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Come the 18th of September, you'll find most newspapers and TV channels strutting to cover the impact of the Fed's potential rate change on Indian stock markets. Policymakers there have held the central bank's interest stable since July last year, within the range of 5.25% to 5.5%, to dash down inflationary pressures gripping the US economy. <br /><br />This much criticised wait-and-watch approach, after the Fed held the rates stable in its most recent meeting in July, seems to be yielding some fruits now. US consumer price index (CPI) slowed down to 2.5% in August, down from 2.9% in July. With inflationary pressures approaching the 2% target mandated by Fed, experts were hoping of a 50-basis point reduction in interest rates this time.<br /><br />However, employment data released by the US Bureau of Labor Statistics this month painted a less than rosy picture. Little has changed in August for unemployment rates and numbers, which stood at 4.2% and 7.1 million respectively. If anything, the numbers were elevated from year-ago period, when jobless rate was 3.8% and the number of unemployed people stood at 6.3 million. <br /><br />Experts now believe a 25-basis point reduction in interest rates is imminent, since some positive changes were seen on the employment front. The total number of nonfarm payroll employment jumped by 1,42,000 in August, but still stayed well below the average monthly gain of 2,02,000<br /><br />Says Raj Patel, CMO at MintCFD, a trading platform, "A 25 bps could show muted results from the market, however, a major rate cut in the magnitude of 50 bps could generate negative reactions, since it might show that the Fed is signaling major concerns about the economic outbreak. Indicators such as the retail sales, consumer confidence index, and services PMI are on a positive note. The Fed is focusing more on employment as the average US unemployment rate over the last three months, up to July, has increased by 0.5% as compared to the lowest point in the past year". <br /><br />But why are Indian markets always so jittery about interest rate changes in the US? And should you be worried? We decode it for you. <br /><br /><strong>Rate hike and cuts impacts foreign investments<br /></strong>Generally, large institutional investors borrow funds from the US and other developed economies, and invest in India, China and other emerging countries, anticipating economic growth, and hence, potential for increased returns in the times to come. This influx of funds is crucial for growing countries, since they use it to develop their infrastructure, which will in turn, bolster their economic growth. <br /><br />The cost of raising funds from countries like US is relatively cheaper, given the interest rates here are not very high. On the other hand, borrowing costs in emerging countries like India are higher. At present, India's repo, or borrowing rate, at which banks borrow funds from RBI, stands at 6.5%. <br /><br />While this may seem like a trivial difference, it decides the fate of trillions of dollars of investments. Even a 25-basis point hike or cut could bring about a significant difference when such huge sums are involved. <br /><br />So, when Fed decides to hold the interest rate stable, or hike the same, it makes borrowing to invest in international markets expensive for investors. At the same time, it makes investing in US treasury bonds more lucrative and economically favorable, since investors are set to earn higher returns from them. As a result, investors rush to withdraw their money from other economies, and invest it in their own country i.e. the US.  <br /><br />For instance, in January 2024, Fed decides to keep the interest rate stable between the range of 5.25% to 5.5%. As a result, Indian markets saw an outflux of foreign investment that month, with investors withdrawing Rs 6,593 crores from markets. <br /><br />Between March 2022 and July 2023, the Fed hiked interest rates about 11 times. As a result, during FY23, foreign investors remained net sellers, liquidating Rs 40,936 crore from Indian markets. <br /><br />When Fed decides to slash rates, which makes borrowing cheaper, investors are encouraged to raise more funds, and invest more heavily in developing countries. This anticipation of funds stimulate the stock markets in a positive manner, which is why it is beneficial situation for countries like India, which, eventually, see greater investments from US and other economies. China and India are generally seen as favorite destinations for investors.<br /><br />With the Chinese economy in doldrums at the moment, India can expect higher foreign direct investments (FDI) in the months to come. Just yesterday, China cut down interest rates on about $5 trillion worth of its outstanding loans, in a bid to spur consumption and borrowing in the economy.<br /><br />But do not expect any immediate boosts in the equity market, as many experts caution. There have been many instances in the past where rate cuts did not boost equities immediately. This is because rate cuts are not the sole factor driving investments. If the corporates report slowed earnings, or weak growth, investors are bound to be discouraged from investing in the country.<br /><br />Your best bet is to invest in sectors which have traditionally withstood market downturns, like insurance, telecoms and pharmaceuticals, and reduce exposure to sectors which are significantly affected by market cycles (think PSUs, auto, metals etc). <br /><meta content="cms.next" name="cmsei" />

With Fed rate cuts imminent, what can you expect from the Indian markets next week?

The Rs 6,560-crore initial public offer (IPO) of Bajaj Housing Finance, which opened for subscription yesterday, got fully subscribed within just hours. As of 3 pm today, the IPO was oversubscribed over 5.61x overall, with retail investors subscribing 3.55x. <br /><br />To put investor's enthusiasm regarding this IPO in perspective, with a day to go, the company has already received Rs 26,959.10 crore, as against its ask of about Rs 6,500 crore. The initial share sale, which will conclude on September 11, has a price band between Rs 66-70 per share. While the allotment is expected to be finalised by September 12, the listing on NSE and BSE will tentaively happen on September 16th, 2024. Retailers can invest a minimum of Rs 14,980, and a maximum of Rs 1,94,740 in the IPO. <br /><br /> This IPO is a combination of a fresh issue of equity shares of up to Rs 3,560 crore and an offer-for-sale (OFS) of equity shares to the tune of Rs 3,000 crore by parent Bajaj Finance. Notably, the share sale is being conducted to comply with the Reserve Bank of India's (RBI) regulations, which require upper-layer non-banking finance companies to be listed on stock exchanges by September 2025. Other names in the upper-layer NBFC list include LIC Housing Finance, Indiabulls Housing Finance, L&amp;T Finance and more.<br /><br />In the recent months, Aadhar Housing Finance and India Shelter Finance are two housing finance companies that have been listed on the stock exchanges. Proceeds from the fresh issue will be used to augment the company's capital base to meet future capital requirements. <br /><br />The HFC (housing finance company) has a legacy associated with it, and the name of Bajaj Finance, which is a leader in consumer durable lending behind it. However, as mentioned in the company's RHP, over 50% of the company's total AUM as of 2024 is concentrated in just 3 states-Maharashtra (32%), Karnataka (22.7%) and Telangana (14.8%). <br /><h2>Subscribe for the long-term <br /></h2>Master Capital Services advises investors to subscribe to this IPO, but only if you are willing to hold it for a medium to long-term. <br /><br />"Bajaj Housing Finance is the largest non-deposit-taking HFC (in terms of AUM) in India within seven years of commencing mortgage operation. The company’s Omni-channel sourcing strategy, strong geographic presence, and distribution reach enable it to acquire a large volume of customers every year and it plans to optimize its borrowing costs by diversifying its borrowing profile. Investors looking to invest can invest in the IPO for the medium to long term". <br /><br />As per InCred Equities, "at the upper band of Rs 70, the stock will be valued at ~3.2x its trailing Jun 2024 book value, which is expensive compared to peers like LIC Housing Finance or LIC HF (~1.2x), PNB Housing (~1.7x) &amp; Can Fin Homes (~2.7x). But this is in line with our expectation, given BHFL’s robust yet diversified AUM growth (+30% CAGR), sturdy asset quality (NPAs less than 1%) and superior technology platform. This makes the company attractive over the mid- to long-term horizon. We recommend subscription to the IPO". <br /><meta content="cms.next" name="cmsei" />

