Markets Search For Fresh Triggers

On today’s episode, financial journalist Govindraj Ethiraj talks to Ajit Dayal, founder of Quantum Advisors.


Our Top Reports For Today

  • (00:00) Stories Of The Day
  • (01:09) Markets Search For Fresh Triggers, May Open On Backfoot
  • (03:00) Foreign Direct Investment Into India Almost Halves In Last Year
  • (04:18) The Global Chip Manufacturing War Is Intensifying, India’s Dilemma
  • (09:37) Onion Exports Ban Have Been Extended, In Surprise Move
  • (10:07) ICICI Securities Shareholders Are Fighting Back For Greater Share Of Parent ICICI Bank Stock In A Delisting Move


NOTE: This transcript contains only the host’s monologue and does not include any interviews or discussions that might be within the podcast. Please refer to the episode audio if you wish to quote the people interviewed. Email [email protected] for any queries.

Back to Trigger Watching

Returning to trade after a market holiday is always tricky particularly when the market holiday is limited to your market.

Should we pick up cues from Friday close or from what happened in global markets on Monday when India was shut because of Holi.

Before we go global, let’s run through what happened in India.

On Friday March 22, the BSE Sensex rose 191 points to close at 72,832 while the Nifty 50 rose 85 points to 22,096. This was the third session the benchmark indices closed higher which of course makes one wonder if there could be a fourth today or Tuesday ?

The Nifty Midcap 100 and Smallcap 100 indices were higher than the benchmarks. We don’t usually track these indices except that at this point, given all the regulatory overhang and crackdowns, it becomes a useful indicator of the broad market and to what extent it has been affected.

Well to some extent but things seem to have quieted a little.

US markets saw a record rally on Thursday after the Federal Reserve indicated three interest rate cuts this year or stuck to its earlier indications from what it appears.

Elsewhere, gold as we have been reporting has been hitting all time highs too. The price of 24-carat gold slipped Rs 10 in early trade on Monday, with ten grams of the precious metal trading at Rs 66,810, according GoodReturns website. 

The price of ten grams of 24-carat gold in Mumbai is in line with prices in Kolkata and Hyderabad, at Rs 66,810.

US gold prices are staying high on the same proposition, that interest rates will come down in which case gold becomes a sounder looking investment. 

Spot gold was up 0.4 per cent at $2,172.09 per ounce on Monday.

FDI Levels Continue To Fall

The pandemic saw a high in FDI into India, mostly in tech and telecom, including by the likes of Google and Meta.

That level or levels have not been sustained and FDI into India and for that matter even many other developing countries continues to fall.

Business Standard reports the current financial year could close with a lower level of foreign direct investments (FDI) than the previous one.

Net inflows were $18.4 billion for the rolling 12-month period ended January 2024, according to data from the Reserve Bank of India (RBI). 

It was higher at $32.7 billion for the rolling 12-month period ended January 2023.

The top sectors to draw in until December 2023 FDI were in services, financial, banking, insurance, outsourcing and others, accounting for the highest share of equity inflows). 

One big jump was in construction linked to infrastructure where this category has risen to 12% from 3.3% in the previous, says the Business Standard.  

The majority of funds came from or via Singapore, followed by Mauritius and the United States.

The Never-Ending Semiconductor Race

Remember Intel inside, the tagline to suggest that Intel chips were powering your laptop and computers.

Going by the developments of recent years, you hear about everyone making chips but Intel it almost seems, including of course the likes of NVidia or Samsung.

That is changing once again but it also signals the larger race for chip manufacturing which India will find it tough to keep up with.

Back to Intel, the Silicon Valley based major will spend some $100-billion across four U.S. states to build and expand factories.

The point to note is that Intel is doing this after getting some $19.5 billion in Government or federal grants and loans.

It hopes to get another $25 billion in tax breaks, according to Reuters.

This would mean that almost 45% of the project cost is being funded through grants and tax breaks.

This by the way is happening elsewhere in the world too, including in India.

Back in the US, Intel is building what it says will be the largest AI chip manufacturing site in the world, active from 2027, in Columbus Ohio.

Intel’s plan will also involve revamping 2 sites and expanding another in different parts of America, including in  Arizona, where rival Taiwan Semiconductor Manufacturing Co  is also building a massive factory.

TSMC also is lining up for funding from President Joe Biden’s push to bring advanced semiconductor manufacturing back to the United States.

Intel CEO Pat Gelsinger has previously said a second round of U.S. funding for chip factories would likely be needed to re-establish the U.S. as a leader in semiconductor manufacturing, which he reiterated on Tuesday.

“It took us three-plus decades to lose this industry. It’s not going to come back in three to five years of CHIPS Act” funding, said Gelsinger, who referred to the low-interest-rate funding as “smart capital”.

Now just to cast an eye around the region. Intel, Infinenon and Nvidia are investing billions in Malaysia, not something you would have picked up.

Intel and infineon are investing around $7 billion each while Nvidia is partnering with a utilities conglomerate to develop a $4.3 billion AI cloud and supercomputer centre, the New York Times is reporting.

Elsewhere, Texas Instruments, Ericsson and LAM Research are all expanding in Malaysia, according to NYT.

Malaysia is already the world’s sixth largest exporter of semiconductors, and packages 23 percent of all American chips

So how did Malaysia do it ? For one it has a history of technology manufacturing.

