After a stock market decline, people may perceive more risk than before when, in fact, the decline may have taken some of the risk out of the market.~ Robert Shiller
Wealthy traders are beginning to panic, at least that is the signal one is getting from the sustained underperformance in midcaps over the last few days. A section of the market feels the silver lining to this trend could be that market could closer to making a near term bottom. Foreign institutional investors were net buyers after a long time, but one swallow does not a summer make. Today’s expiry could give some cues about where the market may be headed in the short term. From the looks of it, bulls don’t seem enthusiastic about going into the new cycle with huge positions.
Banking stocks
Shares of leading banks are beginning to stabilise after the sell-off in the last couple of months. The sector has lost some its sheen as rising deposit rates are likely to bite into net interest margins. Kotak Institutional’s Sanjeev Prasad feels finance is still the only sector where valuations are attractive, considering that Indian banks are in a strong shape. Also, many state-owned banks are again quoting at 0.7-0.8 times one-year forward price to book value. But bears too have counter arguments. With GDP growth in FY24 seen lower, how can banks sustain their growth rates of this year? Also, given signs of a slowdown, and corporates in no mood for big ticket capex, where is the growth going to come from? Also, inflation and rising rates are beginning to hurt consumption demand. In such an environment, will banks want to grow their loan books aggressively?
Hotel stocks
Commentary from hospitality majors remains bullish, but investors appear wary of overpaying for hotel shares. Mahindra Holiday Resorts on Tuesday told CNBCTV18 that occupancy at 85 percent in Q4 has been unusually strong for this time of the year, which is usually slow. The company says advance bookings for Q1 too are quite strong at 85 percent occupancy. Similarly UBS has rated Indian Hotels a buy with a price target of Rs 400. The broking firm said in its report that demand is showing no signs of slowing down. Despite high room rates, there were enough takers in Q4 and visibility till mid of May is good. The stock prices though are going nowhere. Mahindra Holidays shares are yet to break past the highs seen in September 2022, and Indian Hotels are still 10 percent below the record high seen in October. Lemon Tree Hotels is 25 percent below its 52-week high.
Why?
Like in the case of power sector, investors are weighing the business realities while valuing the stocks. The cyclical nature of the business is hard to ignore, more so in an environment of high inflation, rising interest rates and a slowing job market. Like banking, defence and power, the medium story in hotels appears better than most other sectors, but the upswing could be gradual
Realty pain
Defaults and vacancies are on the rise at high-end office buildings in the US, in the latest sign that remote work and rising interest rates are spreading pain to more corners of the commercial real-estate market, reports the Wall Street Journal.
Why?
“Rising interest rates have hit the entire commercial real-estate sector hard. Higher mortgage costs eat into landlords’ earnings and make it harder to refinance expiring loans. Rising yields on bonds and other securities also make real estate look less profitable in comparison, making buyers more reluctant to pay high prices and pushing down property values. Real estate analytics firm Green Street recently estimated that U.S. property values are down 15 percent since March 2022.”
Electric vehicles
The value of battery metals in newly-sold EVs has almost tripled because of surging lithium, nickel prices, reports the mining.com website.
“The EV Metal Index, which tracks the value of battery metals in newly registered passenger EVs (including full battery, plug-in and conventional hybrids) around the world, totalled $26.9 billion in 2022, an increase of 232 percent compared to the prior year. That figure means as much EV battery metal business was done in 2022 than the combined total of the preceding five years.”
US-Japan minerals deal
The United States has signed a pact with Japan on critical mineral supply chains, under which EVs using materials collected from or processed in Japan will be eligible for incentives under the U.S. Inflation Reduction Act. The minerals include lithium, nickel, cobalt, graphite and manganese.
Why it matters:
The U.S. remains highly dependent on China for critical minerals and the demand will be enormous in the years ahead. The deal is part of the US’s plans to counter the dominance of China in the electric vehicle battery sector
Clean energy
BP and the Abu Dhabi National Oil Company (ADNOC) have bid $2 billion for a 50 percent stake in Israel's NewMed Energy, an offshore natural gas producer.
Why it matters:
By acquiring NewMed Energy, BP and ADNOC would be making one of the most significant investments ever made by an Arab nation into Israel, and could strengthen economic relations between Israel and the United Arab Emirates.