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.

India's Current Account Deficit fell by half, to $9bn from $18bn in Q1 last year. More charts follow. Net of gold, India's current account is actually positive! Gold is more a financial account item, since it's more used as a financial instrument. Think of it as reverse FPI or such. If we did that, our current account would be marginally positive:

This is HUGE! RBI says banks and NBFCs have to release documents of properties and collateral mandatorily within 30 days!
* Have to remove encumberance within 30 days, and return docs
* Docs can be returned from any branch, not just home branch of customer
* Loan docs must mention where the borrower can get them back once he repays
* If the bank/NBFC doesn't return docs or release the encumberance charge within 30 days - they pay 5000 rs. per day of delay
* If bank/NBFC loses the docs - they will pay and assist owner in getting docs back or attested copies (but they get another 30 days i.e 60 days before the 5K per day penalty, only if they lose the docs)
* If the loan taker dies, Banks/NBFCs need to have a detailed procedure on how heirs can get original docs.

Applies for even past loans where full repayment happens after December 1, 2023.

This is awesome for homeowners who borrow, but also for collateral based lending like for cars, securities and all the other stuff. And applies to NBFCs also, so housing finance companies can't escape.
Link: rbi.org.in/Scripts/Notifi…

My goodness. The CRR requirement for banks has jumped up by over 100,000 crores! From 890,000 cr to more than 10 lakh crore, on Monday.

I know half of this won't make sense to anyone. Damn, I should write about this. Or tweet thread it out RBI recently raised the CRR (cash reserve ratio) requirement for banks - 10% of all incremental demand and time liabilities after May 19 to July 28. That means all new deposits in the banking system would have 10% given to the RBI for no interest.

The reason people understood was: oh, the RBI has told people to deposit their Rs.2000 notes as they will not be legal tender after September.

This is not a useful reason. Because the notes, even when they were "demonetized" were only 3.62 lakh crores in value on May 19, 2023. And that's fallen to 0.42 lakh crore on Aug 1, which means only 3.4 lakh crore was deposited.

Total cash in circulation was around 3.45 lakh crore on May 19

On July 28, it was 3.29 lakh crore. That's only 16,000 cr. that's net out of cash - that means people deposited and took out cash again. No, this incremental CRR can't be because of Rs. 2000 notes. So why?

Interesting tidbits from the SEBI consultation paper on TER: they're paying so much brokerage and transaction costs that it sometimes is higher than the TER itself (and then, they might be routing brokerage through "high" brokerage entities) For investments Beyond the Top 30 cities (called B30) funds can charge a higher fee than the minimum TERs, but hey:

What is the "Total Expense Ratio" or TER of a mutual fund? To understand this better, we go through the basics and some really advanced material such as: why are funds charging 0.05% more just because they have an exit load?

Such things and more, in this thread and post. Of course, we don't ever do things half ways at @capitalmind_in so it's going to be a bit of a nuanced article: We cover why it's not "Total" expense ratio, but it's more like *conditions apply.

Lic turned out a 36,000 cr profits for the year on a market cap of 390k cr. Own it in the pms.

13000 cr profit in the last quarter and lowered npas to 2.6% for policy holders. There's a continued 4-5000cr from the non par account that comes to shareholders. The one timers are
Loss of 11000 cr due to a employee liabs on wage revision
Hit of 2200 cr till fy 24 for pension liabs
Tax benefit of around 7000 cr
One other 5000 cr one time hit for npas i think

Very interesting, and fairly cheap at 60% of embedded value

RBI is slowly withdrawing the Rs. 2000 note from circulation. This is not demonetization - the notes will continue to be legal tender. You have till September 30, 2023 to deposit Rs. 2000 notes and either exchange them to other notes, or just keep the money in your account. Banks will no longer issue 2000 rupee notes going forward.

Why? Notes get soiled over time. They are usually withdrawn quietly by telling banks and new notes issued to the banks. Now, no new notes will be issued. A 2000 note given to RBI will be returned with 4x500 or such.

Just went through the SEBI MSM REIT regulation draft - that's a mouthful - here: sebi.gov.in/reports-and-st…

It's a funda that says
* Oh, you want to own real estate and get rent but not enough money?
* Come pool with a bunch of people like you and buy a place together ... This is "Fractional ownership". Sites like Asset Monk, Prop share etc. offer this. They create an LLP which buys the real estate. From the rent collected, they keep a bit and send the rest to investors.

SEBI wants to regulate this, as it's a collective investment scheme.