Bajaj Housing Finance IPO booked over 4x on the second day. Should you jump aboard this ship?

On the second day of the offer, Gala Precision Engineering's IPO was already oversubscribed by 43x in the retail investor's category and was fully subscribed to within minutes of opening yesterday. <br /><br />The precision component manufacturer's products, including disc and strip strings and special fastening solutions, have massive applications in renewable energy, infrastructure, hydropower, and railways. While the IPO closes for subscription tomorrow, the company, which was looking to raise Rs 167.93 crore, has so far already garnered Rs 6,119.45 crore. <br /><br />In case this euphoria happens to be your sole trigger to invest in Gala Precision's IPO, or you have a FOMO (fear of missing out) on a seemingly lucrative investment opportunity, its time to take a step back. A recent SEBI analysis of 144 mainboard IPOs which debuted on bourses between April 2021 and December 2023 notes that retail investors sold 54% of the shares they've been allotted within a week of the company's listing. Clearly, the focus is solely on earning short-term listing gains, and not on long-term wealth creation. <br /><br />Hence, before investing in this, or any IPO, it is important to assess the risks involved, and expert's view on the same. This will help you can decide whether any new company's IPO is a no-go, a short-term or long-term investment opportunity. We decode the risks associated with Gala Precision, and what experts anticipate from this IPO for you.<br /><br /><b>Concentration of customers, suppliers <br /></b>While the company supplies its technical springs and high tensile fasteners to Germany, Italy, Brazil, USA and more, Gala Precision does not have any exclusive or long-term arrangement with any of its suppliers. At present, the company procures raw materials from around 79 suppliers, from which the company purchases products. Moreover, it has a high dependency on its top 10 suppliers, which make up for more than 50% of its purchases during FY24. <br /><br />Gala Precision demonstrates a similar, heavy reliance on its customers as well. The company has a client base of about 175 clients spread across 25 countries. Notwithstanding a lack of formal, exclusive agreement with its customers, which means that the existing customers have no obligations to place fresh orders with them, its top 10 customers drove in 47.48% of the company's total revenue in FY24. The trend has largely remained even, with these customers steering in 41.86% and 45.48% of the company's total revenue in FY23 and FY22, respectively. <br /><br />Apart from this concentration in terms of suppliers and customers, the company also relies significantly on its spring technology business, which brought about 80% of Gala's total revenue in 2024. Naturally, any downturn or lack of demand for these products will have an adverse impact on the company's revenue. Between FY23 and FY24, the company's PAT (profit after tax) also dipped by about 8%, from Rs 24.21 crore in FY23 to Rs 22.33 crore in FY24. <br /><br />Gala Precision also has an ongoing patent infringement suite worth about Rs 2 crore. An adverse outcome here could impact the company's finances in future. Also, the company's contingent liabilities reserve are of Rs 9 crore, out of which around Rs 3 crore have been earmarked for disputed income tax demands, which could present themselves in the near future. <br /><br /><strong>Expert Opinion: Subscribe, but for the long term<br /></strong>Most experts, however, advise investors to approach the IPO from a medium to long term perspective, and not just for mere listing gains. Per Swastika Investmart, "the IPO's valuation aligns with industry benchmarks. Given current market trends and the increasing demand for precision components, GPEL is poised for a successful listing and sustained growth". <br /><br />According to Anand Rathi Research, "the company has a varied product portfolio across multiple markets and have <br />built enduring relationships with their customers. The company's P/E ratio is 30.0 times based on its FY24 earnings,<br />with a market capitalization of ₹6,702 million after the issuance of equity shares and a market cap-to-sales ratio of 3.3 times its FY24 earnings. We believe that the issue is fairly priced, therefore we recommend “Subscribe – Long Term” rating to the IPO". <br /><br />As MasterTrust Capital puts it, "The Indian market for CSS is expected to grow at a CAGR of 9.8% during FY24-27.<br />The company has positioned itself to take advantage of these trends and has developed a notable market share in both its segment, both domestic and global. The company is focusing on strengthening its core capabilities in precision engineering for increased sustainability, along with that, they are moving up their operations up the value chain from niche markets to large addressable markets. Investors looking to invest can invest in the IPO for the medium to long term".<meta content="cms.next" name="cmsei" />

Gala Precision's IPO oversubscribed 40x on 2nd day! But check these risks before investing here

