Sell or Sale? ??

NIFTY 50: 17,807 (-3%)

NIFTY 10Y Benchmark G-Sec Index: 2,065 (0%)

Greetings!

We hope you’ve had a great Christmas weekend, and are looking forward to the year ending. In the spirit of giving, we intend to give you some peace of mind as we don’t quiz you on something not-so-unrelated this week!

What’s Up, Market?

Sell or SALE? ??

It was a brutal week for the markets, with the Nifty 50 falling by 3%. Even more brutal for mid-caps and small-caps, which fell by 6% and 8% respectively.

It’s almost like Santa came in and took away your things instead of giving you a gift. But wait, look at the bright side, it’s also like you got a massive end-of-the-year discount coupon.

Is it time to use your discount coupon yet?

Sorry, but you might have to wait for some more time (in our honest opinion)! Here’s why!

More rate hikes are coming: The Fed and RBI have lowered aggression on rate hikes, but rate hikes are not over yet. We must be off the peak on ‘aggression’, but we aren't off the peak on ‘hikes’. Hikes will continue threatening a sharp economic slowdown in the West, and some slowdown in India too. With a downside risk on corporate earnings, it is tough for the markets to continue their up-move.

China is waking up: Despite all the rising COVID cases, China is committed to making 2023 the year when its economy wakes up after three long years. China’s opening up is likely to solve some supply-chain issues which are currently contributing to higher inflation. However, a demand revival from China will also work the other way, and fuel higher demand - leading to stable-or-higher commodity prices. All that decline in the last few months may not last.

Valuations can't be ignored: India has been the best-performing economy, and even with lower growth, will remain so on a relative basis. However, valuations are sky-high - absolute and relative. Do current valuations justify the following?

• Earnings growth of 13-15% for FY23/24, with a risk of downgrades
• FIIs’ decision between buying into the most expensive market for the highest growth versus their decision to scout for markets with valuations beaten down by a recession
• Visible interest rate increases will further push present values lower

Probably not!

Although we are positive on the medium to long term, we see near-term headwinds making the current risk-reward equation unfavourable. We would use sharp downfalls to buy into stock-specific investments, which in our opinion have a larger potential for generating superior returns over the next year.

?? To know more: https://www.rupeeting.com/post/sell-or-sale

Market Stories

5 Reasons to Say Yes to Yes Bank ??

Yes Bank had once been a leading emerging corporate and retail bank, till it got caught in a series of issues. Violations by promoters, governance issues, accounting irregularities, and bad loans, amongst other problems marred the bank.

The stock went from its high of around Rs. 370 per share in July 2018, all the way down to Rs. 90 in July 2019, and further down to Rs. 12 in July 2020. Within two years, the bank’s stock had lost 97% of its value.

They are now on a revival mission, striving to regain glory. Here are 5 reasons we think that will be possible:

• In March 2020, the Government of India notified the “Yes Bank Limited Reconstruction Scheme 2020”. The implementation of the scheme triggered new strategic objectives for the bank including deposit growth, enhancing liquidity buffers, optimising costs, resurrecting governance frameworks, and resolving asset quality issues
• Yes Bank has been stabilised and is beginning to turn around, thanks to the new leadership with Mr Prashant Kumar at the helm. They have leveraged the support of top shareholder banks and made changes to the governance and underwriting framework. Operationally, the bank has been focusing on granular advances led by loans in retail, SME and working capital financing and improvement in the CASA ratio
• It recently completed the transfer of bad loans worth Rs. 48,000 crore in a deal with private equity firm J.C. Flowers. The transaction is the largest sale of stressed assets deal in India. To guarantee the bank a 23% recovery, JC Flowers has agreed to pay Rs 11,183 crore for the whole pool of stressed loans and the remaining will be held as Security Receipts (SRs). The bank's Gross Non-Performing Assets (GNPA) ratio will drop from its present 12.89% to under 2% when the bulk of its stress pool is transferred to an Asset Reconstruction Company (ARC)
• The BoD and shareholders of Yes Bank have approved a Rs 8,900 crore equity capital raise from funds affiliated with two global private equity investors, Carlyle and Advent International. This will be in the form of equity warrants, which, upon full conversion, will represent a 10.0% stake in the company. With this assurance and the growth capital infusion, Tier 1 capital will increase, and as the funding round was conducted around the book value, it is not expected to be dilutive to the book value

The 5th reason is a numbers game, and you just have to click on the blog link to uncover that nugget!

