"To" or "Not To"

Rally in Gold, Silver, Copper is staggering especially in the past 1 year considering the uncertainties in world politics & economics.  

Question raised by many : Will this rally continue and will there be staggering returns. 

Answer : With political / economical situation not clear and there are multiple challenges existing uncertainty looms large which means rally in Gold, Silver, Copper may continue into 2026 unless stability kicks in.  

Question : Will this rally be similar to what is being seen in the past 1 year

Answer : I have my doubts on the same as valuations have hit a peak and hence, returns may subdue in 2026 

Question : Should we invest in Gold, Silver, Copper

Answer : 20% of portfolio is always advisable to be in these commodities which provides good balance to one's portfolio.  Over leverage will always have consequences which will be difficult to take when it happens

This week in stock market

 During the week sensex rose by 1.73% 

The weekend surge happened mainly due to data released on 10th November by USA on consumer price index (CPI) which was lower than expected at 7.7% in October compared to 8.2% in September.  Indian market surge followed the surge in stocks in US.  Another favourable point for the sensex is that INR strengthened against USD and now is trading @ 80.73 compared to one day earlier close of 81.68.   With core inflation moving down in USA interest rate hikes in USA will be moderated, this will lead to more FII investments moving to India which in turn will make the stock market bullish.   On domestic front all industries are expected to do will this quarter and results are expected to be good.  This is good news for the markets.

My take : Market will be bullish for the reminder of 2022.  It is good to invest in the markets in small volumes over a period of time in quality stocks & mutual funds.  There will be fluctuations in the market on certain days but overall market will provide good returns in the short to medium term.

This week in stock market

 Stock Market index moved up 2% this week indicating some turnaround for stocks,

This was primarily due to softening of oil prices to $ 106 levels.  Concerns still remain on inflation and increase in US Interest rates.

Coming week in stock markets will be quite volatile and we can expect a lower finish of sensex in next week

Flight of Foreign Portfolio Investors (FPI)

Till todate, Foreign Portfolio Investors (FPI) have pulled out Rs.212,966 crores from stock markets in 2022

                                                                                         Source : SEBI / NSDL

This pull off by FPI is one of the major reason for fall in stock market by 14% in 2022

                                                   

                                                                                         Movement of stock market in 2022

What has triggered this pull off by FPI from Indian stock markets?  

• Inflation in USA and subsequent interest rate hikes (total 1.5% in 2022), triggered flight of capital from emerging markets to USA.  This resulted in FPIs pulling out funds from India to USA
• Anticipation of further rate increases by USA also made FPI pull out money from India.  
• Depreciation of Rupee by 5% in 2022 is triggering FPI outflow as they find it more attractive to invest in USD than in INR

Will stock market continue to decrease?

Markets will be volatile in the short term considering the economic situation currently.  It is best to stay invested and continue with Systematic Investments to reap long term benefits as markets will re-bound once economy recovers (time frame 1 to 2 years).

Balancing Act

Russian invasion of Ukraine has sent stock markets on a spin across the world and Sensex is no exception to it.  Compared to 23rd of February, Sensex is down by 5%.

There are indications that stock markets across the world will continue to be under strain as invasion of Ukraine does not seem to end soon.  Also as a consequence of this oil price is spinning out of control and currently trading at around $ 113 per barrel (29% increase since 23rd of February) which in turns puts in a big pressure on margin of corporate's which in turn affects the stock markets significantly.

Drop in stock markets and with oil prices not helping it either there is severe under current for all investors who are losing quite a lot of money on the markets.   This is where the balancing act has to come into play. 

Considered as one of the safe investments during crises gold has always traditionally played a pivotal role for investors.  Gold since 23rd February has increased by 4%.

Investors in gold have gained during the period when Sensex & Oil are wrecking havoc.

This trend helps us to understand the basic principle of balancing portfolio of investment.  It is not wise as an investor to have one type of investment it is advisable to spread portfolio.  It is always recommended to have gold around 20% to 30% in one's portfolio to have a balanced return.