The IPO of Brainbees Solutions Ltd, popularised by its brand FirstCry, opened for subscription today and will close on August 8, 2024. The company is looking to raise Rs 4,193.73 crore, out of which Rs 1,666 crore will come via a fresh issue and the remaining Rs 2,527 crore will be garnered through an offer for sale (OFS). <br /><br />Only 10% of the total issue has been made available to retail investors, while 15% is reserved for NII (Non institutional investors) and the remaining 75% will be taken up by QIBs (Qualified Institutional Buyers). The share allotment will be finalised on August 9th, followed by refunds and crediting of shares, which will take place on August 12th. Trading is set to commence on both BSE and NSE from August 13th, 2024.<br /><br />The company plans to utilise these funds to set up new modern stores for its other brand, BabyHug, investing in Digital Age, one of its subsidiaries, expansion purposes and setting up warehouses in India and KSA, among others. <br /><br /><h2>India's booming childcare market</h2>Presently, India has the largest population of children globally, with approximately 306 million children under 12 years of age as of July 1, 2023, and a birth rate of 16.3 births per thousand people in 2022. In fact, population aged 0-12 accounts for approximately 21% of India’s population as of 2023.<br /><br />The company has substantial headroom for growth, given that childcare products spending per capita in India is currently nascent (between Rs 9,280-9,350) in FY24. It is projected to at a CAGR of 13-15%, which is higher than those in mature markets, between FY24 and FY29. And historically, except for health &amp; food in childcare products, the entire childcare market has been low on brand penetration. There are only a handful number of large multi-category childcare product brands, amongst which FirstCry has made a distinct name for itself. <br /><br /><h2>About the company<br /></h2>FirstCry claims to be India's largest multi-channel retailing platform selling products specifically catering to mothers, babies and kids. Apart from its online platform, it also operates 1,063 modern stores in total across 533 Indian cities, up from 904 stores in 2023. <br /><br />The company functions across various channels, which includes its online platform, which is also present in UAE and KSA (Kingdom of Saudi Arabia), apart from India, and modern stores within the country. As of March 31, 2024, the company had 556 franchise partners, 9 warehouse partners, 302 logistics partners and 567 distributors. <br /><br />The company is a popular name in mothers, babies and kids segment, with more than 1.65 million SKUs (stock keeping units) from more than 7,580 brands on its multi-channel platform across the clothing and fashion, toys, books, school supplies, diapers, bath and skin care, feeding and nursing, health and safety, baby gear, and maternity categories. The company's GMV has also seen a steady growth, from Rs 52,390 million in FY22 to Rs 75,827 million in FY24. <br /><br />The company has been steadily ramping up its offline presence, with physical stores making up 23.09% of the company's India GMV in 2024, up from 18.42% in 2022. Conversely, the portion of online sales (as a part of total GMV) has come down from 81.58% in FY22 to 76.91% in FY24. <br /><br />According to company's RHP (red herring prospectus), 37.07% of company's total GMV (gross merchandise value) in 2024 stems from South India, up from 35.96% in 2022. The share of North India in the company's total GMV has largely been consistent, from 27.25% in 2022 to 27.56% in 2024. <br /><br />But contribution of west India dipped from 24.03% in 2022 to 21.55% in 2024. The company’s revenues from operations also grew from Rs 24,012.9 million in FY22 to Rs 64,808.6 million in FY24. Additionally, the company's bottom line has been in red for the last 3 years, along with its cash flows. <br /><br />It incurred losses worth Rs 786.85 million in FY22, which burgeoned to Rs 4,860.56 million in FY23. However, the company has been able to contain its losses, which stood at Rs 3,215.07 million in FY24. <br /><br />Notably, the company has a high level of dependency on its relationships with third-party manufacturers, particularly for its home brand products. Also, it does not have exclusive agreements with contract manufacturers, suppliers, and third-party brands. As such, a sudden termination or adverse impact on any of its stakeholders is bound to dent the company's financials as well. <br /><br /><h2>Expert Opinion</h2>Says Shivani Nyati, Head of Wealth, Swastika Investmart Ltd,"Brainbees has encountered financial challenges, incurring losses for the past three years despite revenue growth. Negative cash flows further underscore these concerns. The company operates in a highly competitive landscape and relies on third-party manufacturers, suppliers, and brands for its product offerings". <br /><br />"Due to the absence of profitability, a meaningful P/E valuation cannot be determined. Additionally, the lack of comparable listed peers limits comparative analysis. Consequently, we maintain a neutral stance on the IPO and advise investors to conduct thorough due diligence before making an investment".<br /><br />Kuber Chauhan, analyst at Anand Rathi Research, "At the upper price band company is valuing at Marketcap/Sales of<br />3.7x with a market cap of ₹24,142 million post issue of equity shares. Therefore, on the valuation front, we believe that the company is richly priced. Thus, we recommend a “Subscribe” rating to the IPO". <br /><meta content="cms.next" name="cmsei" />

All you need to know about Brainbees Solutions IPO: Should you subscribe or not?

