Best of the Week | The rule of Froth
- Best of the Week, March 16: market meltdown, smallcap scams, and electoral bonds
Dear reader,
Ever heard of the 'Baader–Meinhof' illusion? It's described as a cognitive bias, wherein you notice the same concept or word over and over again after recently learning about it. This week, I've experienced that with the word "froth". I'm seeing it everywhere!
The week was a bit of a disaster for the Indian equity markets. Nifty and Sensex fell by 5%, but the majority of the damage was done in the smallcap stocks. Nifty's smallcap index is down by 7%. But why the sudden plunge?
Froth in my markets
Well, there's been talk of "froth" in the stock markets for a while. But what does this word even mean? If you're a beer drinker, you'd know that froth isn't a favourable thing. It's the excess on top — the unwanted gassy bits. An analyst would call the markets frothy if the stocks are perceived as being overvalued. Whatever factors you might consider: price to earnings ratio, profits, revenue — if you're suspicious of something, you'll be cautious. Hence, the froth.
🚨 The week started off with Harsha Jethmalani, our Mark to Market analyst, writing about these underlying trends providing a reality check to Indian investors. The Indian stock market is still beholden to what happens across the world's economies, and will get affected by any headwinds. Thus, pricey valuations that have powered the current bull run have led to a lot of froth in the market.
And froth leads to... bubbles.
🫧 That's not me — that's Madhabi Puri Buch, chairperson of the Securities and Exchange Board of India (Sebi). Buch is worried about this overvaluation of stocks, particularly in the smallcap segment. Mint's legal and markets reporter Priyanka Gawande wrote about the Sebi chief's call for mutual fund trustees in particular to exercise some caution and protect investors.
🚓 This wasn't the only smallcap-related incident. The Enforcement Directorate (ED) took action against several smallcap companies for manipulating their stock in the Mahadev Betting App scam. Mint's markets correspondent Ram Sahgal teamed up with our corporate writer Varun Sood to bring you this detailed and extensive investigation into the scam — and why you should be wary of using such apps to conduct your transactions.
You don't want the market regulator to warn against bubbles. You don't want ED raids on small players. If we're already here, then things aren't in a good place. Retail investors quickly paid heed to Buch's words and sold heavily.
📉 Wednesday saw mass selling of stocks across all market caps, contributing to the huge plunge in market indices. Markets reporter Dipti Sharma writes about this disastrous day in the Indian bourses. She spoke to analysts about the markets losing their gains of two months in just a single trading session.
🧘♀️ As it turns out, March might not be kind to anyone's portfolios. But if you're looking for some consolation, we have your back. Rahul Goel, Mint’s Contramoney columnist, writes a level-headed article to help you see the bigger picture. He jots down a series of questions any investor should ask themselves around their finances — these answers should (hopefully) help you with making peace on your losses from the past week.
Froth in my investment
📲 Another company whose stock crashed after regulatory action is Paytm. It has had a rough few months: after a sudden decision by the Reserve Bank of India, its payments arm is barred from conducting any meaningful business. But outside of vague statements on the lack of regulatory compliances, we don't really know why this happened. That is, until now. Mint's banking editor Shayan Ghosh writes a detailed and incisive story on Paytm and its battle with the RBI, which had begun even before the bank officially opened in 2016. If you want to know the inside story of this eight-year long tussle, read this story.
💰 Well, stocks or not, you always have your provident fund, right? As Mint Money's Anil Poste and Shipra Singh find out, it's not necessarily so. PF withdrawal has a failure of 34% — a third of the claims remain unsuccessful. Many full-time employees look at their PF as an emergency fund, so being unable to access these funds leaves many in the lurch. Anil and Shipra speak to four people who went through the arduous process of trying to access their PF, and lay down a framework to get your documents in order to claim your own money. I'd keep this one saved.
📊 Anil also spoke to M. Pattabiraman — or Pattu sir, as he's fondly called — about his personal investment mix. For those of you who aren't aware, Pattabiraman is in some ways the first entry point for many to financial freedom. He is the founder of Freefincal, an organisation that provides analysis and commentary on mutual funds and retirement. While Pattabiraman has a varied portfolio, he has clear and uncomplicated advice to investors: choose a mutual fund where returns are consistent. This will go a long way in helping you retire in peace, he says. "The rules of personal finance are timeless," he told Anil — good advice, especially given the week the public markets have had.
Froth in my milkshake
The other big news from this week was the release of the Electoral Bonds list by the State Bank of India. Here too, there was froth: the third-largest donor turned out to be the owner of Keventers, a wildly popular milkshake company. Head-scratching, for sure.
🪙 While the other names on most of these lists aren't surprising, they warrant some further scrutiny. A trio of reporters from our Plain Facts team: Tanay Sukumar, Shuja Asrar, and Nandita Venketesan take a closer look at the names on the list. In particular, they write about seven companies that are currently listed on the Sensex, including Vedanta, Airtel, and Jindal Steel, who made contributions to political parties via electoral bonds. This is a concise story with interactive graphs on the donations.
🫠 Honestly, a milkshake sounds great right about now — as I write this, the outside temperature is about 35°C. It feels worse, though. That's the reality of Bangalore this summer: no water, temperatures somehow higher than in Delhi and Mumbai, terrible traffic, and poor civic infrastructure. Bangalore was once heralded as many things, including its blissful temperatures, for being the Garden City, India’s Silicon Valley and all the way back to being a pensioner’s paradise. But that is slowly fading, notes senior editor Madhurima Nandy. A below-average monsoon last year has resulted in dry borewells, and the entire state of Karnataka is facing drought conditions. It's a worrying situation, and one that might not be restricted to Bangalore.
That's all for this week. I hope you all have a pleasant weekend!
If you have any thoughts, ideas, feedback, or milkshake for us, please feel free to write to me (shashwat.mohanty@htdigital.in) or reply to this mail. We are a constantly evolving news product, so any input is much appreciated!
Best,
Shashwat Mohanty
Assistant Editor
Subscriber Experience Team
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First Published:15 Mar 2024, 10:06 PM IST
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