Netflix scores a windfall

05th April 2024 – 12th April 2024 | Another week in the markets

S&P 500	Nasdaq	VIX	DJIA	Russell 1000	NYSE
5,123.41	16,175.09	17.31	37,983.24	2,806.83	17,639.04
-1.55%	-0.45%	7,99%	-2.37%	-1.63%	-2.67%
Nifty 50	Gold	Silver	Brent crude	USD-INR	EUR-INR
22,519.40	$2,360.20	$27.97	$90.15	83.60	88.99
0.02%	0.47%	1.34%	-0.78	0.33%	-1.44%

Source: MarketWatch 

Hello Saturday,

This week, Stronger-than-anticipated March inflation figures dim hopes of a rate cut this year, Morgan Stanley finds itself under the scanner of several federal watchdogs and Bharti Hexacom makes a strong debut.

• Federal Reserve finds itself in a fix as hot inflation data for March mars chances of a June rate cut
• Morgan Stanley finds itself under the glare of multiple watchdogs over its practices of vetting clients likely to launder money using its large wealth management wing
• Netflix continues its crackdown on freeloaders
• Bharti Hexacom surges by 43% on debut, closes at ₹814
• Moody’s pegs India’s FY24 economic growth rate at 6.1%

Taking stock | The going gets bumpy | Under the scanner | Netflix scores a windfall | Hexacom hysteria | India’s GDP revisions | Invest wisely | Another week in the markets

Taking stock

Inflationary overhang and geopolitical flare-ups weighed down the markets. The Dow tumbled 1.2% on Friday whereas the S&P 500 fell 1.5%. The Nadaq receded by 1.6%.

The going gets bumpy

Hotter-than-anticipated March inflation figures seem to be throwing a spanner in the Federal Reserve’s goal of clinching a smooth and peaceful soft landing. 

Consumer Price Index figures for March rose 3.5% compared to a year earlier. The March inflation number was marginally higher than economists’ projections, and a peg higher than the February inflation rate of 3.2%.

Quite naturally, the three major indices in the US responded with fear, and the Dow Jones fell by more than 400 points to close at a two-month low. Bond yields on US treasuries climbed to 4.559%, making it one of the highest closes since November and the biggest one-day increase since September 2022.

Strong labour market data and robust financial growth figures are also prodding economists and market experts to voice doubts over whether the Federal Reserve will be able to put its rate cuts into action. 

Whispers of the monetary policy not being as restrictive as warranted are ubiquitous. It isn’t March data alone that seems to have swung the jury to the other side of the inflation debate. Inflation numbers for January and February were stronger-than-expected and a third miss in March bolstered fears over whether the Federal Reserve would be able to pull off one rate cut in this fiscal year, let alone three.

Earlier in April, Chair Powell had remarked at a conference that he sees “…inflation moving down to 2% on a sometimes bumpy path.” 

The bumps are evident in the March inflation data. It remains to be seen how the Federal Reserve will take them on.

Under the scanner

Morgan Stanley is having a tough time with the authorities.

The Securities and Exchange Commission, the Office of the Comptroller of the Currency and other Treasury Department officials are probing the investment bank for the vetting practices adopted by the investment bank for its clients.

These probes are over and above the probe conducted by the Federal Reserve in late November, when the central bank informed Morgan Stanley that a supervisory action was being considered against it.

All the regulators are putting the spotlight on whether Morgan Stanley has been adequately investigating the antecedents of its clients, and the sources from which they secure their wealth. The regulators are also investigating the modalities via which Morgan Stanley monitors its clients’ financial activities.

Last year, the market watchdog sent a list of current and former clients of Morgan Stanley with questions on the vetting procedures. Questions were also posed to the investment bank’s financial-adviser unit, which caters to affluent clients. The said unit was questioned over why it catered to clients who were barred from E*Trade, a Morgan Stanley-backed digital trading platform.

Prominent in the list of clients sent by the SEC was a Russian billionaire and another lady, whose account showed that she was operating from the US but whose trade activity signalled that she was residing in the Caribbean. The SEC zeroed in on the lady’s account because of the disproportionate funds in her account as contrasted with her occupation. The Treasury’s Financial Crimes Enforcement Network, or FinCEN also sent a client list, which overlapped with the one shot off by the SEC. The investment bank also received a subpoena from the Treasury’s Office of Foreign Assets Control seeking information on the sanction policies and procedures of the investment bank. 

After the Wall Street Journal reported on the development, the shares of Morgan Stanley tumbled by 5% on Wednesday afternoon.

Netflix scores a windfall

Mid-last year, Netflix kicked off a crackdown on Netflix freeloaders that became a major money-spinner for the streaming platform. The company added 22 million new net paid subscribers in the second half of 2023. 

The 22 million new subscribers added is a record for the period and more than double the new subscriber additions reported in the second half of 2022. The windfall gain in new subscribers was due to what the platform terms “interventions”, which are, essentially, prompts to paid subscribers sharing their passwords with individuals out of their households to subscribe or pay extra.

What’s great news for the investors is that the company isn’t done dispensing these interventions. It will be delivering these interventions to new cohorts in 2024 as well, as per Netflix’s Co-Chief Executive Greg Peters.

However, Netflix has steered clear of giving a precise idea of the new subscriber additions it stands to gain in the first quarter of FY24. It has only said that total subscriber additions will be above the 1.8 million subscribers added in Q1FY23 and lower than the 13.1 million new subscribers added in the last quarter.

Unofficial expectations over the total number of new subscribers are running high. Citigroup analyst Jason Bazinet indicated that after a “conversation with investors” there is an expectation that the platform will add eight million new subscribers in the first quarter. JP Morgan analyst Doug Anmuth marked out that the new subscriber target ranges between 4.5 million to 6 million while adding that “investor expectations are likely more toward 7M-8M”

Source: Google Finance

Hexacom hysteria

Hexacom hysteria took over the markets as the company surged by more than 54% on its trading debut to hit a high of ₹880 before closing the day at ₹814. 

Compared to its issue price of ₹570, the stock closed with a 43% gain. The meteoric burst on the debut is not surprising given the anticipation and excitement building up for the stock. The ₹4,275 crore IPO was over-subscribed nearly 30 times, and is the largest IPO to grace the Indian markets since Mankind Pharma’s ₹4,236 crore share offering in April last year.

The subsidiary of telecom giant Bharti Airtel offers telecom and broadband services in Rajashtan and Nort-East and has a 7% share of the total Airtel customer base.

Surprisingly, the stock wasn’t a hit in retail investors’ circle as the allocated quota for retail investors remained, woefully, undersubscribed. 

In the IPO, Telecommunications Consultant India, a government of India-owned body, offered 15% of its stake for sale. Before the IPO, TCIL held 30%. The balance of 70% stake is held by Bharti Airtel.

India’s GDP revisions

The Asian Development Bank just delivered a vote of confidence for the Indian economy. ADB upgraded India’s GDP growth forecast for FY25 to 7% from the earlier forecast of 6.7%.

The bank cited India’s stronger prospects for public and private investments and the robust growth of the service sector as the boosters for the upgrade. However, in the same breath, it also cautioned that unanticipated global shocks — including but not limited to dramatic hikes in crude oil rates and weather shocks — will act as risks threatening India’s buoyant economic outlook.

The projection by the ADB is in line with the RBI estimate of 7% growth in FY25. The MPC of the central bank last week said that a normal monsoon will boost agricultural activity and output in the country.

Mio Oka, the ADB country director for India said that India occupies the position of the fastest-growing major economy in the world on account of its strong domestic demand and business-enabling policies.

Invest wisely 

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Warm regards,
Another week
in the markets