Tale of the Tape 

Good evening everyone. We’re halfway through the week.

Nifty & Sensex pulled back sharply after the opening weakness to end at the highest point of the day. God save our souls from this volatility! Midcaps (+0.6%) and Smallcaps (-0.4%) traded mixed. The advance-decline ratio was evenly split.

It was a mixed-bag kinda day for sectors. Metals (+1.2%0 and Pharma (+1.1%) were the top gainers. PSU Banks (-0.4%) and Real Estate (-0.4%0 saw some selling pressure.

The SEBI crackdown on F&O trading is finally here. Read our top story to understand how it will shake up India’s markets.

Zee Entertainment (+2%) Q1 results saw it swing back to profits! Meanwhile, GAIL (+3%) had a blockbuster Q1 show too. More details below.

Torrent Power, BSE and Indiamart all saw big movements today. Check out their charts below.

Results reaction. Titagarh Rail Systems fell -8% intraday after its Q1 EBITDA declined -4% YoY over execution issues. Mahindra and Mahindra was in focus after its Q1 profit fell -5% YoY, but its margins beat Street estimates!

Trent (+4%) hit a record high after reports said it could be included in the Nifty in the September rejig.

Indus Towers (-3%) fell after it said it would buy back shares at Rs 465 p/sh; just a +4% premium to Tuesday’s close.

Life insurance stocks were in focus. Reports claim that Minister Nitin Gadkari wrote to FM Nirmala Sitharaman, asking her to remove 18% GST on insurance premiums! HDFC Life, SBI Life and ICICI Prudential rose between 2%-3% each.

Akums Drugs and Pharma IPO was subscribed nearly 3x on Day 2 of bidding.

Here are the closing prints:

Market
SEBI: Operation F&O Crackdown

SEBI’s operation to bust up the F&O party and save retail traders is FINALLY here. The regulator’s consultation paper suggests several ways to curb speculative trading. ICYMI - everyone and their mother has been worried about F&O lately. While their intentions are good, we don’t know how this will pan out. Here’s what SEBI plans to do:

• Hike minimum contract size from Rs 5 lakh to Rs 15-20 lakh initially and then Rs 20-30 lakh after six months.

• Restricting weekly options to only one expiry per stock exchange per week.

• A lot of volatility-reducing steps: higher margin requirements, upfront collection of option premiums and most importantly fewer strike prices

While this should prevent froth from building up and maybe persuade some young gamblers to stop trading, there are also unintended consequences.

For starters, experts say this may end up making Indian markets lose their depth. That's cause F&O trading helps lubricate the rest of the market! Veteran investor Ajay Bagga notes: “As volume is reduced, genuine hedging will become more expensive and it will not find volumes. So, the small trader will move to the cash stocks, the penny stocks, on a day-to-day basis… So the markets will turn more shallow.”

Secondly, some believe that even after all these steps, people still won’t run away from options! Zerodha’s Nithin Kamath says all it will do is “incentivise futures traders to move to options” in search of a greater reward. This is the worst-case scenario because leverage on futures is capped at 6 times or 15% for the index, whereas options come with basically unlimited leverage. 

All of this begs the question: why couldn’t SEBI have acted hard AND simple? A great way to stop speculation would’ve been to have ONLY monthly F&O expiries or require traders to have some minimum capital. That wouldn’t have thrown the bad out with the good. Instead, we get a weird system that may not work and still hurt the broader market.

Spotlight

SEBI RA Spotlight

Several stocks have seen a decent correction from their all-time highs recently. Earlier this week, we covered Carysil Ltd as a “buy on dips” stock and today we have another one in IREDA. Kush Ghodasara says that the stock is going through a consolidation phase and looks attractive at current levels. Once it gives a breakout above 283 it could resume its uptrend and scale new highs.

FYI - Kush Ghodasara, CMT, CFP is the Proprietor of ‎LuvKush FinServe, a Gujarat-based Financial service house which deals in Research of Equity markets, Research Advisory and Financial Planning consultancy. 

Earnings

Earnings Roundup

Zee Entertainment (+3%) posted a strong set of Q1 numbers! Strong subscriber growth helped offset weak advertising revenue to help bump up the topline. Cost control measures and higher-value packages boosted margins, allowing the company to swing back to profits after reporting a LOSS last year!

Finally, the company noted that even though Q1 already saw a “significant step up in margins”, it expects the numbers to improve EVEN FURTHER and notes that FY25 margins will overall be “meaningfully better” than FY24.

Big Picture: Zee had a ROUGH FY24, with a SEBI probe and its failed Sony merger hurting sentiment. But most of all, its business suffered. Q1 is a sign things may be turning around!

Here are its Q1 stats:

• Revenue: Rs 2,131 cr; +7% YoY

• EBITDA: Rs 272 cr; +75% YoY

• EBITDA Margin: 12.8% vs 7.8% YoY

• PAT: Rs 118 cr vs loss of Rs 53 cr YoY

Zee Entertainment is -47% YTD.

GAIL (+2%) Q1 results beat Street estimates! Its topline grew for the first time in FIVE quarters, led by higher gas demand + improved transmission volumes. Improved margins in its natural gas marketing segment helped boost EBITDA to an over 4-year-high, which is INSANE. 

FYI - natural gas marketing earnings jumped +95% YoY to Rs 2,036 cr! The only sour note was that its petchem & LPG verticals missed estimates on the back of lingering operational weakness.

Here is its Q1 report card:

• Revenue: Rs 33,674 cr; +5% YoY (vs Est: Rs 33,464 cr)

• EBITDA: Rs 4,528 cr; +27% YoY

• EBITDA Margin: 13.5% vs 11%

• PAT: Rs 2,724 cr; +93% YoY (vs Est; Rs 2,334 cr)

Big Picture: Both UBS and Citi are bullish on GAIL, pointing out that after a shaky last two years, future earnings growth hasn’t been adequately priced in just yet! 

GAIL is +44% YTD.

Charts

Chartbusters

Here are three companies that saw big movements today!

1) Torrent Power skyrocketed +16% after posting blockbuster Q1 results! FYI - its net profit zoomed +87% YoY to hit Rs 996 cr, while its topline was up 23% YoY. The firm’s operating margins also jumped to 20.6% (vs 16.2%) as newer projects were bagged at better rates. Who says the sun has set on power sector stocks?

2) BSE gained after SEBI issued its F&O crackdown consultation paper. Why is a stock exchange benefiting from the regulator’s de-addiction drive? Well, it’s because the draft rules will majorly hit rival NSE’s options volumes. It will also provide a way for BSE, which lost out on the F&O craze, to come back into the game!

3) Indiamart Intermesh cracked -6% after its Q1 disappointed investors. While the headline numbers were OK, what’s worrying is that it added only 1,519 paid subscribers in Q1 vs 2,683 last quarter. The company’s overall traffic also declined to 267 million (from 269 million), the third straight month drop!

Check out their charts below:

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