The much-anticipated IPO of Ola Electric Mobility, which opened for subscription on August 2, 2024, and will close on August 6, 2024, is looking to raise Rs 6,145.56 crore from the markets in total, out of which Rs 5,500 crore will be raised via the issue of fresh shares. <br /><br />With a price band of Rs 72–76 per share, only 10% of the issue is available for retail investors. In comparison, 75% is made available to QIBs (qualified institutional buyers), and the remaining 15% is available to NIIs (non-institutional investors).<br /><br />The allotment date is August 7th, and refunds will be processed by August 8th. Successful allottees will also receive the shares on the same day, and the company will tentatively be listed on the NSE and BSE by August 9th, 2024. As per the data, the company's IPO had been subscribed to 0.38 times as of Friday evening, with a 1.70-time subscription in the retail category, 0.22 times in the NII category, and no significant bids in the QIB segment.<br /><br />But should you subscribe to the IPO? What are the experts saying? How is this IPO placed in terms of its strengths and weaknesses? Let's find out. <br /><br />The company plans to utilize these funds towards expanding its subsidiary OCT, which is involved in cell manufacturing, from its present capacity of 5 GWh to 6.4 GWh. It will also be directed towards research, development, and corporate purposes, along with paying back debts incurred by one of the company’s other subsidiaries, OET.<br /><br /><h2>How does Ola Electric Mobility fare? </h2>The company has seen a consistent, yearly improvement in its PAT (profit after tax) and revenue from operations between FY23 and FY24. Ola Electric’s PAT surged marginally from Rs 14,720 million in FY23 to Rs 15,844 million in FY24. On similar lines, the company’s revenue from operations jumped from Rs 26,301.27 million in FY23 to Rs 50,098.31 million in FY24. <br /><br />The management expects sales of EV 2-wheelers in the country to jump by 4.5% in FY24 to over 40% in the upcoming 4 years. With seven products already in its portfolio and four bikes in the pipeline, which are expected to be out by FY26, Ola is well poised to take advantage of the impending EV boom in the country, given that India’s automotive market makes up 35% of the country’s manufacturing GDP and 7% of its overall GDP in FY23. The situation is only set to improve from here, with the government pushing for automobiles to reach 40% of India’s manufacturing GDP by FY2026. <br /><br />It also helps that Ola Electric is the only EV manufacturer in India that is a beneficiary of two Government of India PLI schemes: the Automobile PLI Scheme and the Cell PLI Scheme. For the latter, they are one of only three beneficiaries awarded benefits under the Cell PLI Scheme as of March 31, 2024, which was awarded for 30 GWh capacity, of which they were awarded 20 GWh. <br /><br />However, if the company fails to meet the criteria set by the government under these schemes, Ola may also end up paying a hefty penalty. Moreover, around 37% of materials used in manufacturing EVs are imported, raising major costs for the company. Out of this, at 32.4%, batteries make up for the most expensive component. Other than that, the company aims to invest a significant amount towards research and development, which may or may not translate into monetary benefits for it. Its subsidiaries, OET and OCT, have been raking up losses, with OCT's losses before taxes burgeoning from Rs 137.91 million in FY23 to Rs 652.47 million in FY24. <br /><br /><h2>Expert View</h2>Master Capital Services Ltd. advises subscribing to this IPO from a medium-to-long-term perspective.<br /><br />“As India focuses on reducing its carbon footprint and enhancing energy security, Ola Electric's IPO could be a pivotal development in the green mobility space. With a 35% market share in India's electric two-wheeler market in FY24, up from 21% in FY23, Ola Electric sold 3.29 lakh units in FY24, more than doubling its sales from the previous year. The IPO not only showcases Ola Electric's growth and market leadership but also highlights the potential of the EV sector. Investors are encouraged to subscribe to this IPO with a medium- to long-term view.<br /><br />Stock analyst Dilip Dawda also advises only well-informed, seasoned investors to park their funds in this IPO, from a long-term perspective.<br /><br />“The company is a pure E2W play emerging leader, and with many big and small companies dropping their hats in the fray, sphere competition is shaping ahead. Ola has laid down its future path with its future factory and Gigafactory to take on any kind of competition. The company is planning to enter E-2W bikes, three-wheelers, cars, and most importantly, the 4680 Li-thion battery, making it a global hub for EV batteries. While its top line has been surging year-on-year, its bottom line marked improvement in reduced losses. No doubt it will take some more time to turn the corner and wipe out the losses. Thus, it’s a pure long-term investment bet," he continued.<br /><br />As per Anand Rathi Research's IPO note, "Ola Electric Mobility is the fastest-growing segment in the EV space. Going ahead, EVs are anticipated to drive substantial growth in the global automotive market. However, we believe that Ola has significant headroom to grow in the coming years. Moreover, they commenced manufacturing the 4680-form factor cells at the Ola Gigafactory on March 24, which is expected to allow better control over battery and EV quality, supply, and costs". <br /><br />"Despite being a loss-making entity, the company has gained market share of 34.8% in the E2W segment. At the upper price band, the company is valuing at market-cap/Sales of 6.6x with a market cap of ₹335,220 million post issue of equity shares. Currently, top global automobile entities are trading between 1-8x as on market-cap/sales. Therefore, on the valuation front, we believe that the company is richly priced. Thus, we recommend a “Subscribe – long term” rating to the IPO with a higher risk appetite", the IPO note explains<br /><br /><meta content="cms.next" name="cmsei" />

All you need to know about Ola Electric's IPO: Should you subscribe or not?

Both indices, Sensex and Nifty ended the day's trade with marginal gains. While Nifty closed at 24,836.10 points, up by 0.01%, Sensex closed at 81,355.84 points, up by 0.03%.<br /><br />Divis Labs (up by 2.93%), BPCL (up by 2.92%), LT (up by 2.58%), Bajaj Finserv (up by 1.99%) and Mahindra and Mahindra (up by 1.98%) were amongst the leading gainers during the day, while Bharti Airtel (down by 2.08%), Titan (down by 1.95%), Cipla (down by 1.40%), ITC (down by 1.18%) and Tata Consumers (down by 1.12%) were amidst the leading laggards. <br /><br />All broad market indices closed the day in green, with Nifty Next 50 up by 1.21%, midcap 100 up by 1.03%, small cap 100 up by 1%, India VIX up by 5.69% and smallcap 250 up by 1.07%. As for sectoral indices, with the exception of financial services (down by 0.01%), FMCG (down by 0.34%), IT (down by 0.38%) and consumer durables (down by 0.01%), all other indices closed in green. Media was up by 1.80%, PSU banks rallied by 2.25%, realty was up by 1.43% and oil and gas rallied by 1.04%. <br /><br />Out of the 2,827 stocks traded during the day, 1,629 stocks advanced, while 1,102 saw declines, while another 96 remained unchanged. 245 stocks hit their 52-week high, while 16 stocks also hit their 52-week low. 179 stocks remained in the upper circuit during the day, while 16 stocks also hit the lower circuit, or the minimum permissible trading price during a singular trading session, during the day. <br /><br />Aditya Gaggar, director of Progressive Shares noted that Indian bourses commenced the week at yet another record level of 24,940. After a minor dip in the morning trade, Banking counters set the stage for the Index to surpass the psychological barrier of 25,000 but a hidden bearish divergence in the RSI pulled BankNifty lower which put pressure on the Index to trade lower to end the day at 24,836.10 with a minuscule gain of 1.25 points. <br /><br />"On a sectoral front, PSU Banks and Media were the outperformers while FMCG and IT ended the session in red. Despite a steep reversal in the markets, Mid and Smallcaps held their gains to outshine the Frontline Index. On the daily chart, the Index has formed a small red candle with a probable bearish divergence in RSI indicating a temporary pause in its journey towards the north. A level of 25,000 will continue to act as an immediate resistance while 22,560 is a strong support point", he continued. <br /><br /> Shrikant Chouhan, Head – Equity Research, Kotak Securities highlights that after today's volatile trading session, PSU bank index outperformed and rallied 2.35% whereas intraday profit booking were seen in selective FMCG and IT stocks. The market opened with a positive note but due to profit booking at higher levels, it failed to touch 24,950/81,750 levels. From the day's highest level, market shed over 200 /750 points.  <br /><br />"We are of the view that, the intraday market texture is non-directional hence buying on intraday correction and sell on rallies would be the ideal strategy for the day traders. For traders now, 24,700-24,650/81,000-80,800 would be the key support areas while 24,950 -25,000/81,750-82,000 would act as a crucial resistance areas for the bulls. On the flip side, below 24,650/80,800 uptrend would be vulnerable", he continued. <br /><br /><meta content="cms.next" name="cmsei" />

