I am not here to announce, ‘India is back, baby’, considering inflation, the US Iran war and Saudi’s refineries turning into target practice for the Houthis. India’s outlook continues to be a mixed bag. Still, amid the thaali of risks, a strong performance for the Indian index has come just as the AI bet globally is starting to wobble. 

1. Seesaw: India’s AI problem switched sides

You know that old movie trope of the shy librarian girl taking off her glasses and becoming the star of the show? This week, Indian IT companies like TCS and HCL Tech took off their glasses, and delivered a comeback in share prices with strong Q2 results. Claims of the death of Indian IT with the rise of AI turned out to be greatly exaggerated. 

On the other hand, Indian companies indirectly linked to AI (via optical cables and data centers), fell sharply. Optical fiber manufacturers Sterlite Technologies and HFCL, and MTAR Tech, which is a clean energy supplier for data centers, each hit lower circuits on Thursday, even as the IT index gained 1.8%.

Sterlite Tech has been the Nifty500’s top performer, rising a blistering 800%+ this year. Foreign ownership in these AI-linked players have also been steadily rising. 

The market cue: A retreat from AI enthusiasm globally could help IT services while hurting these already very expensive AI-infrastructure proxies. The relative performance of these two groups of Indian ‘tech stocks’ will be interesting to watch if the AI bubble pops in the US. 

2. Jio wants $3.2 billion, mainly to repay its debts

Jio Platforms has set its IPO price band at Rs 1,065–1,119, valuing the company at  $108.3 billion. The $3.2 billion offering opens on October 21, with institutional anchor bidding on Monday.

At that valuation, Jio would become India's fourth most valuable listed company. Its 533 million subscribers and 60% share of India's data traffic are extraordinary assets.

But Jio has arrived with its debts in hand, and the IPO is a repayment plan. The company plans to use up to 90% -  $2.89 billion of the $3.2 billion IPO proceeds - to repay its telecom borrowings. Its prospectus also acknowledges that data protection regulations could limit  its ambitions to monetise user data through advertising and digital services.

The market cue: Watch institutional demand and the implied valuation of Reliance Industries. Will investors happily absorb another enormous offering? For now based on the grey market premiums, the answer is 'yes'.

3. Corporate India's costs are rising a lot faster than consumer prices

India's September wholesale inflation hit 11.4%, way above economists' 10.18% forecast. And manufactured product inflation reached 9.76%. ICRA says non-food manufacturing accounted for more than half the increase in headline wholesale inflation.

Companies are paying much more for inputs, while retail price increases are relatively restrained. The limits on how much companies can pass through cost increases is set to impact margins in Q2 and especially Q3. Jefferies expects 62% of companies in its earnings coverage to report YoY margin declines in Q2.

The market cue: Watch autos, paints, chemicals, consumer goods and industrials for evidence that costs are being passed on to customers. The companies worth following are those growing volumes without sacrificing margins. Revenue growth is great. Revenue growth with rising profits is even better.

4. SEBI backs down, and it’s especially good news for one industry

SEBI’s settlement reversal could change earnings expectations for stock market brokers. From December 7, expiring derivatives will again be settled using volume-weighted prices from the final 30 minutes of regular trading, a U-turn from the recent SEBI change of using closing-auction prices. 

Jefferies notes that India’s stock market brokers could benefit more than exchanges. Its assessment is that broker order activity remains below pre-auction levels, while exchange premium turnover has already recovered. 

The market cue: Look for earnings upgrades for India’s brokers, as the derivatives trade tries to recover from the regulation driven slump. 

Heard on the street

Bloomberg reports that Jio attracted more than $20 billion in pre-IPO bids, quoting sources. It also described investors pressing management to lower the IPO valuation during roadshows, against earlier expectations that had reached $170 billion. The lower $108 billion valuation has reportedly attracted plenty of interest from institutional investors, and the grey market premium is around Rs. 230.

Reliance finally broke its silence on Elon Musk's allegations. The earlier attacks from Musk on X had him addressing Ambani as “Prime Minister Ambani” while alleging the Reliance Chairman's interference with Starlink’s launch. Reliance responded on Friday saying that it 'welcomed competition' and that its own satellite service also awaited clearance. Musk then replied: “Much appreciated”. 

Musk comes across as the guy who likes to have his fights out on the lawn, instead of inside his house.

Burn your demons next week, 
The Trendlyne team 

Disclaimer: This newsletter is for informational purposes and should not be construed as financial advice. Please consult your financial advisor before making any investment decisions.