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SEBI report on F&O traders: Not worth the hype

by Tavaga Invest

Markets this week 📊

Adani and the famed Hindenburg research report ruled the Indian markets for the entire week. So much was the impact that all the 10 stocks of the conglomerate were in deep red leaving a hole of $50 billion in Adani’s pocket. Bank stocks were down too as investors were worried about the contagion impact of exposure to Adani Group. 

FIIs love for China vs. the expensive Indian markets deepened the pain. All eyes are now on the budget due next week. Any Any negative proposals like raising the rate of long-term capital gains or a hike in corporate taxes could add to the bearish sentiments on the Street.

Gold investors are continuing their last year’s party as the metal touched record highs this week. This Friday onwards, traders in Indian equity markets will receive shares or money in their accounts within one day of executing trades in the top 200 stocks. Known as T+1, it is the fastest settlement in the world. China is the only other country with similar system. 

Let’s now dig deep into some of the important news that made headlines this week.

F&O traders bleed red📉

Not for the faint-hearted: SEBI in its report on F&O traders said that “9 out of 10 equity F&O traders lose money” with an average loss of Rs. 1.1 lakh during FY22. 90% of the active traders incurred average losses of Rs. 1.25 lakh during the same period. 

Get rich quick scam: SEBI defines active traders as those with more than 5 trades p.a. The fact that even active traders are losing money shows that they probably lose more due to transaction costs.   

Not worth all the hype: Only 10% of active traders were profitable with an average profit of Rs 1.9 lakh which is not even 16k per month. Clearly not enough to survive assuming trading was their full-time profession.  

A silver line: As all things have a silver line, so does this one. As per a report, 40% of US traders do not last beyond a month, 80% quit within the first 2 years, only 7% survive beyond 5 years while ONLY 1% of all traders are profitable net of fees. Our Indian counterparts clearly score better. 

Our Take

The number of individual traders coming to the market has increased post pandemic. The greed for easy money in a relentless bull market is now showing its stark reality. Reminds us of the popular quote – only when the tide goes out do you discover who’s been swimming naked.

Trading is a serious business with a lot at stake. It requires a plan, a strategy, and most importantly proper risk management in place. A skill, very few have mastered yet. 

We are big proponents of slow and boring but time tested principles. Urge you cut all the social media noise and kickstart a more rewarding investing experience. Give us a shout and our experts will be more than happy to help. 

Book an Appointment – https://bit.ly/Hifromtavaga

Adani hit by a bomb 💣

The war of words: US-based Hindenburg Research issued a report on Adani Group calling the world’s third oops fourth richest man the “world’s largest con in the corporate industry” and announced that it is taking a short position in Adani’s US-traded bonds and other instruments. Hindenburg’s report highlighted how the 7 listed companies have an 85% downside based on their “sky-high valuations”. Accusations like market manipulation, accounting fraud, unreported related party transactions, using shell companies in tax havens, and delaying legal investigations have been raised.

A pile of cards: This news came ahead of the 20,000 crores FPO planned by Adani which already has big-boy investors like BNP, JP Morgan, and LIC backing it, with 35% set aside for retail investors. Adani has $9 billion in overseas debt, high promoter shareholding, and pledges, and has used its shares as collateral to fund his big plans. Panic was bound to spread and the shares lost 86,000 crores in value since the report as investors dumped all the Adani Group’s stocks. SEBI has taken the statement at face value, announcing that it will increase probe of the conglomerate.

The response

After all hell broke loose in Adani’s “family business” the conglomerate has come out and said that it will pursue legal action against Hindenburg, calling the report “bogus” and an attempt to sabotage India’s largest FPO. The report asked 88 questions and Adani has offered a point-by-point rebuttal in the last 24 hours.

Our Take

Gautam Adani’s valuations and growth have raised eyebrows and he is no stranger to allegations and has managed to squash them in the past but Hindenburg is recognized for exposing fraud and betting against the company. His friend, our PM, might save him on Dalal Street but Wall Street is a different ballgame. Is the Adani bubble about to pop, or is Hindenburg trolling for an opportunity, we’ll have to wait and see.


US – time to write-off recession?🤔

Good but not great: US GDP grew by 2.9% (annualised) in Q422 compared to 3.2% in Q3 but better than the 2.6% growth economists were forecasting. Together, second half of 2022 more than covered up for the 1.1% degrowth in the first half of last year. For the whole of 2022, the US expanded by 2.1% vs 5.9% in 2021. Basically, a solid proof that the recession that the world has been warned about for months ain’t here yet.

Good news = bad news still? The bullish investors are torn between wanting stronger growth to ensure a soft landing but still not strong enough so that Fed tones down its interest rate hikes. Thursday’s release gave investors a bit of both, by beating their own estimates but also showing some underlying signs of weakness. 

Details please: Much of the growth came from a sharp rise in inventory which although counts as growth but could also be a sign of weakness in demand. Consumer spending although strong but largely came due to festive spending in Oct that did not last the entire quarter. Despite all the hoo-ha around layoffs, jobless claims fell last week to their lowest point since April 2022. 

Time to write off a recession?

Not yet. Recession still remains a clear and present danger because – 

Personal consumption, which forms a chunk (~70%) of all US output, came in below estimates suggesting US consumers are still cautious. 

The housing market is still depressed, shrinking by 27% in Q4. Companies are slowing down their spending. In Q3, business investment grew 6.2%; in Q4, just 0.7%. In short, we are still far away from easy times. 

Our take

The US economy is in a very hazy fluid state. We now know what economists mean when they say that the outlook is “uncertain”. 


Banks post Q3: Is there more steam left?

Q3 snapshot: The remarkable growth in credit, rising interest rates, and better asset quality have helped the banking sector outperform both the overall market and other business sectors. Total deposits grew by 20% YoY for HDFC compared to 10-13% for other private players like Kotak and Axis Bank. 

What about asset quality: Net NPAs of all private lenders have improved with maximum improvement seen for Axis and Yes Bank. Among the larger players, Net NPAs are the highest for ICICI. 

How do margins stack up? Significant growth was seen in NIMs with Kotak leading the pack. 

Our Take

Banks and financial services companies are providing welcome support to the earnings season, amidst global economic slowdown. Similar optimism is hard to find in other sectors currently marred by depressed demand and margins. 

Normalisation of economic activity post-pandemic is driving business growth. The famous HDFC vs. ICICI debate has the latter as the winner. ICICI has not only matched HDFC Bank in terms of loan growth, and asset quality but has beaten HDFC Bank on some key financial parameters like margins and provisioning. 

Of course, not all banks are out partying. Earnings should be seen along with balance sheet strength. These lending cycles may overturn and only the stronger can withstand all times. 

What else made the news?

📉Layoff season: Indian Techies worried, as 80,000 H1B and L1 visa holders lost their jobs in the layoff wave in the large tech companies.

✈️Revenge Tourism: Domestic air traffic hits 123 Mil, up 48% from last year as people travel freely post-pandemic.

💸Moneyball: India sells $1 billion with Sovereign Green Bonds to raise money for its transition to clean energy at affordable pricing.

💪Maruti on a roll: Maruti has 4.05 lakh pending car orders after the huge success of its new SUVs Maruti Jimmy and Fronx unveiled at the Auto Expo’23.

💪Reverse swing: Tata Motors posted its first profit in two years in Q3, along with a 22.5% jump in revenues compared to last year.

⛔Delivery fail: Zomato is reportedly shutting down its 10-minute food-delivery service, Zomato Instant, less than a year after launch. 

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Ruchi Mehta



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