Stock market closing: Nifty, Sensex close the day with minor gains, Bajaj Finserv, Mahindra and Mahindra amongst top gainers

In a massive blow to most stock broking firms, market regulator SEBI has directed all stock exchanges, depositories, and clearing corporations (collectively known as market infrastructure institutions or MIIs) to charge transaction fees from brokers on a uniform basis, doing away with the current system where these charges varied greatly and depended heavily on broker's trading volume or activity. The new rules will be in effect starting October 1, 2024. <br /><br />Generally, stock exchanges like BSE and NSE charge a specific, slab-based transaction fees from brokers like FYERS, Zerodha, Groww and Upstox, depending on the slab within which their overall trading turnover falls into.  The higher the broker's turnover or trade volume, the lower the transaction fee they end up paying. With SEBIs new guidelines, firms like Zerodha and Upstox will have to bear a significant financial brunt going ahead. <br /><br />The same was very visible in the market's movement today, with stocks of most stock broking firms taking a serious hit. Stocks of Angel One tanked by 8.72%, while Geojit Financial Services dipped by 6.68%. Following their close lead was Motilal Oswal Financial Services, which shed 4.19% following the announcement. <br /><br />The difference between what brokers charge the customers, and what the exchanges charges the broker is known as a rebate, and it makes for a significant revenue source for most brokers. As per Nithin Kamath, who heads Zerodha, "We earn about 10% of our revenue from such rebates. For us, this has increased from 3% to 10% in the last four years because of the massive increase in options turnover". <br /><br /><h2>Options Trading: Of losses, heavy trades and addiction</h2>If option trading were a sea, you'd find it full of Indians trying to make through, despite its strong, uncertain, and erratic currents. In 2023, Indian investors traded around 85 billion contract options, far more than any other country in the world. No wonder, 90% of revenue that Zerodha generated from such rebates were attributable to options trading alone. <br /><br />However, for a novice investor, options trading is no easy endeavor, and as SEBI pointed out in 2022, only 1 out of 10 F&amp;O traders managed to make profits. The average loss amount was a staggering Rs 1.1 lakh. But amidst soaring trading volumes post Covid, brokers made merry with high rebates and hefty profits, which is why this move comes as an unpleasant surprise to many. <br /><br />According to Tejas Khoday , co-founder and CEO of FYERS, this model threatens to destabilize the discount brokerage business completely. "This revenue stream, which constitutes between 15-30% of the larger brokers' revenues and over 50% for deep discount brokerages, is crucial for sustainability. Without this income, many brokers may have to introduce brokerage fees to remain viable". <br /><br />"In the short term, traders may benefit from reduced costs. However, in the long term, brokerage fees will likely rise as intermediaries attempt to recover revenue losses. While retail customers are charged the standard slab rate, brokers benefit from a lower fee due to high turnover. For instance, the base exchange transaction charge for options is 5,000 rupees per crore, but a broker with high turnover might be charged only 4,000 rupees per crore. The 1,000 rupees per crore difference constitutes the broker's income, which stands jeopardized", he continued. <br /><br />In his blog post, Zerodha's Kamath also hinted at a possible fee hike after this mandate. "As a business, we may have to introduce a brokerage fee for equity delivery investments, which is currently free, or/and increase F&amp;O brokerage.  In all likelihood, we will probably have to let go of the zero brokerage structure for equity delivery trades which we have been able to offer for the past 9 years", he said.<br /><br />As Devam Sardana, Business Head of Lemonn, a new-age stock broking firm notes, this move will definitely hit brokers' revenue streams especially those with scale. "With scale, many brokers enjoyed the benefit of charging users a certain amount of transaction fees and eventually gaining a rebate from exchanges based on their turnover. This essentially created arbitrage and created a growth flywheel for brokers". <br /><br />As bigger brokers' revenues became higher, he explains, it allowed them to subsidize certain products and gain even higher market share. But this move does 2 things: it levels the playing field for all brokers and puts pressure on brokerage fees across the board. <br /><br /><h2>Chance for small brokerages to shine</h2>But Trivesh D, COO of Tradejini, a Bengaluru-based stock broking firm, calls this a watershed moment for small and midsized brokers. <br /><br />"For years, small and mid-sized brokers have struggled to compete with larger brokers who enjoy significant discounts on transaction charges, particularly in the Futures &amp; Options (F&amp;O) segment. Now, they will finally get a level playing field. This will likely have a profound impact on brokers with high turnover. These brokers, who previously benefited from hefty discounts, will now face a more equitable charge structure. This change promotes fairness and transparency in the market, ensuring that no single entity has an undue advantage based on volume alone," he continued.<br /><br />However, Nilesh Sharma, President &amp; Executive Director of SAMCO Securities, sees it as an adverse move, one that will disincentivize brokers from working towards generating huge turnovers, thereby impacting market making. <br /><br />"We estimate the broking industry revenue (and, in turn, profitability) to be hit by around Rs 2,000 crores. This will lead to an increase in brokerage rates, as it will become unsustainable for the broking companies to take such a big hit on their profitability. Thus, this will lead to a drastic reduction in trading volume and the resultant price discovery,"  he cautions.<br /><h2><br />How does the customer benefit?</h2>SEBI has asked MIIs to ensure that the charges that are recovered from end client remain "true to label." This means that MIIs should receive the exact amount that was levied by brokers on individual traders or end clients. While brokers recover these charges daily, MIIs are paid on a monthly basis, depending on the trade volume slab a broker falls into, leaving grounds for broker members to tinker around or confusing the end client that the actual fees charged by MIIs are high. <br /><br />But, as Tradejini's COO explains, "for end customers, this move promises several benefits. A uniform fee structure means that the savings from transaction charges are more likely to be passed on to clients rather than being pocketed by large brokers.". <br /><br />All in all, this could mean a sharp reduction in transaction costs for end investors, thereby making trading financially accessible and affordable. It will also foster a competitive landscape where brokers are encouraged to compete on service quality and pricing rather than simply relying on their ability to secure volume-based  discounts," he signs off. <br /><br /><meta content="cms.next" name="cmsei" />

