After being on the verge of surpassing pre-demonetisation levels, the markets developed cold feet on Friday. The BSE Sensex ended the week at 27034, some 550 points short of its November 8 close. The Nifty 50 was a good 194 points short of that watermark.

As everyone tunes in to the US presidential inauguration scheduled for today, the equity markets seem to be losing some of their breezy optimism that a Trump presidency will prove quite a good thing for the global economy.

Spotlight on Trump

In the past week, there have been signs of things to come from Trump’s twitter warnings to foreign carmakers that the US would slap high import tariffs on shipments from across the border. This has had some global majors scurrying to relocate their new automobile projects from Mexico to the US, though this is likely to prove an expensive affair.

https://www.thehindubusinessline.com/specials/auto-focus/carmakers- come-to- terms-with-new- us-diktat/article9490690.ece

This should be a heads-up to the big Indian exporting sectors (IT and pharma), and the investors in their stocks, that they can’t expect business as usual under the new POTUS.

First mover

The primary market, which has been in hibernation since the note ban, is finally waking up. The much awaited IPO of BSE, India’s oldest stock exchange is opening on January 23 at a price band of Rs 805-806.

On the plus side, the offer seems to be modestly valued at an asking market capitalisation of Rs 4,200 crore, for a business that is scarce in the listed universe, generates a 40 per cent operating profit margin and is cash rich. Both margins and profits are expected to see a bump up next year, from BSE’s planned stake sale in CDSL and the new SEBI rule waiving the transfer of one-fourth profits to the settlement guarantee fund.

But on the flip side, analysts are worried about the lack of growth visibility. With BSE steadily losing market share in the equity segment, it is relying on the currency segment and experimental forays such as SME listings and the bond and MF platforms to drive earnings. Falling rates can also curb its significant treasury income.

While some market players seem inclined to wait for arch-rival NSE, which runs a far more attractive business, a bird in hand may be worth two in the bush. The recent governance troubles dogging NSE suggest that the IPO may not come up soon. Both the exchange and its private equity investors may be keen to complete a spring cleaning exercise so that the offer pricing doesn’t suffer due to the cloud over the exchange.

PSUs popular again

Tranche 2 of the CPSE ETF, which was offered by Reliance Nippon Life AMC this week, has reportedly seen enthusiastic retail response.

It is not clear what drove this response though, given that units of tranche 1 have been available on tap for anyone who wants to buy them for the last two years. It could be that investors have been attracted by the 5 per cent discount to market price that the government is kindly offering on this ‘further fund offer’. Or more likely, investors are enamoured of the 60 per cent till-date return on the first CPSE ETF launched in March 2014 (after counting discount and bonus units).

But the markets had already been warming up to PSU stocks in the last couple of months given their low valuations (the CPSE index is at a 11 PE), and the expectation that the Government will emerge a big ticket spender to boost the economy in the coming months. It will have to route at least part of its splurging through PSUs.

Bounty for insurers/MFs

Two unexpected segments to have made hay from the note ban are Indian insurance majors and the mutual fund industry. In December mutual funds recorded a second consecutive month of extra-high net inflows at Rs 9,196 crore, on top of the Rs 8,068 crore they raked in in November. The industry body was quick to celebrate 1 crore SIP accounts, which now bring in nearly Rs 4,000 crore a month.

Insurance companies, particularly private players, have also seen a 26 per cent jump in the adjusted premiums for December on top of a blockbuster 42 per cent increase in November. The explanation for this sudden interest in financial products seems to be that investors with large cash holdings in old notes, instead of idling it at their bank, have chosen to take the equity plunge.

The markets seemed to be quite happy with this bounty, with the newly listed ICICI Pru Life stock registering a steep climb this week to Rs 359. With the stock finally crossing its offer price of Rs 334 (it listed well below it at Rs 297), IPO investors must be breathing a little easy.

These MF and insurance flows have also helped to cushion Indian indices from the steady FII exodus which has continued into the New Year. But the question to ask is whether these good times will last.

Given that all old note holders would have invested their excess cash by December 30, what will make them retain their recent enthusiasm for MFs and insurance in the coming months?

Results kick off

After many attempts to ‘model’ the impact of demonetisation into their excel sheets, most analysts seem to have thrown in the towel. The market now seems to be waiting with bated breath for the October-December quarter numbers for India Inc for hints to the demonetisation impact.

Unfortunately the initial string of numbers have all been from the tech majors (who have little to do with the domestic economy) and banks (whose big picture numbers on credit and deposit growth are already available from RBI statistics). They have provided little clue as to the demonetisation impact.

After 8.6 per cent growth in net revenues and 7 per cent increase in net profits year on year, Infosys has tweaked its revenue guidance for FY17 to 8.4-8.8 per cent growth from 8-9 per cent earlier. The one interesting takeaway from the results was that the management is bracing for Trump presidency by hiring more staffers onsite.

TCS’ 8.7 per cent revenue increase and 11 per cent PAT increase was slightly better in absolute terms but failed to beat Street estimates. With the Infosys stock trading at about 15 times FY18 estimates, still cheaper than TCS’ 17 times, brokers are still holding on to buy ratings on the former and sell on the latter.

Mystery unsolved

With the cash crunch hitting all kinds consumer spending, all eyes have been on the RBI to gauge the supply of new notes. The view is that once the currency supply gets back to pre-November 8 levels, one can see a semblance of normalcy return to the economy and particularly to consumer stocks.

After keeping and mum on this aspect for quite a few days, the RBI governor this week told a parliamentary panel that notes valued at Rs 9.2 lakh crore have been infused into the system. Everyone was instantly cheered, as that is 60 per cent of the high value notes (Rs 15.4 lakh crore) withdrawn.

But smart folk have quickly compared this with the stats from RBI’s latest data release to find that the ‘currency in circulation’ is also at Rs 9.5 lakh crore! So after adjusting for Rs 2.5 lakh crore in small denomination notes, there’s speculation that the notes remonetised by RBI could be just about Rs 7 lakh crore (less than half of those withdrawn).

In short, with RBI taking its own sweet time with money printing, normalcy for the economy and markets is still some way away.

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