Hoaxes, frauds, manias, and other large-scale financial irrationalities have been with us from the beginnings of the markets in the seventeenth century, long before the Internet. - Edward Thorp
Foreign institutional inflows as well as domestic inflows through SIPs have been quite strong of late, but one should not be reading too much into it, cautions Kotak Institutional Equities. That is because a good chunk of the money coming in is ‘passive’ flows, which means money flowing into index funds and exchange traded funds.
From the Kotak note:
“The strong passive FPI inflows into India in recent months may simply be driven by the top-down excitement of foreign households around India and the expectation of certain returns, which may or may not materialize in the future. Similarly, large SIP inflows into mutual funds may reflect expectations of certain returns of domestic households related to returns from other asset classes and/or historical returns from equities.”
The reason why passive flows can be a misleading indicator is that they tend to exacerbate uptrends and downtrends. More importantly, active fund managers won’t step and start buying just because passive money flows are taking the market higher, points out Kotak. “The rich valuations of most stocks in the consumption and investment sectors would logically suggest an unfavorable reward-risk balance,” says the note.
Lupin
The stock closed at its highest level in 16 months, boosted by approval for the generic version of anti-asthma drug Spiriva. But the party in the stock
could well be drawing to a close for the time being, judging by the analyst commentary as well the F&O data. Bernstein, Kotak, Jefferies, JM Financial and Systematix have all retained their neutral to bearish ratings on the stock saying the current price is factoring in the earnings boost from the launch. There was a massive surge in call options of Rs 900 strike and Rs 880 strike. Volumes in the 900 strike jumped almost 100 times and those in the 880 strike surged 50 times. Open interest in these contracts leaped over three-fold and near four-fold, respectively.
This frenzy indicates there is a big crowd out there which believes the stock is set to rise further. It is mostly institutions and HNIs who write (sell) options, while buyers of options are mostly retail investors. There have been instances when smart money has lost their shirts to retail frenzy. But this time the odds appear to be stacked against the buyers of the options. Lupin may be a good long term turnaround story, but for the moment fund managers are unlikely to bite.
Delhivery
Carlyle is set to sell 1.84 crore shares or roughly 2.5 percent of the company’s equity through a block deal today. Of late, the trend has been of stocks rising after a block deal (HDFC AMC, Shriram Finance) as bulls are holding forth two arguments: (a) the supply overhang is gone and (b) there are enough takers for the stock. Delhivery’s stock price move today will be a test of the theory.
While quite a few stocks have rallied after huge block deals, the market has been less charitable to stocks of new-age businesses, reason being that the supply of shares from pre-IPO investors just does not seem to end. Delhivery shares are up around 30 percent from the lows of January after a few analysts turned bullish on the stock saying valuations are pricing in the worst.
Relative to its own historical valuations, the Delhivery stock may appear cheaper, but the competition is necessarily not with oneself, but with rivals who are far more profitable. At this point, ‘Dilli abhi door hai’ for Delhivery.
Make Wall Street Great Again
While most of us are transfixed by Nifty tiptoeing around its all-time high, the biggest rally of the year is well underway in the mother market.
The S&P 500 has risen a hefty 14 percent this year – easily beating the 8.5 percent advance by the MSCI All Country World ex-USA Index (which tracks developed and emerging-market stocks). The Nifty is up 3.6 percent on YTD basis.
American investors are reverting to US stock funds, reports WSJ. They have added money on a net basis to equities-focused mutual and exchange-traded funds for three consecutive weeks, including $23.78 billion in the period ended June 14 - the highest weekly sum since December.
At the same time, interest in global stocks has faded. Global equity funds just logged the biggest weekly net outflow since October 2022, posting net outflows for five of the past nine weeks.
Comeback Kid
Bitcoin may not be making headlines, but there are investors who still haven’t lost faith in the crypto currency. Bitcoin appears to be making a silent comeback with its price jumping above $30,000 following a series of recent applications from traditional financial firms. Investors are growing bullish about the prospects of BlackRock and others like Valkyrie and Wisdom Tree filing for Bitcoin ETFs.
Auto Meets Autocracy
Germany auto giants Volkswagen, BMW and Mercedes-Benz have been accused of using forced labour in their Chinese supply chains, in one of the first official complaints against domestic companies to be brought under the country’s new supply chain law.
On Tuesday, Berlin-based NGO European Center for Constitutional and Human Rights said it had filed a complaint with German regulators against the big three for their alleged links with forced labour in China’s region of Xinjiang.
The new German law, that came into effect at the start of 2023, requires large companies to ensure human rights and environmental issues in their supply chains are monitored and addressed.
Penalties range from a fine of up to 2 percent of total annual global sales and exclusion from government contracts for up to three years.
Abhishek Mukherjee contributed to this article.
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