For June 2025, Inflation falls to 2.1% , the lowest since 2019. This is a remarkably low number, but there is something that makes me uncomfortable. Compared to last year, we may be low enough, but there's a base effect because inflation went up big last year. The current year seems very nice.

But there's still something more.

India's net FDI is down substantially but it's not sinister. This is a great thread on the topic but let me add two important points.

One, that FDI is still strong incoming but outflows have increased. What does that mean? Aren't you mincing words, Deepak? Let me explain.

https://twitter.com/zerodhamarkets/status/1935321511314751953

What is FDI? It's a foreign entity buying equity into an Indian company. Now you have FPI, which is portfolio investments by people like hedge funds and index funds and all that, into Indian listed companies. That is not fdi.

When suzuki bought shares in Maruti, it was FDI.

Personal loans by banks (marketshare):
- Housing loans still dominate (52%)
- Education has halved marketshare (now 2.4%)
- Vehicle loans at 10%
- Unsecured personal loans rises to 29% marketshare
- Credit card usage is rising We now have the split by gender (male/female) and that's throwing some interesting changes in the last decade.

Women are now 40% of all education loans from banks. This is excellent news.

India's current account deficit is only $11 bn in the Oct-Dec quarter. For FY2024-25 it's only $37 billion. This is good; the rupee fell, but the problem was FPI flows and speculatory rupee trade, not fundamental trade flows.

Thread: 🧵 Note that in the previous quarter, the deficit was $16 bn. It was announced as $11bn and has now been revised UPWARDS by $5bn. So these figures can be revised.

rbi.org.in/Scripts/BS_Pre…

Interesting move in the Vodafone Idea game - the government will convert about 37,000 cr. of debt into equity - buying about 3700 cr. of shares at Rs. 10 each.

Since its your money as a taxpayer, you will rightfully ask, but hello, aren't the shares at Rs. 6.80 in the market? Well, of course, but there is a rule that you cannot issue shares below "par" so we have to cough up 50% more.

Does this help Vodafone idea? There is a song, "Doobne waale ko tinke ka sahaara hi bahut" (To a drowning man, even a twig is a saviour". This song has no idea about drowning men, but Idea now has a twig.

Gold bonds wise - the worry isn't that the government didnt hedge the gold, the worry really is that they didn't do enough of it to change any imports at all. In fact they raised the duty on gold, making gold even more expensive! The idea of the SGB was that if you only cared about it as a financial asset, then you could just buy an SGB. The lower interest of 2.5% (versus typical bond issues of 8%+) would help the government raise funds at lower interest and hopefully, reduce imports.

Budget2025: Thread starts here.

Expect bad attempts at jokes. Do not expect tax cuts. I hope there isn't too much poetry, though I'll quote cartoon movies liberally. India's highest tax rates of the past, and it's come down to 39% (!) a couple years back.

Indian GDP for Sep 2024 comes in at a low 5.4% and even nominal growth is now 8%. Terrible for manufacturing at just 2% real growth. Agri did decently, but everything else also saw declining growth:

Bad news on the inflation front. 6.21%! Food inflation and personal services has gone bonkers. This is quite deep and we should probably not expect a rate cut unless this moderates quickly. The difference between last year's numbers and this years is growing - that's what has caused the rise. Very steep.

Sectoral indices are a crazy mess in India. The Bank Nifty has two stocks that add up to 50%. Five stocks are 75%. Pharma: 4 stocks are 50% but there is at least some other players here:

RBI has increased its balance sheet size enormously, to 72 lakh crores. Let's look at it in a 🧵, because this has an impact on inflation going forward. Balance sheet growth is now at an extreme! 13% and increasing, and we haven't seen this level since covid!

SEBI changes the F&O Game

The boring stuff: Options to be paid upfront
Option premiums have to be paid by options buyers. Sounds obvious, but currently, intraday, the exchanges just block the broker's collateral for options bought, which therefore allows one person to effectively buy and sell intraday using another person's collateral. This must be a few brokers that provided this facility to allow mad intraday options buy positions. From Feb 2025, this won't happen - clients will have to pay up from their money for such purchases.

No Calendar spread on expiry day: You can sell an option on expiry day and buy a futures or options for a later expiry (like sell weeklies, keep a monthly buy on a different strike or so)

This provides a "calendar spread" benefit that reduces margins by as much as 50%. This lower margin allows a person with X lakh rupees in margin to take 2 times the position as he would without the calendar spread benefit. And SEBI doesn't like it. So they've removed the spread benefit only for expiry day (if one leg of any spread is expiring that very day only)

This is not a bad idea, as there was a large amount of retail scalping happening on daily options expiries, especially selling straddles. There is systemic risk in case the offsetting calendar option doesn't move anywhere close to the expiring one (can happen in case of sudden spikes) - which makes sense on expiry day because max trading happens there. I had demonstrated the calendar spread impact here:

https://x.com/deepakshenoy/status/1818275122580467941

SEBI has a new research paper on IPOs - very interesting set of data that I'll highlight in this thread.

