Markets Start Strong In New Financial Year

• (00:00) Stories Of The Day
• (01:29) Markets Start Strong In New Financial Year, Await Earnings Season.
• (04:04) The Magnificient Seven Becomes The Fabulous Four. Lessons From Wall Street.
• (07:21) China Is Buying Up Gold And Determining Global Prices.
• (09:43) The Auto Sector Continues To Grow And With It, The Economy.
• (10:35) Infosys Gets A Rs 6,200 Crore Refund Notice From The Tax Man. Decoding Its Significance.
• (17:56) Indian Companies Are Reporting Better Credit Profiles, What Does That Mean?

NOTE: This transcript contains only the host's monologue and does not include any interviews or discussions that might be within the podcast. Please refer to the episode audio if you wish to quote the people interviewed. Email [email protected] for any queries.

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The Markets Open On A Tear

The markets opened the new financial year on a strong wicket hitting record highs, setting what many hoped would be the tenor and direction for the coming months.

Interestingly, metal companies led the charge, jumping 3.7% after data showed China's manufacturing activity expanded for the first time in six months in March.

JSW Steel and Tata Steel  rose close to 5% each and were the top gainers on the Nifty 50, while Hindustan Copper  surged 11.44%, Reuters reported.

More on China in a bit.

The NSE Nifty 50 index was up 0.61% or 135 points to 22,462, while the Sensex  added 0.49% or 363 points to close at 74,014.55.

The last time both indices hit record highs were approximately three weeks ago, though on different days.

Next week will be the start of the quarterly earnings season as well, of course the year end and full year results for India Inc.

This will no doubt provide fresh triggers to the market, both on the upside and maybe in some cases on the downside.

Interestingly, the mid and small cap rally that had paused, crashed and stalled, as we mentioned in recent editions of The Core Report appears to have firmly resumed its upward journey. 

The small-  and mid-caps added 3.26% and 1.74%, respectively yesterday.

We have been talking about the rupee in general and its movements in recent days.

Some figures are out. The Indian rupee overall depreciated in the last financial year, though by 1.5% which means it has largely held or been made to hold steady. The year before, it was down close to 8% so it did better in 2023-24.

The outlook for the rupee is generally good because of record forex reserves at $642 billion and steady foreign inflows expected, particularly into debt and equity markets, apart from other flows like remittances and FDI, the last of which has been relatively weak.

And of course with the US Federal Reserve set to cut rates from June, then that will reduce the strength of the dollar which in turn has been pushing down currencies world over. 

The Magnificent Seven Becomes The Fabulous Four

You have to hand it to whoever comes up with these terms just in time to describe an entire market shift on Wall Street, in this case.

The news is not so relevant for the stocks themselves which of course all have an India play in some way or the other except maybe Tesla but more importantly for how markets keep shifting.

The headline is this. The Magnificent Seven is losing its allure or rather the seven stocks together are no longer firing in the same intensity. And yet indices on Wall Street are still rising. 

The Wall Street Journal is reporting that the S&P 500 climbed 10% in the first quarter, its best start to a year since 2019, even though two of its biggest constituents suffered double-digit declines. 

Apple shares fell 11% in the first three months of the year, while Tesla 

 dropped almost 30%. Alphabet shares were slow for much of the period before making a run in the past three weeks and ending up 8%.

The other four big tech stocks in the group known as the Magnificent Seven— Nvidia, Meta Platforms, Microsoft and Amazon, —continued their meteoric run and outpaced the broader market. 

So now, some market strategists are calling them the new Fab Four.

Even if it's temporary, this is fascinating stock market Darwinism, I would think.

So while Apple and Tesla have fallen back, various other sectors or the broader US economy are doing well. 

All of the S&P 500’s sectors, except real estate, logged gains in the first quarter. Small-caps, industrial and financial-services stocks are among those that jumped, fueling bets that the broader market might have more room to run.

Incidentally, the S&P 500’s market value has risen more than $9 trillion since late October, and the index has set 22 record closes in 2024, the WSJ said.

India’s market capitalisation is around $4.75 trillion. 

Nvidia shares have jumped more than 80% to start the year, after more than tripling in 2023. 

Interestingly, Nvidia also appears to have displaced Tesla as the most popular stock among individual investors. It is currently the biggest average holding in individual investors’ portfolios, at about 9%, VandaTrack data show, the WSJ said.

More interestingly, the WSJ says that last year, any hint of weakness in the Magnificent Seven would have sent the broader market tumbling. In fact, for much of the year, those seven stocks were responsible for all of the S&P 500’s advance.

But this year, despite Tesla’s struggles present and forthcoming as well as Apple’s varying challenges including on competition issues, the markets are strong. 

China Is Powering Gold Prices Again

China is buying up the world’s gold, it appears. 

First, in India, gold futures hit an all-time high on Monday, thanks in turn to record prices globally. 

Domestic gold futures rose to 69,487 Indian rupees ($834.07) per 10 grams, up nearly 10% so far in 2024, Reuters reported.

India's gold imports are already set to plunge by more than 90% in March from the previous month to hit their lowest since the COVID pandemic, a government official and two bank dealers told Reuters last week.

Globally, gold rose to record levels on hopes - the market sees it as indications - the Federal Reserve is getting closer to cutting interest rates.

