications. To counter Pepsi’s Sting, Coca Cola has also launched charged up Thums-Up to take on the energy drinks market. The energy drinks market is estimated at Rs3,500 crore and is growing at 55% annually. For now, the health regulations are fluid and product is in the grey health area, so that remains an open risk here.
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