October 9, 2023

Israel-Hamas War Halt Nifty Recovery

Tale of the Tape

Hello boys and girls. Markets were down BIG! 🚨

Nifty and Sensex dropped -0.7% each after geopolitical tensions in the Middle East dampened sentiment. More details below. Midcaps (-1.3%) and Smallcaps (-1.8%) were also thrashed. The selling in broader markets was absolutely brutal with 419 stocks out of the Nifty500 ending in the red! 📉

It was a sea of red across the board. Not a single sector ended in the green. PSU Banks (-3%), Metals (-1.4%) and Financials (-1%) got beat up the most. 🤕

TCS hit a new 52-week high on buyback plans. Liquor stocks reacted positively to the GST council announcements. Read more below. 👍

Adani Ports & SEZ slipped -4% amidst concerns over its Haifa port in Northern Israel. PS – the company had acquired the Haifa port for $1.2 billion in January 2023. 🙈

Abu Dhabi Investment Authority will invest Rs 4,967 cr in Reliance Retail for a 0.6% stake. 💰

Hero MotoCorp was under pressure after the Delhi police filed an FIR against Chairman Pawan Munjal. 👎

Kaynes Technologies hit a new all-time high. The company will invest Rs 2,800 cr to set up a semiconductor plant in Telangana. 🏭

MCX rallied +5% intraday after receiving the SEBI approval for its new commodity derivatives platform. ✅

INOX Green will sell its 50 MW wind farm in Gujarat. The company will turn debt-free after the sale. 💯

Solar Industries (+2%) won its largest-ever order of Rs 1,853 cr from Coal India. 🤑

Here are the closing prints:

Nifty	19,512	-0.7%
Sensex	65,512	-0.7%
Bank Nifty	43,886	-1.1%

Israel-Hamas War: Impact on the Indian Market

Markets took a bit of beating today after Palestine-based terrorist group Hamas attacked Israel over the weekend! ICYMI – Hamas launched rockets, sent ground raids and killed hundreds of innocents. The Middle East has been relatively quiet for a decade, but the attack now shakes up things. 💣

FYI – markets usually take geopolitical events in their stride. LPL Research’s work shows that it takes on average 50 days for markets to move past an event. That said, geopolitical strife can shake up macro factors. Here’s what you need to know: 🤓

1) Surging crude: Oil prices shot up 4.5% today, hitting the $87 per barrel mark. Both Israel and Palestine aren’t big producers, but the broader Middle Eastern region is which is why experts are worried about supply chain risk. The longer this moves on, the higher the chance we see crude at $100 per barrel. This is bad for inflation, bad for raw material costs and bad for people who had hoped to see lower interest rates anytime soon. 🙈

2) Infra bomb: Companies that have significant exposure to the Middle East took a beating. Adani Ports was down 4% intraday. ICYMI – Adani had acquired Israel’s Hafia port earlier this year for $1.2 billion. Other railway and infra stocks — Rail Vikas Nigam, IRFC, IRCON, Titagarh Wagons — were down 2%-5% intraday. Why? This whole episode puts a BIG question mark on the India-Middle East-Europe Economic Corridor. Companies that had expected to gain big time from that have been dealt a setback. 😣

Big Picture: India isn’t directly involved in this. Most experts say there shouldn’t be too much of a long-term impact. Let’s hope for a peaceful resolution soon. 🕊️

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Bullets From The Day

💰 Tata Consultancy Services hit a 52-week-high after the company announced that it would consider share buyback plans on October 11! FYI – this will be TCS’s fifth buyback in six years, but also potentially its LARGEST yet. Most analysts predict it will be worth Rs 18,000 cr – Rs 22,000 cr at a buyback price of Rs 4,300 – Rs 4,500 p/sh. For the unaware, a share buyback reduces a company’s cash (TCS had Rs 15,622 cr as of June 2023) and equity. But, in turn, it boosts EPS; experts predict it could improve TCS’s EPS by 1.7% over the current Rs 127.5 p/sh.

Most importantly though: why is TCS doing this? The move throws a bone to shareholders worried about the company’s recent rough performance. The IT industry is struggling and TCS is not immune. A share buyback helps soothe anxious nerves.

🥃 Alcohol stocks were up today after the GST Council said that a key raw material would no longer be part of the tax net. GM Breweries, Associated Alcohol, and Radico Khaitan were up 2%-6% intraday before giving up gains due to profit booking. The big trigger is that ENA (extra-neutral alcohol) will no longer be subject to GST. Also, the GST on molasses has been reduced to 5% from the earlier 28%.

FYI – for every 9 litres of 42.8%-proof liquor made in India, roughly 4 litres of ENA is required. Reducing taxes on this comes as a major cost-saving move. That said, experts say we’ll have to see how this works out because state governments can still decide to levy a value-added tax. Although some of this can be offset, it’s unclear how it will play out.

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