NBFC Regulations dated 22.10.2021 - A good move by RBI

Check the below facts of some 2021 successful IPO's

Paras Defense and Space Technologies Limited - Issue Size 170.78 crores

IPO was oversubscribed overall by 304 times.  Category wise over subscription - Qualified Institutional Buyer (QIB) 170 times, High Networth individuals (HNI) 928 times, Retail investors (RI) 113 times

IPO Price - Rs.175; Listing day price Rs.498.75

MTR Technologies Limited - Issue Size 596.41 crores

IPO was oversubscribed overall by 201 times.  Category wise over subscription - Qualified Institutional Buyer (QIB) 165 times, High Networth individuals (HNI) 651 times, Retail investors (RI) 28 times

IPO Price - Rs.575; Listing day price Rs.1082.25

Tatva Chintan Pharma Chem Ltd - Issue Size 500 crores

IPO was oversubscribed overall by 180 times.  Category wise over subscription - Qualified Institutional Buyer (QIB) 185 times, High Networth individuals (HNI) 512 times, Retail investors (RI) 35 times

IPO Price - Rs.903; Listing day price Rs.2,310.25

Devyani International Limited - Issue Size 1,838 crores

IPO was oversubscribed overall by 117 times.  Category wise over subscription - Qualified Institutional Buyer (QIB) 95 times, High Networth individuals (HNI) 213 times, Retail investors (RI) 39 times

IPO Price - Rs.90; Listing day price Rs.123.25

The common thread running in these IPO's are 

1. the HNI segment is oversubscribed many times higher than other categories especially retail investors.  
2. listing of shares on first day was with a huge premium and HNI investors had a huge opportunity to offload shares at a huge profit

What makes the above 2 common threads interesting?

IPO financing by NBFC's is a very lucrative business for them.  NBFC lend to HNI short term loans with interest rate ranging between 6% to 10% (interest rate depends on demand for a particular IPO).  Another interesting point to note here is the leverage for these loans are as high as 70 to 80 times, which means that an individual can place bids for Rs.70 to Rs.80 crores by just having Rs.1 to Rs.2 crores in their account.  This practice leads to build up of high demand for IPO's and leads to high levels of over subscription which is also one of the reason for high listing price on date of listing.  HNI's who exit on the listing date at times make huge profits without actually having any money (minimum money) in their account.  Though there is a big risk in this (if listing day price falls below issue price).  

With big ticket IPO's still lined up like Paytm, PaisaBazaar etc HNI activity is expected to be high.

This is the reason why RBI has acted now. In a notification number DOR.CRE REC.No.60/03.10.001/2021-22 dated 22.10.2021 RBI has directed as below the NBFC's (effective date 1st April 2022)

Ceiling on IPO Funding – There shall be a ceiling of ₹1 crore per borrower for financing subscription to Initial Public Offer (IPO). NBFCs can fix more conservative limits. 

This will regulate huge demand from HNI's by leveraging funds of NBFC's and also will stop artificial inflation of subscriptions.  With this action of RBI there will reduction in speculation in IPO market.

A good move by RBI.                

Stock market on a high

Record closing of Sensex (52,232 points) & Nifty today despite a RBI warning of bubble in their annual report is surprising.  It is astonishing to see the market participants are taking a bullish view despite high valuations and drop in industrial activities due to Covid.  Maybe the market is factoring in the future - demand pick up after covid.  Which may also be a factor.  The good news due to market boom is that corporates will have more money in their pockets to spend on investments, improve their capacities, invest in R&D.  There are slew of new IPOs planned for next 6 months to 1 year notably among them are Zomato (around Rs.8,250 crores), Paytm (around Rs.22,000 crores), Lava (around Rs.1,400 crores), Delhivery (around Rs.5,000 crores), Bajaj Energy (around Rs.5,450 crores).  Success of these IPOs also rest on a booming stock market which will help build confidence of investors especially retail investors.  More paradox of this stock market rally is that in parallel commodity prices are also increasing especially gold which is at 5 month highs & oil which is almost at 2 year highs.  There seems to be a buoyancy in the system which is difficult to mystify.  

