Tale of the Tape 

Howdy folks. Welcome back to the Daily Rip!

Nifty (-1.4%) and Sensex (-1.5%) crashed today as investors rushed to book profits ahead of a crucial SEBI board meeting today.  PS - rumors of tighter F&O rules and worries over all the Madhabi Buch allegations kept people on their toes. Midcaps (-0.4%) and Smallcaps (-0.3%) also declined but fared better. The advance-decline ratio was in favour of the bears (3:2).

Except Metals (+1.3%) and Media (+1.1%), all other sectors ended in the red. Auto (-2.1%) and NBFCs (-1.7%) were the top losers.

Microfinance and credit cards are staring at trouble. Read our top story to get the deets and how it will affect key stocks.

This Adani stock could see a +30% upside in the next year. More details below.

Hero MotoCorp, Aurobindo Pharma and Sterling and Wilson Renewable saw big movements today. Check out their charts below to find out why.

NMDC gained +4% as global ore prices continued to rally after China’s housing stimulus. SEBI registered analyst Vipin says it could reach Rs 270 p/sh at this rate!

Ola Electric (-2%) fell below the Rs 100 p/sh-mark for the first time since its listing.

Varun Beverages was in focus after HSBC initiated coverage on the stock; the brokerage sees a +28% upside from current levels.

Manba Finance had a decent market debut, ending the day +27% higher than its IPO price of Rs 120 p/sh.

Shakti Pumps was locked in a +5% upper circuit after it said it would consider a 5:1 bonus issue on October 7.

Reliance Infrastructure gained +4% after the Calcutta HC upheld a Rs 780 cr arbitration award in the Damodar Valley dispute

Here are the closing prints:

Market
Why Aren’t We Talking About This?

When everyone talks about banking woes, it’s almost always about rate cuts and slow deposit growth. Today, we’re going to take a look at two growing areas of stress in the wider sector and what it means for key stocks. Here’s what you need to know.

First up is the microfinance segment, where initial warning signs are starting to go off.  ICYMI - Ujjivan Small Finance Bank recently slashed its FY25 loan growth guidance to 20% vs 25% earlier. Fusion Finance also said it would spend Rs 550 cr to cover potential defaults in Q2, up from Rs 348 cr in Q1! The core problem is stress in rural areas. As a result, many microfinance borrowers are taking more than one loan just to cover their existing debt! 

Fun fact: while the industry’s loan book grew at a CAGR of 22% between FY17-FY24, the number of ‘unique borrowers’ (aka people who have taken only a loan from only one company) grew only at 6.9% PS -  Fusion Finance’s boss Devesh Sachdev admitted in a concall that the number of borrowers with more than four loans (drawn from different lenders) had risen “significantly”. Oops! 

The second issue is with credit cards, where we’re seeing rising defaults. Macquarie estimates that net credit losses are in the 5%-6% range, a level not seen in multiple years. As of June 2024 credit card outstanding stood at Rs 2.7 lakh cr, up +35% from approx. Rs 2 lakh cr in March 2023. As analyst Suresh Ganapthy notes: “Young millennials are using the entire limit and directly fully defaulting and turning into NPA without even revolving the loan.” 

ICYMI - Kotak Mahindra Bank also waved a red flag recently with CEO Ashok Vaswani saying there was stress in areas of “lower ticket items”. As always, the proof is in the pudding. SBI Cards, one of the largest issuers, is down -2% over the last year. 

TL;DR: Both microfinance and credit cards are seeing trouble. While the RBI has cracked down on unsecured lending, experts say these sectors could see pain in the medium-term. Watch this space!

Stocktwits Specials
5 Stocks To Buy In October - By SEBI RAs

Markets are at all-time highs but don’t know where to invest? In this video, we cover 5 mid & smallcap stocks which can give up to 30% returns from current levels.