20th September 2024 – 27th September 2024 | Another week in the markets
| S&P 500 | Nasdaq | VIX | DJIA | Russell 1000 | NYSE |
| 5,738.17 | 18,119.59 | 16.96 | 42,313 | 3,133.08 | 19,501.22 |
| 0.62% | 0.95% | 5.02% | 0.59% | 0.61% | 0.66% |
| Nifty 50 | Gold | Silver | Brent crude | USD-INR | EUR-INR |
| 26,178.95 | $2,680.90 | $31.91 | $71.98 | 83.72 | 93.48 |
| 1.50% | 1.28% | 1.33% | -3.65% | 0.28% | 0.30% |
Source: MarketWatch
Hello Saturday,
This week, H&M’s share tumbles as margins shrink, Fed’s rate cut delivers a filip to small businesses’ expansion plan and the rally in power stock is far from over even after a 220% surge.
- H&M reveals that it won’t be able to meet the 10% operating margin target this year
- Fed’s rate cut opens the floodgates for cheaper funds for small businesses in the USA
- Scramble for Coldplay ticket shows premiumisation is thriving in India
- Power stocks have a long, positive runway ahead of them even after stellar returns
Taking stock | H&M gets hammered | Fed’s bounty for small businesses | Coldplay fever | Powering up | Invest wisely | Another week in the markets
Taking stock
All three major US indices continued to rally in hopes that the soft landing might, indeed, be within the economy’s grasp. The Dow Jones inched up by 0.35 on Friday. The S&P 500 shed a marginal 0.1% but not before setting the 42nd all-time-high for the year, while the tech-heavy Nasdaq slipped by 0.4%.
H&M gets hammered!
H&M shares tumbled by 4.6% last week as the Swedish fast-fashion retailer revealed that it won’t be able to meet the 10% operating margin target set by a former company executive.
Higher costs in the avatar of elevated marketing expenses and higher spending on new product ranges will be margin erosive to the company’s income statement for the year. At the same time, H&M’s top line will be hurt by the shutting down of its online discount stores and adverse currency movements.
The operating margin target of 10% was set by H&M’s former CEO Helena Helmersson, who unexpectedly stepped down from the role earlier this year. The company has, in the past, indicated that reaching the lofty 10% target looks difficult in light of ramping raw material costs and currency movements.
Complicating the earnings scenario further is the emergence of fierce competition from low-cost, fast-fashion players like Shein and Primark, as well as traditional rivals like Zara.
H&M said that its sales picked up in July and August, and moved north in September. The company said its September sales are expected to rise by 11%, considering the popularity of the fall collection, and the robust engagement seen for its marketing campaign on social media.
Despite, the strong September sales, the company emphasised that operating margin will not be met for the fiscal.
Fed’s bounty for small businesses
New as well as small businesses in the US are upbeat about an imminent downward revisioning in the interest rates for business loans.
In a survey conducted by Vistage Worldwide in early September, close to 25% of business owners said that a 50 bps cut would be sizable enough to affect their business. The survey of a little over 770 entrepreneurs was conducted a day before the Federal Reserve unveiled its rate cut.
Other entrepreneurs signalled that the rate cut would set the ball rolling on lower interest rates but real, perceptible change from lower rate cuts will be visible only after a few months. Business owners also observed that higher sales or increased borrowing will be seen on the ground, only if the Fed persists with pushing out more rate cuts.
31% of the entrepreneurs surveyed said that rate cuts would have to be cut by a full percentage point for it to have any impact on the business ecosystem. Meanwhile, 27% believed that rate cuts would have no impact on the business outlook.
According to the National Federation of Independent businesses, the average interest rate on short-term loans stood at a foreboding 9.5% in August, up from a recent low of 4.1% in July 2020.
Business owners, however, did not discount the confidence effect stemming from the rate cut. The rate cuts, they believe, will boost consumer confidence and demand. Contrary to popular perception, it is small businesses that see a quicker, positive impact in their borrowing costs due to a rate cut as opposed to large blue-chip firms, which have access to several fund-raising avenues.
Coldplay fever!
A little over 1.3 crore people visited the ticket booking platform BookMyShow.com in hopes of bagging a ticket to the upcoming 2025 Coldplay concert in Mumbai. The tickets, which were sold out in under 30 minutes, retailed for anywhere between ₹2,000 to ₹35,000 on BookMyShow.com
However, resale platforms like Viagogo are listing the same tickets for as high as ₹10 lakh.
The demand for Coldplay tickets is a prominent indicator of the resurgent consumption story in India. With the rise in disposable income, there has been a strong growth in the number of affluent Indians and a visible expansion of the middle class. These factors taken together have contributed to the rise of premiumisation across business sectors and segments.
In the past couple of years, be it FMCG, liquor, automobiles, consumer durables or housing, more and more customers have been tilting towards splurging on high-end goods over buying mass-market alternatives.
The premiumisation trend first emerged into the public imagination during the Covid pandemic. The pandemic forced everyone into a re-orientation of their spending and saving habits — while some turned towards more conservative budgeting, many plunged themselves into luxury purchases. The YOLO phenomenon sums up the spending spree and premiumisation pivot seen thereafter, which prioritises experience over expenses and consumption over investments.
In the automobile industry, the trend is clearly visible in the sales data from January to July this year. For the first time in the history of the Indian automobile segment, vehicles priced over ₹10 lakh accounted for 48% of the cars sold in the country. In 2023, the same segment accounted for 44% of the total sales.
Data by Counterpoint Research shows that mobile phones over ₹30,000 accounted for 20% of the market share by units between Janaury to May. The number stood at 17% last year. In fact, mobiles over ₹30,000 accounted for 49% of the market share by value between January to May this year.
Premiumisation is being seen in the sales volume of 50-plus inch TVs as well, which grew from 21% of the total sales to 24% this year.
Data from U Grow capital projects that by the year 2031, Indian households with annual income of over Rs 30 lakhs per annum will expand by 11.3 crores. As per the report, middle-class households with incomes between ₹5 lakh to ₹10 lakh annually will increase by 28.3 crores by 2031.
Powering up!
A combination of opportune tailwinds is projecting a brighter, stronger future for the power sector in India, irrespective of the stellar returns companies have delivered, till now.
Strong demand outlook, growing share of renewable energy, new investment opportunities for generation and transmission infrastructure and smart metering will, domestic brokerage houses believe, boost the power sector in India.
Not one company in the 13-stock BSE-Power Index has delivered negative returns in the last year. The index, to date, has delivered 90% returns with four stocks clinching multi-bagger returns in the range of 103% to 221%.
Suzlon Energy, Torrent Power, BHEL and Adani Green have made investors richer by 221%, 163%, 124% and 103% respectively. Other bigwigs like Tata Power and Power Grid have multiplied investor wealth by 85% and 84% respectively.
Invest wisely
Investing demands that one should always keep an eye on all the developments occurring in the financial and economic landscape. Alas, most investors do not have the time or the inclination to keep up with the nitty-gritty of the business world. This is where the Appreciate app can be of great help to diligent investors. With our deep research capabilities and macroeconomic indicators, you will always be well-informed about macroeconomic and financial events that can have a repercussion on your portfolio. With Appreciate by your side, staying on top of the market cycle is a walk in the park.
Warm regards,
Another week
in the markets
