Markets Duck RBI’s Bouncer

Author

Yash Upadhyaya
March 06, 2024

Tale of the Tape 

Howdy folks. Markets were volatile AF! 🎢

Nifty and Sensex pulled back sharply in the final hour of trade to hit a new all-time high. However, Midcaps (-0.5%) and Smallcaps (-2%) had an awful day. The advance-decline ratio was in favour of the bears (3:2). 🤼

It was a mixed-bag kinda day for sectors. Banks (+0.8%), IT (+0.8%) and Pharma (+0.6%) saw decent gains. Real Estate (-1.3%), Oil & Gas (-1%) and Metal (-0.5%) stocks witnessed the most selling pressure. 📉

JM Financial (-10%) is the latest to get hit by RBI restrictions. What are regulators trying to tell us? Read our top story below. 🚨

Mahanagar Gas plunged -15% after the oil minister’s grim warnings. More details below on why the stock is in trouble. 🤯

Gopal Snacks’s Rs 650 cr IPO opened for subscription today. Our analysis below will help you decide whether to invest. 🔍

IIFL Finance was locked in a -20% lower circuit for the second day in a row. Prem Watsa’s Fairfax has pledged $200 million in liquidity support to the group. 💸

Indiabulls Real Estate cracked -10% after the Maharashtra Govt ordered the company to vacate a 500-hectare land plot in Nashik. ❌

Aavas Financiers (+2%) was in focus after brokerage Citi said it sees a +31% upside from current levels. 🚀

Block deal reactions. Zomato fell -2% after 19 crore shares, or 2.2% equity, changed hands; reports say Ant Fin is the likely seller. Samvardhana Motherson dropped -4% after 4.91% equity, or 33.2 crore shares, changed hands; reports say the promoter likely sold 4.4%. 🤝

Sun Pharma hit a 52-week high after reports said the USFDA gave a clean to its Ankleshwar API unit. ✅

Bharat Dynamics will consider approving a stock split and interim dividend on March 21. REC Ltd board may approve a third interim dividend on March 16. 💰

RK Swami IPO was oversubscribed by 30x on the final day. 🤑

Here are the closing prints: 

Nifty

22,474

+0.5% 

Sensex

74,086

+0.6%

Bank Nifty

47,965

+0.8%

Stocktwits Alert 🚨🚨🚨

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Market
Fishy Business?

JM Financial NOSEDIVED -19% today after the RBI banned it from IPO financing or giving loans against shares & bonds. The regulator said it found “serious deficiencies” in the way it disbursed loans for both activities. It will also conduct a special audit to review other unnamed “serious governance” issues. ICYMI - this is the fourth big move by regulators against issues in the broader financial system. 🚨

The RBI officially kicked things off last year, when it cracked down on personal loans. After that, action against Paytm Payments Bank followed. Then it came for IIFL Finance and its gold loans. And now, JM Financial’s IPO financing activities. Also, let’s not forget SEBI’s recent warnings about the froth in midcaps & smallcaps. 👀

There are two ways to look at this. You can complain, as some experts have, about heavy-handed regulation. Or you can try to look at what regulators are trying to say. 🤔

For starters, it’s clear they want to prevent a potential crisis from building up in ANY major sector. Personal loans are GREAT for a bank’s growth; less so when they are unsecured and can blow up. It’s GREAT when Paytm sees merchant account growth; but not really when KYC rules aren’t followed. It’s awesome to see insane HNI action in IPOs, but not really fun if firms like JM Financial are allegedly acting as “both a borrower and lender”. 🙈

Secondly, the RBI appears upset it had to take drastic steps. It has gone out of its way to say in the case of Paytm and IIFL, discussions with the companies led to NOTHING getting resolved. This is INSANE. Regulatory bans hurt customers and investors the most. How is it possible that companies let this spiral out to this point? 👎

TL;DR: The financial sector crowd is right to be on edge. Yes, India’s regulators need to communicate better, but it’s also clear many companies need to set their houses in order. 💯

Specials

4 Stocks To Buy In March - By SEBI RAs

Markets are at their all-time highs but is it a good time to invest now? In this video, we cover 4 investment ideas by SEBI RAs which can deliver healthy returns even from current levels.

Stock

MGL Runs Out Of Gas!

Mahanagar Gas (MGL) CRASHED -16% after the GOI warned that it may take action on city gas firms that hadn’t cut prices. ICYMI - oil minister Hardeep Puri was mildly upset over how the “full benefits” of natural gas reforms hadn’t reached the end customer. 👎


The quote that crushed MGL today: “As a minister, I have taken some drastic decisions, we are willing to take more drastic decisions. I’m not saying it’s his fault or my fault.” 😤

Matters quickly snowballed. The company cut CNG prices in Mumbai by Rs 2.5 p/kg to Rs 73.50. Brokerage Citi downgraded the stock to a ‘sell’, noting that Mahanagar Gas’s margins could be squeezed more by regulatory pressure. 📉

For the unaware, companies like MGL have KILLED it due to three factors. City-based monopolies and sky-high margins. Both now may be coming to an end. FYI - MGL’s exclusivity in Mumbai came to an end in 2021. Experts believed the company would challenge this in court, but it looks less likely now. Talk about “minimum government, maximum governance”. 😣

Markets were clearly not happy with the Stocktwits Sentiment dropping into the “extremely bearish” territory. ☠️

IPO

Gopal Snacks IPO Review 

Gopal Snacks IPO is open for subscription! The price band is fixed at Rs 381-401 p/sh. The company aims to raise Rs 650 cr from the IPO. 💸

Founded in 1999, the company is a leading maker of local savoury snacks. It has traditionally been known for its Gujarati-style gathiya, where it has a 31% share in the organised market. Small snack packets, priced Rs 5-10, are its key products and account for over 80% of its SKUs. FYI - for over a decade, the company was primarily a Gujarat-based player but it’s also expanded into Maharashtra, Madhya Pradesh and Uttar Pradesh in recent years. 📊

Fun fact: Gopal Snacks is one of the few companies that has its own supply chain. The firm has a fleet of over 200 logistics vehicles + 40K mt cold storage capacity. Overall, it has 617 distributors, which allows it to reach customers in 523 locations across 10 states. 🚚

FYI - the IPO is completely an ‘Offer for Sale’ of shares. This means no money will come into the company, which is a bit of a negative tbh. 🤷

FY23 snapshot:

  • Revenue: Rs 1,394 cr; +3% YoY

  • EBITDA: Rs 196 cr +106% YoY

  • EBITDA Margin: 14.1% vs 7% YoY

  • PAT: Rs 112 cr; +173% YoY

Big Picture: The Indian savoury snacks market is projected to grow at an 11% CAGR over FY23-FY27 to hit Rs 12,100 cr. Gopal Snacks has also been KILLING it, with a huge bump in FY23 margins. Key future risks include whether it keeps this up as it expands further into commodity snacks (like besan-based products) and builds a new logistics network to move beyond North India. FWIW - the IPO is reasonably priced and current grey market data suggests it may list at a decent 16% premium. 👌

Stocktwits Spotlight

One question we always struggle with is- Is it the right level to buy? Get all your queries answered around your fav stocks. Join in for a fun AMA with Orchid Research, a SEBI-registered RA. Drop in all your questions here:

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