?? To know more: https://www.rupeeting.com/post/5-reasons-to-say-yes-to-yes-bank

Personal Finance

What Happened to My Stock: Splits & Bonuses ??

Jargon can get super annoying, especially with that one finance bro who can’t seem to stop flexing, so we’re here to help!

Stock Split:

• The company increases the number of outstanding shares held by existing investors by essentially splitting the value of one share in a specified ratio
• Splits the value of a single share, but increases its number, making it affordable and liquid to trade in
• An investor has 1 share worth Rs. 100. After a 2:1 split, the investor now has 2 shares worth Rs. 50 each

Bonus Issue:

• Company issues “free” additional shares using its reserves to existing investors in a specified ratio
• The company issues extra shares, but the value of each share reduces, making it affordable and liquid to trade in
• An investor has 1 share worth Rs. 100. After a 2:1 bonus issue, the investor now has 3 shares worth Rs. 33 each

Stock Splits and Bonus Issues might be fundamentally different, wherein the former is the splitting of the value of each share, and the latter is the increase in the number of shares held, yet the implications are similar.

Both result in more outstanding shares and a reduction in the value of each share. Essentially, both result in a share price reduction, making stocks more affordable and liquid; neither of the actions however affects the stock’s market cap or net worth.

When a company announces a stock split or bonus, you, as a shareholder have several options to consider:

• Hold onto the additional shares if you are positive about the long-term prospects of the company and think the shares will rise materially in value over time
• Sell the additional shares for a profit

It is important for you to carefully consider your options and the potential tax implications before making a decision. Some things to consider include:

1. Current Market Value: If the market value of the shares is significantly higher than it was when you first purchased them, selling the additional shares may be a good option to realise a profit
2. Investment Goals: If you are confident about the prospects of the company, and think you will see material appreciation in value over time, holding onto the additional shares may be the best option
3. Taxes: It is also important for you to keep track of any changes to the tax treatment of stock splits and bonuses in India, as these changes can have a significant impact on the overall value of the investment

Tap on the link to know how these are taxed and a cool hack for you to limit your outflow!

?? To know more: https://www.rupeeting.com/post/what-happened-to-my-stock-splits-bonuses

Chart Of The Week

Rise of The Rates: 2022 Edition ??

2022 was the year of the rate hikes. After years of low-interest rates, most countries switched gears to a contractionary monetary policy, which basically aims at cooling down the economy. This was a concerted effort by countries globally, done to stop wildfire inflation.

Unfortunately, there can be consequences. An overly aggressive or excessive interest rate hike can stunt economic growth and even push a nation into a recession by cooling down demand too rapidly.

With the quantum and pace of rate hikes being the highest in decades, most of the West is now eyeing a massive drop in growth in 2023, with increased fears of a recession.

Despite significant rate hikes in 2022, standing at par against developed nations, India’s growth prospects for 2023 are among the highest in the world at 6.1% Real GDP Growth, (according to the IMF).

This suggests that the underlying economic fundamentals of the country are stronger than that of its peers and that the economy is able to withstand the negative effects of higher borrowing costs.

This could be attributed to a few factors:

• Strong domestic demand
• Relatively low debt-to-GDP ratio
• Stable government policies
• Structural growth factors
• Movement of manufacturing into India
• Expansionary fiscal policy

?? To know more: https://www.rupeeting.com/post/rise-of-the-rates-2022-edition

Rupeeting

Rupeeting’s Research ??

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