Moneycontrol Pro Panorama | Are the odds against equities rising?

Why are investors punishing India’s most valuable lender in the private sector?

Dear Reader, 

Clearly, this week has not been flattering for most equity markets across the world-developed and emerging. Most indices are flashing red and investor sentiment that was optimistic until end-2023 is turning cautious.

Indeed, the December quarter earnings declared by a few key global leaders in information technology and banking have been lower than expectations. If in the US, results of Citigroup and Bank of America soured the mood, in India, as seen yesterday, HDFC Bank’s disappointing performance triggered the worst-ever rout in equities since mid-2022.

Read Aparna Iyer’s detailed analysis of why investors are punishing India’s most valuable lender in the private sector. Latha Venkatesh, executive editor, CNBC-TV18 in her column with Moneycontrol Pro argues whether the worst is behind the stock, or, more importantly, will it regain its lost glory?

But it is not just the earnings, which are a reflection of the past quarter, that tripped markets. There is a clear change in the global macroeconomic narrative beginning with the US Federal Reserve’s ability to pivot on rates. Data on US Consumer Price Index (CPI) for December came in above expectations, showing that inflation is still sticky. This, along with robust job numbers, might make the Fed hold off interest rate cuts in Q1. The sharp rise in bond yields underscored this sentiment.

Adding heft to this belief is the comment by Gita Gopinath, the first deputy managing director of the IMF, citing a “bumpy” path towards lower inflation. Read more on this here (FT article specially available for MCPro subscribers) where she suggests that rates should not be lowered until the second half of the year.

As if this is not bad enough, there is rising geopolitical tensions with the Gaza-Israel war that seems to be now spreading to other regions such as Iran and Pakistan, apart from the tension in the Red Sea. While these may appear to be political issues, the economic ramifications will be felt sooner than later. A Reuters report states that Red Sea ship diversions boost bunker demand and prices in Africa and the Mediterranean.

To be sure, analysts often stress on the “bottom-up” approach in stock picking. But this does not imply brushing aside the big picture macroeconomic milieu that finally trickles down to impact economies and company fortunes too. Besides, it is not always that analysts get their bets right.

A case in point is HDFC Bank. Bloomberg reports 44 analysts with buy recommendations, six with “hold” recommendations, and none advising to sell, despite the bank's poor performance.

There are other such instances too where valuations could be questionable. Read Madhuchanda Dey’s insights on LTI Mindtree’s disappointing results. The stock, in fact, is 10 per cent down today. Shishir Asthana’s piece on Lessons learnt from HDFC Bank’s crash offers insights on analysts’ forecasts and company disclosures.

Investing insights from our research team

Asian Paints Q3: Positive demand trends support growth outlook

ICICI Lombard 9M FY24: Healthy earnings and upbeat guidance

LTTS: Light at the end of the tunnel

Tata Consumer Products: Execution remains the key

What else are we reading?

Budget Snapshot: Will government risk increasing capex spends in interim budget?

BHEL looks at opportunities in India’s rising energy demand

How many workers in India meet Narayana Murthy’s 70-hours-a week benchmark?

A power-packed plan that needs political will to work

LEX: Who stands to gain from China’s demographic collapse? (republished from the FT)

The US stock market is eating the world. Where is Paris, London?

Intergenerational Investing: The challenge of protecting and preserving wealth across generations

New Bangladesh Cabinet: Sheikh Hasina sends key pro-India voices packing

Blackstone and BlackRock master the art of moneymaking

Saving Gaza means pressing Iran as well as Israel

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Technical Picks: BSOFT, Shakti Pumps, UPL, IndusInd Bank and Gold mini(These are published every trading day before markets open and can be read on the app).

Vatsala Kamat
Moneycontrol Pro