Bullion jumped to as much as $2,265.73 an ounce on Monday, up 1.6% from Thursday’s close, after setting a series of peaks in recent sessions.

Central banks like China are loading up on bullion. The nation’s central bank has bought huge amounts  of bullion to its reserves, boosting holdings in each of the past 16 months. 

In addition, gold-buying has been gaining in popularity among younger Chinese, Bloomberg reported.

JPMorgan Chase & Co. said last month that the metal was its No. 1 pick in commodities markets, and the price may reach $2,500 an ounce this year. Goldman Sachs Group Inc. said it sees potential for $2,300, highlighting the benefits from a lower interest-rate environment.

GST Collections Up 11%

India’s Gross Goods and Services Tax (GST) collections, an indicator for overall economic activity, were up 11.5 per cent year-on-year growth in March at Rs 1.78 trillion, the Government’s finance ministry announced on Monday. 

This was the second-highest GST collection ever, with the  highest-ever GST collection recorded at Rs 1.87 trillion in April 2023.

The Government says average monthly collections, a slightly better figure to look at, for FY24 were Rs 1.68 trillion, exceeding the FY23 average of Rs 1.5 trillion. 

Car Sales Hit Highs For Year

If indirect tax collections are strong, obviously goods like cars are selling more.

All car majors reported higher and mostly record sales for the year ended March 31, 2024 as well as for the month of March which just went by.

The auto sector carries more than 50% weightage in calculating the country's economic growth and of course reflects the strength in private consumption..

Also, as we have been reporting here, demand for sports utility vehicles has driven sales of overall passenger cars. Utility vehicles accounted for nearly 60% of total passenger vehicle sales from April 2023 to February 2024, according to industry data.

Industry leader Maruti Suzuki led the pack in reporting good numbers. Maruti said it crossed sales of 2 million units, including exports of around a quarter million. 

Infosys Says It Will Get A Refund, What Does It Mean?

Shares of Infosys jumped 2 per cent to a high of Rs 1,528 in Monday's intra-day deals after the IT major said it expected a tax refund of up to Rs 6,329 crore.

Infosys in an exchange filing on Saturday said it received orders from the Income Tax Department for assessment years starting 2008 onto 2019, according to which the company expects a refund of Rs 6,329 crore (including interest).

Infosys has said it was evaluating the implications of these orders on the financial statements for the quarter and year ending March 31, 2024, the release stated.

Infosys was also slapped with fresh tax demands of close to Rs  3,000 crore including subsidiaries. 

The fresh demands would obviously negate to some extent what the tax department owes Infosys.

This of course raises a larger question. What do these refunds mean and what do they represent in terms of the nature of the tax collection system and the rather high amounts involved ? 

I reached out to Ajay Rotti, founder of Bangalore-based tax strategy and advisory firm Tax Compass and began by asking him how one should interpret these large refunds.

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Credit Quality Improves For Companies Ahead of Capex Cycle Surge

Healthy balance sheets of companies eventually translate into a healthy economy, at least the private side of it, or for that matter even state owned companies.

Right now, this is also seen as an important precursor to imminent investments in growth and expansion, particularly where debt is involved.

Strong balance sheets whether of companies or industries are an important benchmark to assess stock market strength as well, so stay on for this slightly longer report.

Indian companies continue to see good credit quality in the last six months thanks to deleverage balance sheets, sustained domestic demand, and government-led capital expenditure. 

Rating upgrades continued to surpass rating downgrades in H2FY24. In all, there were 409 upgrades and 228 downgrades in H2FY24, rating agency CRISIL said yesterday.

Finance companies, which one would have concluded are under some stress, are doing broadly fine.

The credit ratio, an important ratio to watch and we will come to why shortly, was down slightly to 1.79 times in the second half of the financial year 2024 (H2FY24) compared with 1.91 times for April-September 2023 (H1FY24).

In an expanding economy, the question to ask obviously is first, how healthy are balance sheets at this point and second, how well are they placed to borrow for capacity expansion in specific and growth in general which could include working capital, if they so desire to borrow.

Revenue of the  upgraded companies grew around 13 per cent in the financial year 2024, largely led by a pick-up in volume.

 With balance sheets in most sectors at their healthiest, capacity utilisation around peak levels, and expected interest rate cuts, a broad-based pick-up in private capex is finally in sight, Crisil said.

Looking ahead, some  21 of 26 corporate sectors tracked by CRISIL have strong to favourable credit quality outlooks. 

This is marked by robust balance sheets and healthy operating cash flows — expected to be as much, or higher, than in FY24. 

Sectors with a better asset quality outlook include auto-component manufacturers and hospitality and education sector companies, where credit quality is supported by healthy domestic demand.

CRISIL said it also covers sectors benefiting from the government's infrastructure spending, such as construction companies and steel, cement, and capital goods manufacturers.

Sectors that could be in for some tough times include speciality chemicals, agrochemicals, textile cotton spinning, and diamond polishers, largely because of global macroeconomic conditions, which are subdued at present. 

On the flip side, even for these sectors, the balance sheets are strong, and hence, the outlook on the sectors is stable to moderate, CRISIL added.

I reached out to Somasekhar Vemuri, Senior Director at Crisil and began by asking him what the new set of numbers were telling us.