Yesterday’s Market Performance

Nifty: 15435.65 | 97.8 (0.64%)
FIIs net buy: 913.59 Cr
DAX: 15519.98 | 113.25 (+0.74%)

Sensex: 51422.88 | 307.88 (0.60%)
DIIs net buy: 1275.22 Cr
FTSE: 7022.61 | 2.94 (0.04%)

Howdy Toasters!

In today’s issue, we discuss RBI’s latest annual report (yes, even RBI does that..) and what do all the numbers have to do with you, Small-Cap funds’ big returns- where’s this rally going, how Redington India has performed, and an educative concept to help you keep learning. Read along!

Redington (India) Lts: 219.75 | 36.60  (19.98%)

• The stock touched its upper circuit-level after the company reported a zooming 153.78% higher consolidated profit (YoY).
• The second-largest IT distributor recommended a dividend of Rs 11.60 per share.

IPCA Laboratories: 2027.30 | 175.75 (7.98%)

• Profit booking took place on 28th after the company reported a net profit of Rs 161.30 crore.
• Below is the chart of IPCA Labs on a daily time frame. The share was facing resistance around level 2220. The price could not sustain these upper levels which made the price slip and take support around 2025.

RBI released their annual report (wait, even RBI does that?), with some notable firsts 😯

• Transferring a surplus of 99,112 Crores (up 73.5% from last year) to the government of India, on the back of a sharp reduction in expenditure, a depressed investments market will make RBI search for newer investment avenues (beyond US Dollar & Gold) to sustain this surplus.
• RBI’s balance sheet grew by a modest 6% (partly because of change in accounting year reporting, going from a July – June cycle to April – March).
• Foreign currency & bond trading boosted the central bank’s earnings, however, the overall investment return profile remains depressed for now.

Okay, so what are the numbers looking like? 😏

• Income dipped (partly because of a change in accounting year) with interest income falling by 37% (drop-in G-Sec yields, and Banks in Reverse Repo Mode), expenses dipped (sharp drop in employee costs helping).
• A 59% surge in other income, contributed immensely to the surplus generated (helping the GoI in their budget targets).
• Increased focus towards FX transactions helped, with a future mandate (as per the annual report) to identify new asset classes, new jurisdiction markets for deployment of currency assets for portfolio diversification.

Too technical man. What does this have to do with me?🤨

• The higher surplus transfer is a definite relief for GoI from a revenue perspective (finances would be expected to suffer).
• The next few months are crucial for the government to complete ambitious budget targets announced previously.
• The surplus will help –
• if the government is unable to meet its divestment target of INR 1.75 Tn.
• increased doles (dbt, nrega, food & fertiliser subsidy) given the pandemic is expected to linger until we achieve some kind of scale in vaccination.

Investing in Small Caps (we’ve all tried it, haven’t we?) and what’s been happening in the last year 💸⌛

• Nifty Small Cap 100 has given a 138% return in the last year vs Nifty ’50s 64%; on a longer time frame, Nifty 50 edges out Nifty Small Cap returns.
• Post the realization that the pandemic was here to stay and would have a sizeable impact on the economy, the markets saw sizeable destruction of wealth in March 2020.
• The recovery (however you look at it) was swift, with small & mid-caps at ridiculously cheap valuations, similar to large caps.
• Fund managers at large and reputed MF houses have taken advantage of this (of course they have right?).

Okay, tell me more 🤨

• Underlying numbers suggest a positive correlation between the Large and Small Cap performance/rally, the 2021 rally, the correlation between Small Cap Index & Large Cap is at 95%.
• The current rally has been a boon for those who managed to spot an opportunity and take that leap of faith to enter the markets when a pandemic was thriving, short-listing scripts themselves or entering specialized schemes aimed at investing in small caps (perks of a low base).
• There are 24 schemes listed at Small Cap, with only 2 of them out-performing the Nifty100 Benchmark Index; even in such a good year (markets wise), outperforming the index is clearly no joke; identification/education towards stocks and schemes is imperative to master your performance.

Damn! What next then?🤔

• Nifty 100 Trading P/E (ratio used repetitively to value Small Caps) is ~double of Nifty50 at present; this is justifiable (depends who you speak to) given the high return profile of Small-Cap companies.
• Investor dilemma (ideally at least) should be at an all-time high, not knowing whether this rally is overpriced (over a 10-year average, current valuations are certainly on the higher side), overbought and done or there is still a long way to go? (something you should as an investor is mindful of as well).
• Data shows a slowing in the mindset of the fund manager, with a move towards the relatively less risky Mid Cap segment (Of the 17 small-cap mutual funds, with assets under management (AUM) of over INR500 crore, 14 have trimmed their exposure to small-cap stocks since December.

What else caught our eye? 👀

Paytm to get the biggest IPO in India?

• The One97 Communications-owned Paytm board will meet today to discuss plans for India’s biggest IPO.
• The size of this IPO (some estimates at 21,600 crores) could be the largest ever in India’s capital market history beating Coal India’s Rs 15,000 crore IPO by a decent margin.

Tata Group gearing towards its next leg 

• Closing in on its acquisition of BigBasket (USD 2 Billion Valuation), the TATA group is also in talks to acquire start-up Curefit, popularly known as CultFit.
• BigBasket will be a part of the 100% Subsidiary, set up in 2019, Tata Digital.
• Created to ‘build consumer-centric digital businesses for deep consumer engagement and their needs across multiple verticals- retail, travel, financial services.

Apparel exports struggling because of continued lockdowns 

• A couple of issues ago we spoke about the struggle in the retail space, which has also percolated to the apparel exports market.
• Lack of a hard lockdown in neighbouring countries of Bangladesh, Cambodia, Vietnam, Sri Lanka & Pakistan, has shifted business to these nations.
• Exporters, with the target to address the Christmas demand, have been unable to work during these months.
• The gradual opening up of countries in Europe and the US has meant increased demand from those markets.

Earnings per share (EPS)