38.3% of all allotted investors are in Gujarat! Then MH, then RJ. Rajasthan? And it's even greater for non-institutional investors (HNIs)!

Most IPO accounts were opened recently, which makes sense because of the increase in the number of brokers and the ability to apply easier online through some of them.

What do you do when you own a stock and someone sends you a SELL report with "77% downside"?

You check to see what they've said earlier. Case in point: Mazgaon Dock (we own this)

ICICI sec puts out a sell rating saying boss stock will fall to 1165 (77% down from 5000) On 31 May 2024, the same folks had said, when the price was 3300, to sell again with a 73% downside

The price is 50% higher now, just saying.

SEBI has released a consultation paper on F&O activity in index options. The recommendations are:

1. Reduce the options strike prices to be uniformly distributed 4% around the index price (this would translate to strikes 400 rupees above and below in the Nifty). Beyond that, increase the width.

Since Nifty strikes are 50 wide, that means about 8 strikes above and 8 below at 50 wide, and perhaps beyond that is only 100 wide. Max 50 strikes on introduction.

Why? Apparently because on expiry da, people are going nuts with really far from the money options. For something 5% away from the money (For Nifty, 1200 points away) the trading volume of contracts is upto 20 times the previous day's open interest:

Means people are just punting on these low cost options for a big move on expiry day? Or sellers are just looking to eat the premiums. Whatever it is, SEBI's committee decided, not great, so let's restrict the number of strikes.

But this limit of 50 strikes doesn't make sense - if the index moves 10% down, you'll need a lot of new strikes! Restricting it on initial introduction is fine, I think.

MOre in the next tweet. 2. Option premium for buyers: Usually brokers demand it as cash, but intra-day, the brokers can use collateral (pledged shares/MF etc) given to the clearing corp as the margins at the broker level, not at the client level according to the paper.

Essentially, this allows intraday leverage on option buying. Some brokers may allow players to trade intraday expiry-day options at 10x or 100x leverage even for buying options, which is a systemic risk, honestly. So making sure the broker gives only cash for options bought, and upfronting the cash to the clearing corp makes sense.

I don't know if this was even happening, but if it was, this suggestion will stop it. Good to remove systemic risk.

#Budget2024 Thread starts here. Follow for bad jokes, "are you not entertained" kind of commentary, and possibly some information on the actual budget.

Previous thread on interim budget here: x.com/i/bookmarks/17… We'll start strong: India is in the strongest possible place on the fiscal front, with super tax collections, an extra RBI dividend and potential non-tax revenues looking good.

Let's see how it will be used.

The RBI gives 210,000 cr. to the government as dividend. This is massive, and this is after increasing the RBI buffers to the maximum permissible (I think they are wayyy too high even before this)

The budget had only 102,000 cr. in it, so it's pretty big, this number.

We wrote about this @capitalmind_in in 2018 and the exact nuances of how insanely much that number was, that RBI has in "excess". At that time, we estimated that they had over 300,000 cr. in excess, and today that number is way higher. (Links later)

Lousy results by HDFC Bank. Ignore the 38% growth (they conveniently forgot that they merged with HDFC in July last year) - the real profit growth is just 3%. Even that is probably because of Credila (they got a pretax profit of some 7000 cr. because of it) Discl: Small pos. Credila was sold off in 2024 March, which pretty much made their bottomline. They also had an extra floating provision of 10,900 cr. (which would have brought down the profit) and that's likely because they see more issues in retail.

If you wonder why RBI's all antsy about growth of the credit ecosystem, it's because things are looking really hot here:

The credit/deposit ratio is at the highest it's ever been. Banks have to put about 18% of Deposits in GSecs and 4.5% in CRR.

This means of every 100 rs. Deposit they can only lend out Rs. 77.5. Banks will have their own capital - between Rs. 10 and Rs. 15 for every Rs. 100 in lending so they can lend out as much as 88 also. It appears that banks are lending as much as they can and some more.

This is a little bit of a problem because the areas you see where the C/D ratio is above SLR/CRR limits? Those periods correspond to high inflation; and it appears we are back.

I should write a more detailed piece on this, but I'll start this way: it should not surprise us that banks aren't doing that well. And given that Indian government bonds will have more demand from foreigners, expect this ratio to stay high at least this year. Oh, and deposit growth is only around 13%, versus credit growth of 19%.

Deposit rates - for relatively shorter terms like a month or two - are better with money market/liquid funds. Corporates have slowly figured this out, at least the large ones. Individuals will.

Inflation goes up mildly to 5.55% as food inflation shows its ugly head again. Last year though, there was a dip at this time, so that's a bit of a base effect also. As you can see, closer, here:

RBI increases risk weights for banks and NBFCs. This is pretty big!

1) All consumer credit (other than housing, vehicle, gold, edu and MFI loans) see an increase in risk weight to 125% from 100%

What this means is: In effect, if a bank has 20% CAR for personal loans (unsecured) or loan against fd/stocks, then it's lent Rs. 100 for Rs. 20 in capital. Now that Rs. 100 will be counted as Rs. 125 (125% risk weight) so the CAR falls to 16%.

Banks and NBFCs will now see much lower CARs.