But then, it also created a free-trade zone on the island of Penang, offered tax holidays, and built industrial parks, warehouses and roads. Cheap labour and an English-speaking population helped, says the NYT.

Elsewhere in the region, China itself will add more chip-making capacity than the rest of the world combined in 2024, according to research consulting firm Gavekal Dragonomics: one million more wafers a month than in 2023—all mature nodes. 

In contrast, as the WSJ points out, the Tata Group’s plans and more of that in a moment, to make 50,000 wafers a month. 

Industry tracker TrendForce projects that China’s share of global mature-node production will grow from 31% in 2023 to 39% in 2027.

Now for India, we have seen three large project announcements, in Morigaon in Assam – do read our ground report on this project on www.thecore.in – and two in Gujarat. Two projects, in Assam and Gujarat, are being helmed by the Tatas while the third is CG Power. 

They join Micron whose plant is also coming up in Gujarat and is expected to start production next year.

So that makes it four projects, though none of these are making the high-end semiconductors of the kind made by TSMC where the big battles so to speak are being fought.

Semiconductors are now treated by almost all countries as a strategic investment and are thus being lavished with heavy subsidies.

India too is in the race as we have documented but the challenge is that other countries are spending even more, including on tax breaks.

While investments will happen as they are, the critical thing is to have a clear ecosystem and cluster focus, whether in Gujarat or in the south where the rest of the electronics ecosystem is flourishing.

Richer Indian states will have an advantage in offering tax breaks and perhaps they should so as to ensure other industries move to poorer states or at least not drag them into a global subsidy race.

Boeing CEO To Step Down

Boeing Co. Chief Executive Officer Dave Calhoun is stepping down at the end of the year, Bloomberg is reporting as part of an overhaul at the aeroplane maker.

Chairman Larry Kellner will not stand for re-election, Boeing said in a statement Monday. 

Stan Deal, the embattled chief of Boeing’s commercial aeroplane division, is also departing immediately and will be replaced by Chief Operating Officer Stephanie Pope.

Kellner, Calhoun and Deal mark the highest-profile departures since a near-catastrophic incident in January involving its 737 Max jetliner plunged Boeing into an ever-deepening turmoil.

Onion Export Ban Continues

The government has extended its ban on onion exports indefinitely, Reuters is reporting.

This move would upset traders and farmers who could have realised higher prices but keep the populace at large happy, particularly in an election year.

The ban on onion exports was imposed in December and was set to end on March 31 and Reuters says traders were expecting it to be lifted as local prices have more than halved and supply is strong.

ICICI Bank vs ICICI Securities

As battles go this is an interesting one, not for the financial mechanics of it but the history and background which we will come to shortly.

ICICI Securities is a listed subsidiary of ICICI Bank. The bank has proposed to merge ICICI Securities back into ICICI Bank and delist the company in the process.

Shareholders of ICICI Securities feel the value offered for the merger, the number of ICICI Bank every shareholder of ICICI Sec will get, is not enough and does not adequately reflect the value of ICICI Securities.

Both sides have lined up the artillery.

ICICI Securities has got several institutional investor advisory firms to support its move and the bank itself which owns around 75% in the stock brokerage is obviously throwing its weight behind the move.

But the battle is a bit finer because of the remaining 25% held by public shareholders. Two-thirds, or 16.8%, of public shareholders of ICICI Securities need to approve the proposal.

Before I come to what others are saying, I reached out to ICICI Securities for their comment, which was a somewhat boilerplate one, essentially reiterating that the board has already considered and approved the scheme of arrangement.

The valuation – in this case of 67 shares of ICICI Bank for every 100 shares held in ICICI Securities – the latter says has been prepared by reputed independent valuers for both the bank and the broking house and sent to shareholders.

ICICI Sec has also provided to me, some of the advisory firms, exhaustive – i mean quite literally – reports to justify their position on the matter.

Both ICICI Bank and ICICI Securities have sought shareholder approval on the bank’s decision to delist the brokerage business. The voting on the resolution ends on Wednesday, 27 March.

Now, the proposal for this merger or delisting was floated in June last year and has been in play since. But the action has obviously picked up in recent weeks.

The story is interesting because of the background, which is that ICICI Securities was delisted in not so good times in April 2018 when ICICI was trying to grapple with a loan controversy involving its CEO Chanda Kocchar who finally stepped down in October 2018.

There are several large shareholders, some of whom have agreed to this delisting valuation, others who may have not but no one has come out quite so openly and guns blazing as Quantum Mutual Fund via its two schemes who are shareholders in both companies, ICICI Bank and ISec.

The story gets more interesting, as much for what ICICI Bank was going through in 2018 and where it is today, as is ICICI Securities, which is doing much better than the last few years, whilst pitted against cash-burning, VC-funded brokerages.

I spoke with Ajit Dayal, founder of Quantum Asset Management company and began by asking him what his principal objections were.

This is a long conversation but I do urge you to stay on for the flavour of what is going on as well as the larger comment on governance and the perception of it.

Quantum Mutual Fund has voted against ICICI Bank and ICICI Securities merger, citing a loss of Rs 6.08 crore to its unitholders.

The Quantum Long Term Equity Value Fund and Quantum ELSS Tax Saver Fund are shareholders of both companies, ICICI Bank and ISEC. Quantum Mutual Fund said it did not find the swap share ratio lucrative to the shareholders of ICICI Securities.

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