Daily Market Update – JAN 13

unnamed Daily Market Update   JAN 13

The Nifty and the Sensex achieved another milestone on Tuesday. The valuation of the Nifty in terms of the Price Earnings ratio or the P/E ratio touched 40X for the first time in history. This is much higher than the levels that the Nifty had achieved at the peaks of 2008 or even prior to the COVID crash in late 2019. At the same time, the Sensex is just about 500 points short of the psychological level of 50,000. The Sensex had touched 40,000 around late 2019, so this is the fastest journey of 10,000 points, especially considering that during this period, the index crashed in March and then recovered sharply.

The MOSPI announced CPI inflation or retail inflation for the month of Dec-20 at a surprisingly low level of 4.59%. This is a sharp fall from 6.93% in the month of November. The sharp fall in inflation was led by food inflation which dipped sharply to just about 3.5% with vegetables inflation dipping to -10% for the month of Dec-20. Food inflation has a weightage of almost 46% in the CPI inflation basket and that kept the overall inflation also low. The only concern is that core inflation, which is the inflation excluding food and fuel, continues to remain at elevated levels of 5.66%. While the overall inflation has fallen, there are concerns in the form of crude oil prices touching $57/bbl on Saudi supply shortfalls. The RBI has in fact disconnected monetary policy from inflation and hence should not impact the rates stance of the RBI.

While CPI inflation was lower than expected, the index of industrial production or IIP dipped into negative level of -1.9%. This was a tad disappointing as this fall came after two months of positive IIP growth. In fact, the IIP growth in November had improved sharply to +4.19%. There was deterioration in IIP traction across the board. While mining slipping deep into the negative and manufacturing moved from positive to negative, even electricity production did lose a lot of momentum in the month. Weak growth has been one of the key considerations of the RBI MPC and that should hold rates at low levels.

Brent Crude prices touched another high of $57/bbl and have now rallied from a low of $36 in a span of just over 2 months. The latest burst in price of crude came from Saudi Arabia confirming that it will be cutting another 1 million barrels per day or bpd of crude oil supply each month in February and March. In addition, the US stockpiles have also fallen sharply. There are also hopes that the latest rounds of stimulus would pave the way for higher oil demand. Oil markets are not sure about Biden’s stand on fracking on Federal land parcels and that has also kept the oil markets guessing, leading to higher prices.

A day after there was speculation about a possible manufacturing and market tie-up between Tata Motors and Tesla, it has been officially confirmed that Tesla has set up its India office in Bengaluru and also appointed three persons to the board of directors of the company. Tesla had been exploring its entry into India over the last 3 years and had been exploring with a number of state governments. Bengaluru offered the best of technology expertise as Tesla is looking to set up an R&D centre here. It is not clear if this is in any way indicative of their larger plans to make India a manufacturing hub for Tesla.

It looks like microfinance appears to be the flavour of the season with East based Arohan Financial Services likely to shortly launch an Rs.1500 crore IPO in the Indian markets. The IPO size is expected to be Rs.1500 crore of which Rs.700 crore will be by way of fresh issue and the balance will be through offer for sale or OFS. At present, the company is in talks with potential lead managers to get a colour of the market and evaluate pricing options. Arohan Financial counts among its existing investors, Tano Capital and Aavishkar Goodwell. American billionaires Michael Dell and Susan Dell are also early investors in this MFI. The IPO was scheduled in 2019 but had to be shelved due to market conditions. The IPO is now being planning to hit the market in July or August. Over 98% of its borrowers are women.

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