Blow to discount brokers like Zerodha as SEBI bats for uniform charges by MIIs; how will you be impacted?

Leonardo DiCaprio's portrayal of the flamboyant Jordan Belfort in "The Wolf of Wall Street" was a study in hedonism, complete with hard-partying brokers on yachts and mountains of cash. And all that loot comes from a not just outrageously unethical, but also illegal scheme that traders sometimes fall prey to: it’s the infamous “pump-and-dump”.<br /><br />When aspiring, starry-eyed traders begin to engage with the wild world of the stock market, some beasts that they will want to avoid at all costs are bears, sharks and wolves. While a bear’s downwards-swinging attack is more straightforward, the latter two tend to entice and deceive. Today, we’re going to be looking at a wolfish investor’s common method of scamming traders using Belfort's Stratton Oakmont firm as a cautionary tale.<br /><br /><h2>What’s pumping?<br /></h2>Just as portrayed by DiCaprio in the movie, Jordan Belfort was a charismatic Wall Street stockbroker who set his sights on cheap, unknown stocks called penny stocks because they’re easier to manipulate. Once he had bought said stocks, he and his cronies unleashed relentless hype to increase the value of the said stock, often involving misleading, positive statements to inflate a stock's price.<br /><br />Social media wasn't a thing in Belfort's day, but the tactics he used were similar. Faxes and carefully crafted press releases are blasted out, singing the praises of these dubious companies. The movie also showed a "boiler room" of brokers, who unleash a barrage of phone calls, painting these penny stocks with a brush of pure gold, guaranteeing returns.<br /><br />At its peak, Belfort’s firm Stratton Oakmont is said to have employed roughly 1,000 stockbrokers to oversee investments of more than $1 billion.<br /><br />To this day, it’s common for investors to act on a “hot tip” about a stock that's about to explode from a "trusted source". The goal is to create a feeding frenzy, a wave of investor excitement that would inflate the stock prices to unprecedented highs. Consequently, the trader falls for it, seeing dollar signs before his eyes and buys a ton of shares and holds on to them anticipating a huge profit. <br /><br />But before the innocent retail traders realise, it’s too late!<br /><br /><h2>Here comes the dumping<br /></h2>Fuelled by this fabricated frenzy, as unsuspecting retail and even some large-scale investors pile in, the stock price shoots up like a rocket. Once the price reaches a sweet spot, the schemers who already own a significant chunk of the stock, simply dip — kinda like DiCaprio's alleged habit of dumping his girlfriends as they turn 25.<br /><br />As Belfort and his crew dump their share, cashing in on the artificially inflated price, the stock price also plummets because it had no real substance to begin with. Investors who bought in at the inflated price are left holding the bag of worthless shares in a company that likely never had much potential to begin with.<br /><br />Fortunately, Belfort did get caught. He pleaded guilty to fraud for the pump-and-dump schemes — something that may have cost his investors as much as $200 million! He was sentenced to four years in prison in 1999, but ultimately only served 22 months. As for his victims, they got nothing.<br /><br /><h2>It is an ongoing issue<br /></h2>Now, you might be thinking that this ploy seems entirely too transparent and just because people fell for it nearly two decades ago doesn’t mean they still would. However, IIFL Securities’ former associate recently came under the scanner by Indian regulators for alleged market manipulation — no prices for guessing — using the pump and dump scheme.<br /><br />Sanjiv Bhasin, known for his frequent appearances on business channels, is believed to have been advising a private company to buy specific stocks, then using his TV appearances to hype them up. This would have driven up the stock price, allowing the private company to sell their shares at a profit before the price inevitably dropped.<br /><br />India's Securities and Exchange Board of India (Sebi) is reportedly examining digital evidence to support these claims. IIFL Securities has distanced itself from the investigation, clarifying that Bhasin was a short-term consultant whose contract expired early due to health reasons. The company also emphasized that Bhasin was never on their board of directors. While the investigation unfolds, it appears investors are taking a wait-and-see approach, with IIFL's stock price showing little fluctuation.<br /><br />But a mellowed down version of the pump-and-dump scheme plays out in the day-to-day trading far more often than we realise. Though not strictly illegal, many early-stage investors, promotors, and founders have been accused of pumping up the valuation of their companies and start-ups using media appearances, influences, and even misleading financial statements before going public. Such practices result in retail investors subscribing to shares at a much higher price compared to what the company earns or returns to its investors in the long-run, particularly during bull markets like the one we are in right now.<br /><br />Moral of the story? You can never be too wary of a wolf in a well-meaning advisor’s or influencer’s clothing.<br /><meta content="cms.next" name="cmsei" />

Insider Explainers: What’s the ‘pump and dump’ trading scheme shown in DiCaprio’s ‘The Wolf of Wall Street’?

