Even as demonetisation and its fallout on various sectors continued to roil markets, some players seemed to tire of the gloom and doom, and hunted for buying opportunities. With domestic institutions in a bottom-fishing mood, select pockets in the market pepped up and Friday saw a smart rebound in the indices.
Manic metals
This week saw stocks of long-forgotten metal bigwigs like Vedanta, MOIL, Hindustan Zinc and Hindustan Copper lead the gainers list with 9-11 per cent gains, amid largely lacklustre markets. And this doesn’t seem to be a flash in the pan.
If we had asked anyone to guess which sector would lead market gains this year, bet no one would have thought of metals. Yet the BSE Metals Index has set the markets on fire, up by nearly 40 per cent on an YTD basis, while the Sensex has been flat. It has comfortably beaten every other sector index.
Though the year began with gloomy forecasts for global growth, the China factor has proved to be the wild card - in a good way- for metal and mining stocks. A sudden surge in Chinese industrial demand due to a domestic stimulus, topped by recent hopes for a big-ticket infra splurge in the US, have supported the metals comeback.
Zinc has been on a tear this entire year, with spot prices on LME zooming by 66 per cent from $1560/tonne on January 1 to nearly $2600/tonne now. Copper, tracked very closely by macro watchers as a lead indicator of global growth, has been late to party but now seems to be having its best month in a decade.
LME copper prices have shot up from $4700/tonne in January to $5800 levels now, a 23 per cent surge. Of this, 10 per cent of the gains have come in November. After being haunted by fears of excess supply, commodity watchers are suddenly beginning to worry that copper could be in deficit in 2017 .
Silver linings
The tech pack made a comeback of sorts towards weekend, with leaders such as Infosys, TCS and Wipro rising from their recent swoon and gaining 6-8 per cent, helped by the rupee’s life lows. Given the limited blip in the rupee though, this does seem to be an over-reaction.
While the US President did indicate that immigration reform would be among the first items on his agenda, some analysts are taking heart from the fact that drastic anti-immigration actions would not pass the Senate and House of Representatives.
Others took the view that even higher wage costs may not hurt the top tier IT players as they were already on-shoring a lot of their projects.
FMCG stocks, especially biggies such as HUL, also gained after recent hits with the view gaining credence that consumer staples would only be fleetingly impacted by the cash crunch.
But the truth may be that, with the investible universe of sectors and stocks fast shrinking after demonetization, the buy side has to find silver linings where it can.
Red signal
Have you noticed how the IPO market is the last to join the party in bull markets and the first to collapse when the markets tank? The withdrawal of the IPO of vaccine-manufacturer GreenSignal Biopharma this week was a reminder to this. The company, a supplier of vaccines to the Indian government and the WHO, extended its offer period twice and slashed its price band from Rs 76-80 to Rs 68-76. But the big fish – the qualified institutional bidders – simply refused to bite. Data from the exchanges show that while retail investors alone bid 8.5 times their quota, only a fifth of the QIB portion was subscribed by end date.
Not that the offer was a mouth-watering one. The company’s public announcement to announce the extension , mentions that it relies mainly on two products, its EPS and net worth were both negative for two of the last three years and that the firm reported net losses in four of the last five years.
But this setback could have other issuers who have lined up a fat pipeline of offers for the next six months, rethink both their IPO plans and their pricing.
Fat fees
In a nice sideshow, SEBI decided to crack down on one of the many ‘Registered Investment Advisors’ who call us all the way from Indore, promising untold riches from trading in stocks, commodities and foreign exchange.
SEBI has cited a series of rule violations in its order against CapitalVia Global Research, from the firm not following KYC norms, to recommending unsuitable products to clients.
But the really interesting part of the order was the fee it charges for the advisory services. Apparently complaints with SEBI show that the firm charged over 43 clients over Rs 5 lakh each as advisory fees. In one case, SEBI alleges, CapitalVia collected Rs 24.6 lakh as fee from a client when he or she intended to invest Rs 6-10 lakh!
Now this is a business model that every broking firm and equity research outfit would surely love to have.