Tale of the Tape 

Good evening everyone. Markets got absolutely thrashed! 🤕

Nifty (-1.5%) and Sensex (-1.2%) took a beating amid a broad-based sell-off. The SEBI’s bubble warning prompted Midcaps (-4%) and Smallcaps (-5%) to crash. FYI - Smallcaps recorded their biggest single-day fall in over a year. Also, only 19 stocks in the NSE 500 ended in the green! 🚨

Except for FMCG, which ended flat, it was a sea of red across sectors. Metals (-5.7%), Real Estate (-5.3%), and Oil & Gas (-4.9%) saw the most selling pressure. 📉

Healthy correction or the first signs of a bubble popping? Read our top story below on why SEBI is waving a red flag. 🚩 

ITC (+4%) was the top Nifty gainer after the BAT overhang was removed. Meanwhile, JG Chemical’s weak market debut may not be the end of its story. More details below. 🙏

Sterling and Wilson Renewable Energy was locked in a 5% lower circuit after reports claimed its promoter was looking at a stake sale; the firm has denied the rumours. 🤔

Paytm hit a 5% lower circuit for a second day in a row as the RBI deadline for the effective closure of its payments bank looms large. 👀

Jubilant FoodWorks (-3%) was in focus after CLSA cut its target price on the stock to Rs 439 p/sh. 🍕

Muthoot Capital rallied +6% intraday on a new electric 2-wheeler financing deal; the stock ended in the red tracking overall market weakness. ✂️

Here are the closing prints: 

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Market
Time To Book Profits (If Any)

How’s the josh guys? Dangerous, according to SEBI boss Madhabi Puri Buch. ICYMI - the market regulator has warned there’s a BUBBLE in smallcaps, midcaps and SME IPOs. 🎈

In Buch’s own words: “Some people may call it a bubble. A bubble will burst because, by definition, bubbles burst”.  She also hinted that valuations of many were “off the charts” and “not supported by fundamentals at all”. Yikes. There’s no doubt that midcaps & smallcaps are overheated. Fun fact: the top active fund by AUM is now a midcap fund and the 5th largest fund by AUM is a smallcap fund! This is INSANE. 🤯

That said, there’s good and bad news. It’s sad for our portfolios, but the big ‘positive’ here is that the market is already correcting! The Nifty Smallcap Index is down -10% from its February highs. Over 80 out of the index’s 100 stocks have been in the red since then. Market favourites like Suzlon, SJVN, Angel One, and NBCC are down -20% since early Feb. 📉

Mutual funds are also applying the brakes. FYI - ICICI Prudential joined a few other mutual fund houses to stop lumpsum investments in smallcap & midcap funds. Less MF inflows = less liquidity = less overall gains for midcaps and smallcaps. That will help stop the crazy party bubble the SEBI is worried about. 😣

But then there’s the bad news. It’s the ‘we don't know how bad it really is’ argument. Hawala operators in Dubai inflating penny stocks, firms like JM Financial allegedly propping up IPOs etc. It’s possible that the bubble won’t burst with a whimper but with a BANG. FYI - this is why SEBI’s upcoming mutual fund stress test is SO important. It will tell us how well midcap & smallcap stocks will hold up if investors rush towards the exit door. 👀

Specials

Vodafone Idea Multibagger Soon?

Vodafone Idea is off to a rocky start. From hitting fresh 52-week highs to falling -20% YTD the stock has seen it all. But, is this dip a buying opportunity or should you avoid it completely? 

We share major updates on the company's business, brokerage ratings and SEBI RAs' analysis on the stock. All this and more in this video. 👇🏻

Stock

Bullets For The Day

🙏 ITC rallied +8% intraday after British American Tobacco (BAT) sold a 3.5% stake in the company. FYI - this is the firm’s BIGGEST intraday gain in four years! 

This is a HUGE relief as it clears a major ‘overhang’ on the stock. The stake sale should also boost free float and remove any supply issue worries. ICYMI -  the BAT has been wanting to sell for years but never took the plunge. Having finally started, it has cleared up uncertainty. It’s a little like how you build up the pain of a doctor’s injection in your head before it happens. But when you actually get the shot, it’s never as bad as you thought it would be.

Another positive trigger is that CLSA and HSBC upgraded the stock today, calling it an “attractive” buy after its recent correction. FYI - HSBC sees a potential +13% upside even after today’s massive jump.

That said, remember guys, ITC’s fundamentals haven’t changed. Its cigarette biz has lost some steam. Rural slowdown is a concern for its FMCG business. The hotel demerger could unlock value, but that’s still 8 months away. Long-term investors need to worry about that more for now.

👎 JG Chemicals had a weak market debut, closing down -16% from its IPO price. FYI - this is a bit of a disappointment as the IPO was subscribed 22x. Grey market data also suggested an okay-ish 13% listing gain.

For the unaware: the company is one of the largest Indian producers of zinc oxide. This chemical is used in a range of industries including lubricants, paints, batteries and fertilizers. JG Chemicals has also been killing it. Its top line grew 28% YoY in FY23, while the bottom line was up 32%.

What went wrong then? Most experts say the current selling pressure in midcaps & smallcaps spoiled the party. If you’re a long-term investor, this may be a decent price point to enter, they added.

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 Ajay Krishnan, a SEBI-registered RA. Drop in all your questions here:

Links That Don’t Suck

💯 Vodafone Idea: Multibagger Soon? | Vodafone Idea Latest News | Buy Vodafone Idea Shares

😇 What’s Behind the Bitcoin Price Surge? Vibes, Mostly

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♥️ Arsenal end Champions League curse as Arteta reshapes club

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