The Indian economy just clocked its eighth straight quarter of slowing GDP (gross domestic product) growth. Consumer confidence had slipped further after hitting a six-year low late last year. All this had to hurt earnings of companies— Page Industries, Colgate, Dabur, Asian Paints to name a few— that depend on people spending money on their products.<br /><br />In the last one month, at least ten companies have seen cuts in earnings estimates anywhere between a slight tweak to as much as 10%. <br /><br /><table style="width: 389pt;"> <colgroup></colgroup><col /> <col /> <tbody><tr> <td class="xl63" style="height:15.0pt;width:132pt">Company</td> <td class="xl64" style="border-left-width: initial; border-left-style: none; width: 257pt;">Cut in earnings estimate in last one month</td> </tr> <tr> <td class="xl65" style="height: 15pt; border-top-width: initial; border-top-style: none;">Page Industries</td> <td class="xl66" style="border-top-width: initial; border-top-style: none; border-left-width: initial; border-left-style: none;">-10.60%</td> </tr> <tr> <td class="xl65" style="height: 15pt; border-top-width: initial; border-top-style: none;">Marico</td> <td class="xl66" style="border-top-width: initial; border-top-style: none; border-left-width: initial; border-left-style: none;">-2.40%</td> </tr> <tr> <td class="xl65" style="height: 15pt; border-top-width: initial; border-top-style: none;">Emami</td> <td class="xl66" style="border-top-width: initial; border-top-style: none; border-left-width: initial; border-left-style: none;">-2.30%</td> </tr> <tr> <td class="xl65" style="height: 15pt; border-top-width: initial; border-top-style: none;">Titan</td> <td class="xl66" style="border-top-width: initial; border-top-style: none; border-left-width: initial; border-left-style: none;">-1.50%</td> </tr> <tr> <td class="xl65" style="height: 15pt; border-top-width: initial; border-top-style: none;">Berger Paints</td> <td class="xl66" style="border-top-width: initial; border-top-style: none; border-left-width: initial; border-left-style: none;">-1.40%</td> </tr> <tr> <td class="xl65" style="height: 15pt; border-top-width: initial; border-top-style: none;">Jubilant Foodworks</td> <td class="xl66" style="border-top-width: initial; border-top-style: none; border-left-width: initial; border-left-style: none;">-1.40%</td> </tr> <tr> <td class="xl65" style="height: 15pt; border-top-width: initial; border-top-style: none;">Godjrej Consumer</td> <td class="xl66" style="border-top-width: initial; border-top-style: none; border-left-width: initial; border-left-style: none;">-1.30%</td> </tr> <tr> <td class="xl65" style="height: 15pt; border-top-width: initial; border-top-style: none;">Asian Paints</td> <td class="xl66" style="border-top-width: initial; border-top-style: none; border-left-width: initial; border-left-style: none;">-1.30%</td> </tr> <tr> <td class="xl65" style="height: 15pt; border-top-width: initial; border-top-style: none;">HUL</td> <td class="xl66" style="border-top-width: initial; border-top-style: none; border-left-width: initial; border-left-style: none;">-0.30%</td> </tr> <tr> <td class="xl65" style="height: 15pt; border-top-width: initial; border-top-style: none;">Dabur</td> <td class="xl66" style="border-top-width: initial; border-top-style: none; border-left-width: initial; border-left-style: none;">-0.20%</td> </tr> <tr> <td class="xl65" style="height: 15pt; border-top-width: initial; border-top-style: none;">Britannia</td> <td class="xl66" style="border-top-width: initial; border-top-style: none; border-left-width: initial; border-left-style: none;">0.10%</td> </tr> <tr> <td class="xl65" style="height: 15pt; border-top-width: initial; border-top-style: none;">GSK Consumer</td> <td class="xl66" style="border-top-width: initial; border-top-style: none; border-left-width: initial; border-left-style: none;">0.30%</td> </tr> <tr> <td class="xl65" style="height: 15pt; border-top-width: initial; border-top-style: none;">Nestle</td> <td class="xl66" style="border-top-width: initial; border-top-style: none; border-left-width: initial; border-left-style: none;">0.40%</td> </tr> <tr> <td class="xl65" style="height: 15pt; border-top-width: initial; border-top-style: none;">ITC</td> <td class="xl66" style="border-top-width: initial; border-top-style: none; border-left-width: initial; border-left-style: none;">0.70%</td> </tr> <tr> <td class="xl65" style="height: 15pt; border-top-width: initial; border-top-style: none;">Pidilite</td> <td class="xl67" style="border-top-width: initial; border-top-style: none; border-left-width: initial; border-left-style: none;">3%</td> </tr> <tr> <td class="xl68" style="height: 15.75pt; border-top-width: initial; border-top-style: none;">Colgate</td> <td class="xl69" style="border-top-width: initial; border-top-style: none; border-left-width: initial; border-left-style: none;">3.70%</td> </tr></tbody></table><em>Source: Axis Capital</em><br /><br /><strong>The following is the commentary from analysts on each of the stock that has seen a cut in the consensus earnings estimate.<br /></strong><br /><strong>Page Industries:</strong> “The path to earnings recovery, particularly after the unprecedented margin dip in 3QFY20, is unclear. Category slowdown, weak channel liquidity and competitive tailwinds present significant near-term challenges. Our channel checks across various cities in the country also do not indicate green-shoots of recovery,” Motilal Oswal said in its report on Feb 13 while cutting the target price for the stock to ₹22,250 a piece for the next one year .<br />
  
  
  
  
  
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<br /><strong>Marico: </strong>From a slowdown in rural consumption and drying of cash circulation among dealers and distributors who are looking to cut down on inventory are not the only problems for the company. As economic growth got slower and people got more penny-wise, some of the company’s customers are moving back to unbranded products that are cheaper and can be bought in small quantities as per need. <br />
  
  
  
  
  
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<br />This has led to a cloud of uncertainty for Marico, which has lost over 15% in share value since early December. “The near term pain envisaged, when we released our initiation note on Dec 2, has actually extended by a couple of quarters, with revival now expected from the second half of the next financial year ending March 2021,” according to Nirmal Bang Institutional Equities, which still has a ‘buy’ rating on the stock and a target price of ₹400 that implies a nearly 33% jump from the current value.<br /><br />Aside from being oversold, the only silver lining for Marico is the cheaper price of key inputs.<br /><br /><strong>Emami: </strong>Like Marico, Emami also benefits from cheaper commodities but that is no good when data shows that domestic volume growth contracted for the first time in recent memory. But the fears have already played out and the stock has lost over 35% of its value in the last one year. “Valuations are at about 60% discount to peer average,” cited a Motilal Oswal report while recommending that investors buy Emami expecting a 19% jump in price in the next one year. <br /><br />
  
