“Companies focused on stock price will eventually lose customers. Those focused on customers will eventually boost their stock price. This is simple, but forgotten by countless managers.” - Morgan Housel
Tech stocks are to be avoided for the foreseeable future-that is the common refrain in the market right now after disappointing numbers from tech bellwether Infosys. The overall market sentiment has improved considerably over the last three weeks, but investors are in no hurry to loosen their purse strings.
Angel One
Yet another strong quarterly performance from broking firm Angel One; net profit up 30 percent year-on-year, revenue up 21 percent and operating margin up 310 basis points. This underscores a market truism that whether or not customers make money, the broker always does. But investors have cooled to the broking story a few quarters back. This can be seen from the lower valuations that broking stocks in general are now getting.
Angel has grown its net profit and revenues in eight out of the nine previous quarters, but the stock is now available at a trailing price earnings multiple of 12 times, compared to 25 times during the same time last year. The stock is a good 34 percent away from its record highs seen in April last year despite consistent growth in earnings. One reason for the apathy to broking stocks is that retail investors are not rushing to the market with the same enthusiasm as was seen till a few months back. New account openings have slowed down and are expected to stay that way for a while given mediocre returns from equity for about a year now.
But a bigger worry is that regulatory changes will make it hard for the broking industry to repeat the growth rates of the past. Sebi's greenlight for the use of ASBA in secondary markets for cash market transactions may soon extend to F&O transactions as well, many feel. This will starve brokers of the interest they have been earning on ‘float’, i.e. the customer money lying idle in trading accounts, a major revenue stream for brokers.
HDFC Bank
The stock fell over 1 percent on Monday after the company’s fourth quarter earnings fell short of what market was expecting. There were enough positives though: strong growth in loans, deposits and improvement in asset quality. Deposit growth has been a major pain point for most banks. As Digant Haria of Green Edge Wealth points out, even banks which have managed to show decent deposit growth have had to pay dearly for it.
He says that HDFC Bank’s deposit growth has come at a cost, as the bank is offering higher rates than its peers for the first time in 12-13 years. Near term outlook on banks is much better than for most other sectors. But much of the good news already appears to have been priced in. Investors will be keeping an eagle eye on net interest margins (NIMs) to decide what multiples they should be paying for bank stocks.
Rally without cheer
The recent rally in mid-caps and small-caps has been of little cheer to big ticket traders (read market operators). That’s because liquidity has not been good enough for them to be able to move in and out of large positions quickly. Many of them are said to be stuck with huge positions in flavour-of-the-season midcaps like sugar and railway. Till about a year back, operators could always count on the good offices of some friendly mutual fund and PMS fund managers to bail them out.
But average quarterly earnings from front-liners like TCS, Infosys, HDFC Bank has made investors all the more wary about second line stocks. Besides, closer scrutiny from Sebi is giving a pause for thought to portfolio managers before entering into cosy deals with market operators. In addition, investors appear reluctant to overpay for even the best of stories in this market.
In case of railway stocks, many are no longer reacting to a steady stream of order win announcements over the last couple of months, making it difficult for operators to cash in on their paper profits.
China GDP
The Chinese economy grew 4.5 percent in the first quarter, more than what opinion polls showed. This is the highest growth since the first quarter of 2022.
From CNBC.com
“But economists have warned China’s economic recovery could take longer than expected — with the likes of Citi pushing back its target for the Hang Seng index by three months. While most analysts polled by Reuters don’t expect to see a change in the central bank’s benchmark lending rate, some believe the People’s Bank of China could marginally cut its one-year loan prime rate if China’s inflation slows further.”
Wide range
Worries about a steep rise in crude prices because of the recent production cuts by OPEC may be overdone. Predictions by four energy agencies for oil demand growth in 2023 vary widely, says a report in oilprice.com.
“…..the only common theme being that all four expect demand to grow compared to 2022, but all are less optimistic than they were a year or so ago.
The OPEC Secretariat is the most optimistic, and has predicted that demand will grow by some 2.3 million barrels per day while the International Energy Agency (IEA) sees demand expanding by 2.0 mb/d. On the lower end of the spectrum, Standard Chartered is the least optimistic, and sees demand growing only 1.3 mb/d while U.S.-based Energy Information Administration (EIA) expects growth to clock in at 1.4 mb/d.”
China lithium
China’s lithium market maybe close to a bottom after a 66 percent collapse in prices over the last five months, reports mining.com.
“The declines came as companies across the battery supply chain avoided high prices by drawing on inventory rather than buying afresh, while the end to Chinese subsidies on EVs and a price war among automakers curtailed demand. Although the slump has offered some relief to downstream customers, the mineral is still over four times more expensive than the low hit in 2020.”
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