To me this buoyancy of the stock market is propelled by three main reasons.  Firstly interest of retail investors who find stock market returns attractive and tax efficient compared to traditional investment avenues.   Secondly there is a good inflow of FPI money into the markets  which moves the market upwards.  Thirdly pension funds are coming of age in India and there is significant flow of funds into pension funds (Asset under management of NPS crossed Rs.6 lakh crores) and moving up very fast.   

Of the above three reasons first two are a bit fragile and can stop anytime and there can be severe backlash also  This is where the RBI bubble caution comes into play.  

My piece of advise, retail investors do not follow the herd be sensible in investing go for a mix of equity and debt and do not leverage too much on equity as the same is over valued and already at high levels.

Stock Market Concerns - RBI Annual Report

Some statistics of stock market for 2020-21 financial year 

1. Sensex surged 77% in 2020-21.   It was 28,265 on 1st of April 2020 & ended at 50,136 on 31st March 2021
2. Peak was reached on 15th February 2021 @ 52,154 
3. 25 Initial Public Offers (IPO's) were issued by corporate's during 2020-21 of which 21 had generated positive returns for investors  
4. Equity market recorded a net inward Foreign Portfolio Investment (FPI) of Rs.2.8 lakh crores during 2020-21 (compared to a net outflow in FPI of Rs.6,024 crores in Previous year)
5. Direct participation of retail investors was the hallmark for the year 2020-21 with 1.43 crore new Demat accounts opened during the year (compared to 50 lakhs in previous year).  Retail holding in NSE listed companies increased to Rs.13.6 lakh crores from Rs.7.2 lakh crores in the previous year 
6. Asset under management of pension funds soared past Rs.5 lakh crores

Desipte covid concerns what are the major cases attributed to this sharp surge in stock market in India. 

The market factored in the following factors for the sharp recovery.   Easing of Covid and consequent expectation of recovery in economy, better performance by corporate's especially during Q3 & Q4 of 2020-21 triggering record GST collections, Rs.1.5 lakh crore Performance Linked Incentives (PLI) for key manufacturing sectors, record high FPI inflows during 2020-21, lower interest rate regime triggered by lowering of repo rates by RBI and global economic recovery to name some of the key factors.

Now for the concern of RBI for this sharp upward swing of stock markets.  The following are the major factors RBI lists in its report under the title "Is the Bubble in Stock Market rational"

1. This order of asset price inflation (77% in 2020-21) in the context of the estimated 8 per cent contraction in GDP in 2020-21 poses the risk of a bubble. 
2. Results suggest that the stock price index is mainly driven by money supply and FPI investments. Economic prospects also contribute to movement in the stock market, but the impact is relatively less compared to money supply and FPI. This assessment shows that liquidity injected to support economic recovery can lead to unintended consequences in the form of inflationary asset prices and providing a reason that liquidity support cannot be expected to be unrestrained and indefinite

To conclude, meteoric rise in Indian stock market is a cause of concern considering the fact that there is no strong fundamental reason but short term temporary reasons which can reverse any time causing the bubble to burst.  Investors especially retail investors should exercise caution when treading into the market and it is advisable to use a mix of equity and debt to achieve their financial goals

Sensex - Reducing fear of Covid?

Sensex closed today @ 51,017 points which is just 2.2% short of the all time high of 52,154 reached on 15th February, 2021.   

2021-22 has clocked till now 2% increase in sensex or 988 points.  Today market posted strong gains due to gains mainly in financial & IT stocks.  Nifty financial services index increased by 0.52% & Nifty IT index increased by 1.76% during the day to move up the index. 

Stocks are projected to be uptick in the short term due to reduction in Covid infections in India, expected better performance of Indian corporate's and rising trend in US & Europe stocks