  
  
  
  
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<br /><strong>Titan:</strong> ‘Growth’ was never under question for Tanishq; ‘Growth + Margins’ was, said the opening lines of a report from ICICI Securities recently. Tanishq is a jewellery chain operated by Titan that also sells watches and eyewear.<br /><br />The company’s jewellery business surprised analysts by growing 11% and making as much profit margin as a year ago, if not better. But watches and eyewear, two other important segments, showed signs of weakness. <br /><br />Over 85% of the company’s revenue comes from jewellery and the recent rise in gold prices may affect buyers’ sentiment. <br /><br />
  
  
  
  
  
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<br /><strong>Berger Paints:</strong> Berger’s revenue growth decelerated further and earnings were 7% below estimates, Kotak Institutional Equities said after the latest quarterly report from the company. One of the biggest stumbling blocks for the company is the sharp slowdown in car sales and production. The fall in crude oil prices as the coronavirus spread is good news but not good enough. Kotak rated the stock as ‘sell’, adding that the fair value for the stock would be ₹430, nearly 25% lower than the current level.<br /><br />
  
  
  
  
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 <br /><strong>Jubilant Foodworks: </strong>The sole franchise holder for Domino's Pizza and Dunkin Donuts in India is faced with a double whammy. Both vegetables and milk are getting expensive shrinking margins.<br /><br />In early 2018, Jubilant’s same store sales ⁠— sales from stores open for at least a year ⁠— were growing well above 20%, today it is down single digits. The same-store sales in the latest third quarter 5.9% and that was the highest this financial year. The ongoing quarter, Jan to March 2020, may see a hit from a rise in violence in Delhi that has led to fewer people stepping out to eat or ordering in for that matter.<br /><br />PhilipCapital’s target price for the stock is ₹1,750 not very far where it is right now.<br /><br />
  
  
  
  
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<br /><br /><strong>Godrej Consumer: </strong>The same PhilipCapital gave a ‘high-conviction sell’ rating for this company that is a king of toiletries in India⁠— from soaps and shampoos to hair colour. <br /><br />What’s helping Godrej is the fact that 45% of business is overseas and in countries that have shown better economic performance. Without the 11% growth (in constant currency terms) in overseas revenue, the total topline growth would have been much worse than the 2.1% clocked in the latest third quarter.<br /><br />
  
  
  
  
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<br /><br />However, a report from Credit Suisse has projected a turnaround in the home insecticides sales and therefore increased the target price to ₹680 a piece a year from now, a 21% rise from Friday’s closing price.<br /><br /><strong>Asian Paints:</strong> As a paint maker, Asian Paints has challenges similar to those of Berger Paints mentioned above. But Asian Paints is a leader in the market and has been focussed on gaining market share by offering competitive prices to beat the slowdown.<br /><br />Asian Paints has expanded its market share (value) from 44% in the financial year ending March 2008 to 53.6% at the end of March 2019. “With the entry of new players, Asian Paints has increased its aggression in trade and is focusing on gaining market shares even in low priced paints / putty &amp; primers,” an ICICI Securities report said citing the risk of action from the country’s monopoly regulator. <br /><br />
  
  
  
  
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<br /><strong>HUL: </strong>Hindustan Unilever, which sells every soaps and shampoos to food items of daily use at home, has been improving its profit margin nine years in a row. The current slowdown has not changed that but the volume growth is abysmally low at 5% for the last three quarters compared to 12% in the first quarter of financial year 2018.<br /><br />
  
  
  
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<br /><br />There is no recovery in sight for at least another two quarters. While rising prices of key inputs are either forcing price hikes or narrower margins, people’s spending power has been eroded by rising inflation and now, rising cost of keeping a mobile phone. <br /><br />There may be some upside after the company’s decision to set up a 100% subsidiary to enjoy a lower tax rate of 15%. However, the street is waiting to see how this plays out and what benefits accrue. ICICI Securities kept its estimates unchanged citing the risk of further slowdown in consumption and irrational competition.<br /><br /><strong>Dabur: </strong>Except for Dabur Amla, Dabur India’s journey so far in the Indian Hair oil sector has been lackluster. Its other key offerings like Dabur Anmol and Dabur Almond has not been able to make a mark till now. Vatika, a key offering positioned in the coconut oil segment has not worked well in India, while has gained good success in international markets, said a report from SBI Caps recently.<br /><br />
  
  
  
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<br />The growth in the modern trade has gradually decelerated as the slowdown catches up and the company is trying to beat that with new product launches. It is expected that the company owned by the Burman family, so far known for its health supplement Chyawanprash and hair oil, may launch fruit-based cold drinks this summer to take on the like of Coke, Pepsi and Parle.<br /><br />The consensus earnings estimate is only 0.2% down for Dabur in the last one month but in the last one year it is down by 8.4%.<br /><br /><strong>SEE ALSO:<br /></strong><a href="https://www.businessinsider.in/business/corporates/news/profit-margin-on-jockey-and-speedo-shrinks-shows-page-industries-q3-earnings/articleshow/74119148.cms" data-type="tilCustomLink" target="_blank">Biting slowdown is squeezing Page Industries' profit margin on Jockey and Speedo</a><br /><br /><a href="https://www.businessinsider.in/stock-market/markets/news/coronavirus-impact-and-other-reasons-why-stock-market-experts-say-dont-buy-shares-now/articleshow/74059150.cms" data-type="tilCustomLink" target="_blank">Coronavirus and beyond— reasons why this is not ideal time to buy stocks in India, according to experts, money managers, and researchers</a><br /><br /><a href="https://www.businessinsider.in/business/corporates/news/for-lic-ipo-to-succeed-the-life-insurance-giant-has-to-dump-a-lot-of-sick-stocks/articleshow/73889676.cms" data-type="tilCustomLink" target="_blank">For LIC IPO to succeed, the life insurance giant has to dump a lot of sick stocks</a><br /><br /><meta content="cms.next" name="cmsei" />

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