The Week’s Talking Points: Mauka, Mauka!
In ‘The Week’s Talking Points’, Niraj Shah studies how top business leaders and market makers are navigating the pandemic-altered financial landscape.
As you read this, Team India will be getting ready to take on Team Pakistan in the World Cup T20 cricket encounter on Oct. 24.
Original Mauka, Mauka In Action This Weekend
Even in Covid times, from housing societies to bars, the seats for giant screens are booked. On cue, the Government of Maharashtra extended the closing time for restaurants in Mumbai to midnight. Mauke pe chauka? Oh yes, this weekend, you will be inundated by clips of the ‘Mauka Mauka’ commercials. If you haven’t seen one, you should... they are everlasting and witty. Chances are, you want to turn away from business content and switch to cricket, but wait... I’m using my mauka to keep you here so that you do the best with yours.
Risk-Off, Or Grab The Mauka?
A million-dollar question, isn’t it? Thus far, in the recent past, all dips have been bought into. Will this period of heightened volatility and sharp movements also get bought into, or is this dip different? The arguments are strong on either side. It seems pretty evident from reactions on stock prices where there has been even a slight earnings miss, the market is not in the mood to tolerate any misses. Do note that when growth stocks get priced to such extreme perfection and beyond, the reactions are tense and quick, as was evident in the two-day rout of the stock price of Indian Railway Catering & Tourism Corp. It is, at such times, that we also see analysts pricing companies based on earnings that are five years out. In the case of Avenue Supermarts Ltd., some expectations of the business cycle go to FY29, FY31, and in one instance, even FY51!
One can argue that the classic markers of heightened retail participation, priced-to-perfection growth stocks and absurd arguments justifying stock prices, are all there. But one can also argue that this argument has been around since the Nifty 50 got to 16,000 levels at the beginning of August. Since then, there have been many arguments for a fall, which have all been brushed aside by Mr. Market. Will this time be the same? Or will it be different? If you can answer that, my friend, you are a rare breed. Go enjoy the scares in the market.
As a sidebar, speaking of scares and risks, if you are taking a flight, we hope what was narrated in this story does not happen to you:
“Back in the cockpit after time off recovering from Covid-19, an airline pilot forgot to start his plane’s second engine for takeoff, a mistake that could have ended in disaster if he hadn’t aborted the flight. Another pilot, fresh from a seven-month layoff because of the pandemic and descending to land early in the morning, realized almost too late he hadn’t lowered the wheels and pulled out of the approach just 800 feet (240 meters) from the tarmac.”
Flying anytime soon?
Mauka For Non-Nifty IT To Upstage The Big Boys?
Mid-cap I.T. companies are reporting stronger results than large caps. Let’s take stock of the numbers thus far:
In an interaction with BloombergQuint, Mindtree Ltd. as well as L&T Infotech Ltd. suggested that growth rates will continue to be strong, and there was no reason to believe that H2FY22 will be materially different. Contrast that with weak projections from Tata Consultancy Services Ltd., or HCL Technologies Ltd. sticking to double-digit revenue growth estimates, but without giving a specific number. Some months ago, the analysts from White Oak had told us in a BQ Edge webinar that the midcap IT companies now have a seat at the table of large deal offerings. Well, they certainly have claimed a seat at the table of investors clamoring for IT stocks as well. They have grabbed the opportunity with both hands, with a mauke pe chauka.
No Mauka To Mitigate Rising Input Prices
The one standout talking point this week was the impact of input cost pressures. India’s largest paint company said inflation is at the highest it has seen in at least the last 40 years. A premier foods multinational says that the price outlook for key categories remains firm while costs of packaging materials continue to increase amid supply constraints, rising fuel, and transportation costs. The leading electrical goods company is alluding to cost pressures in the cables space. The fact its air conditioner division clocked the abysmal margins it did, shows that the inventory clearance didn’t quite happen at prices which help them recover part of the input costs. While input cost pressures are not new, Asian Paints Ltd. Managing Director Amit Syngle points to the pace which has been swift, continuous, and accompanied by raw material availability issues that have the potential to hurt companies across industries.
It is not very different for IT companies. Imagine the CEO of a near-$15 billion market capitalisation company talking about how it is trying to cope up with manpower availability issues.
“We are hiring non-tech talent, people who have not gone to engineering colleges but are interested in computing and putting them through our training programme.”
Someone had tweeted, half in jest I think, that an IT company’s signboard will now read ‘Trespassers will be recruited’. Maybe it wasn’t that far off from the truth, after all.
Crypto Bulls Happy They Latched On To The Mauka
Crypto advocates have been pushing for years for regulators to approve an exchange-traded fund related to Bitcoin, and now that it is finally here, the ETF is widely expected by many to bring in a new class of investors into the digital currencies. Anticipation of the ETF’s listing appeared to boost the price of Bitcoin over the past week. And the post ETF, pricing has not been bad either. While a lot of theories are floating around, the one argument which seemed to have some basis is that the reflation trade is fuelling bitcoin prices. Have a look at this chart:
One Indian equity market expert who has a firm opinion on where the cryptocurrencies market is at this present moment is Sandeep Tandon of Quant MF. He believes that there might be a corrective move over the next 7-10 sessions, but adds that over the long term, Bitcoin prices are slated to at least treble from the current levels.
On an end note, a separate data point worth noting: Since 2015, non-ESG active equity has seen outflows of a whopping $2.6 trillion, while ESG equity has seen inflows of around $456 billion, according to Saurabh Singh of Bernstein Research.
If there ever was a mauke pe chauka, it was this. Conceive an ESG fund if you could have, and turn your time machine back to 2015.
Niraj Shah is Markets Editor at BloombergQuint.