Moneycontrol Pro Weekender | A tale of two markets

Reports coming in for today mention that Dear Reader,

When you vacation in a quiet place that’s far away from the city, with no connectivity, you tend to marvel at the simplicity of life. India’s IPO market is like that, simple, unbothered by the chaos and malaise afflicting the secondary market at the moment. In the meantime, market participants, market watchers and even journalists assess macros, micros, stocks, and fret over earnings, trade wars, wars, straits that are blocked and what not to guesstimate the direction of equity markets.

But leave that chaos behind and come to the idyllic isle of IPOs. All you need to read is one document. If you can’t do that labour, there’s enough material that’s easily available online to read. If that’s additionally difficult, then there are readily available signals, even if dubious, such as grey market premiums, anchor investor pedigrees, oversubscription frenzies, finfluencer recommendations and so on. If you apply and get a share allotment, wait for the stock-exchange debut pop and exit. If you don’t get shares, queue up for the next offering. If you get shares and it’s a stock-exchange debut dud, then try your luck at the next one.

This market is doing very well. The current week alone saw a number of IPOs hit the market, with one day alone seeing six of them open. As we noted earlier the current week in our Pro Panorama newsletter, September alone could see IPOs raise as much as Rs 45,000 crore, with the NSE offering being the blockbuster one, while there are issues worth Rs 3.05 lakh crore in the pipeline as of end-August, and another Rs 1.6 lakh crore of issues are waiting for SEBI approval.

Eventually, of course, these IPOs will turn into secondary market listings that market participants will assess along with their already-listed peers. On that side, the chaos is only growing, week after week.

The current week, the Nifty is set to close with a loss of 2.1 percent over previous Friday’s close. The Nifty is down by 4.5 percent over a week — nearly half of that slide happened in the current week alone.

The Middle-East conflict is not only deepening, but additionally widening. The Houthis have taken positions in the Mocha port in Yemen, giving them the ability to choke the Bab al-Mandeb Strait — a crucial shipping corridor for crude and commodities. This comes even as the Strait of Hormuz got affected as the US and Iran rolled out attacks on tankers they considered hostile. Brent crude has comfortably crossed the $100 a barrel marks and touched as high as $110 a barrel, before declining in the latter part of Friday, September 11. Two crucial shipping routes at risk will likely keep crude on the boil.

Friday’s cooling off may be due to news of the Gulf countries planning to discuss with Iran and Oman a plan to cool hostilities and enable crude and other shipments to resume in the Strait of Hormuz. The US is not part of these talks, apparently. That could be strategic, to let a cease-fire be attributed to countries other than the US. The US has earlier stated it will agree to any deal only if Iran agrees to move back from its nuclear ambitions.

Trump had additionally stated a deal with Iran may work out only after the midterm elections in the US are over in November, as Iran won’t be able to last out any longer. Iran may not agree to that view, for sure. More importantly, for market participants, will the weekend bring a deal? Wait and watch, and if it does come around, hope it does not unravel before the week ends.

There is a new threat posed by the Houthis coming very close to the Bab al-Mandeb Strait, raising the uncertainty quotient in the region. The oil situation brings into question the relative value of oil, with focus shifting from the cheapest sources such as the OPEC+ grouping to more reliable suppliers with clear supply lines.

While these wars rage, the markets are in a tizzy as well. Bond yields are spiking, making market participants nervous with the 10-year US bond yield very close to the 5 percent mark. The AI investment frenzy that is hoovering up money is adding to investor nervousness as the no questions asked take-my-money phase may be reaching its limits. Equities are feeling the heat as well. Keep a close watch on the yield figure and if it decisively breaches 5 percent, then the AI boom may be at risk, warns Ruchir Sharma in the FT (free for MC Pro subscribers). Not just that, the world’s governments are sitting on a massive debt-servicing burden that turns heavier when interest rates head upwards.

An overheating bond market is usually detrimental to the health of financial markets. The US government wants interest rates to actually cool down in these conditions. They did try to cool things down with a $6 billion buyback, but as this FT article points out the small size made little impact but gave the markets the impression of a nervous government. And here’s one FT piece on the relationship between rising bond yields and its effect on equities and a primer for market participants on how to deal with oil above $100/bbl.

It’s a delicately-poised market scenario, that’s for sure. If you are a firm believer in IPO investing, it may not matter much. But the secondary market certainly seems to be headed for a moment of reckoning. While seat belt signs have been on for pretty much a very long time, now seems to be a time for a gentle reminder to fasten them securely for the ride ahead. Cheers,

In case you missed them, here are some of the other stories and insights we published the current week, apart from our technical picks in the equity, commodity, and forex markets:

Kanohar Electricals, Prasol Chemicals, Karamtara Engineering, RentoMojo, ARCIL, Manipal Payment & Identity

DCB Bank – Can it sustain the stellar run?

ICICI Lombard — Firm franchise with multiple expansion levers

Royal Orchid Hotels: Is the next leg of expansion taking shape?

Kaynes Technologies: Waiting for the cash flow to catch up

Discovery Series | Gokaldas Exports: Stitching together the next expansion cycle

Page Industries: Double-digit expansion back on track from Q2

Can Yes Bank rerate any time soon?

Weekly Tactical Pick – Geopolitical backdrop supports margin profile of this chemical firm

Zen Technologies: Rising defence spending fortifies business

Interview: India needs policy certainty laced with incentives to lure global market participants: Arun Veerappan of Pāri Washington

Chart of the Day | Under penetration of mutual funds in India

If you can Whatsapp, You can trade with AI!

The new risk premium: Why geopolitics may keep bond yields elevated

Chart of the Day: Signs from forward premia on indian rupee stability

Crude at $100/bbl and markets in a free decline — Should market participants head for the exits?

A roadmap for accelerating India’s green hydrogen output

Tata Motors-Iveco deal: A timely global propel for India’s CV leader

Chart of the Day: E-Commerce eats into kirana store market share in top 8 Metros

Should Tata Power's market participants worry around Singapore litigation impact?

Chart of the Day: Thermal power plants hold their ground despite rapid climb of renewable energy

Entero Healthcare’s plans to scale up medical devices excite market participants

Chart of the Day | Cement demand holds firm, rising costs will test profitability

Consumption dominates NBFC credit — and banks are lending a hand

SECI’s energy pooling helps India’s MSMEs go green together

India’s EV adoption gathers pace, but there are speed bumps

Fortifying defence diplomacy — More the merrier?

The Eastern Window: BRICS summit to enhance India’s neutral power status amid a tense China, Russia, US relationship

ChatGPT 6 Astra: Too powerful, but no AGI

Personal Finance | The gardening wisdom behind successful investing

Why sponsors will miss Lionel Messi the most

Financial Times (republished from the FT)

The benefits of next-generation peptides will be thinly spread

The strangely disappointing EM inflows

Oil shock revives interest in clean hydrogen