10-Dec: FPIs Sell Hard, Sector Rotation in 2023, Godfrey Phillips is Outlier & More

🔆 Quick glance

• Market Overview: Crisp overview of markets & macros
• Off the Charts: FPI sell hard in 2022, but we still hit ATH
• Good Reads: 5 good reads from across the globe
• Outlier Stock: Godfrey Phillips Breaking Out
• Capitalmind on YouTube: Investing at market highs, sector rotation in 2023 & More

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What’s up with markets? 📉📈

IT stocks suffered this week, HCL tech corrected by 9.4% followed by Tech Mahindra and TCS. Due to macroeconomic turmoil in the west, the IT sector is seeing headwinds and it will be a challenge to deliver higher growth.

Crude was down by 10.4% over last week as it went below $80 for the first time in 2022 due to recession and interest rate woes. It will be interesting to see if OPEC will cut down production to drive prices up “bring stability to the oil market”.

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Off the Charts 📉📈

Foreign Portfolio Investments or FPIs are investments that are held by investors outside India. In the below chart, we see the equity investments of FPIs in Indian stocks. Interesting to see our markets scaling new highs during a year when the FPI outflows have surpassed the exodus of 2008.

Of course, the size of our market and the dollar value of investments will vary for these time points, yet it’s a significant outflow nonetheless. The below chart also indicates the impact domestic investors have had in keeping the markets afloat and rising while FPIs have been large sellers in 2022.

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Godfrey Phillips Breaking Out💡

Capitalmind Outliers is our in-house screening tool that helps you discover stocks with trends and momentum in their favor. 

Every week, we at Capitalmind discuss what’s behind an outlier standing out. This week, we have New Delhi-based Godfrey Phillips at the center stage.

The company has two major businesses:

• Tobacco and related products: The company makes and sells cigarettes under its own brands–such as Four Square, Red and White, Cavanders, Tipper, North Pole, and Stellar–and partner-brand Marlboro under an exclusive licensing agreement with global giant Philip Morris. In all, they are the second-largest cigarette makers in India with about one-tenth market share, with a network of 800+ distributors covering 800,000+ retail touchpoints. Processed, non-manufactured, cut tobacco, and tobacco leaves in India as well as 70+ other countries. This segment accounted for 89% of net sales during the first half of this financial year.
• Consumer retail: Godfrey operates 116 convenience stores (average footfall of 2,000 per store, per day) under its brand 24Seven, India’s first twenty-four hours chain.  They also have a confectionary product line that primarily sells candies. Convenience stores and confectionary combined, this segment accounted for 11% of net sales during the first half of this financial year.

Side note, if your mind is wandering, like mine did, to the glaring question of why Phillips in Godfrey Phillips has two L’s and Philips in Philips Morris only has one, the now-obvious answer is, the two Philips (Phillips?) is referring to two different tobacconists. Yes, “tobacconist” is a real word.

Coming back to the Godfrey Phillips, the numbers don’t seem at par with some of its peers:

What’s the stock doing in Capitalmind Outliers, then? Godfrey Phillips was earlier involved in making and selling chewing products, a loss-making venture, but the company has recently divested this segment to focus more on its core business. This, a relatively stable taxation regime in recent times, and signs of strengthening the partnership between Philip Morris and the company, appear to have cheered up the markets.

It’s worth keeping in mind that the promoter family is currently in a legal dispute among themselves. Further developments could be an overhang in the future.

(Disclaimer: The information conveyed in this post is intended for informational purposes and shouldn’t be considered investment advice. Please do your own research before making investment decisions)

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What we are reading? 📝

• With Microsoft’s acquisition of Activision, is the gaming industry a walled garden in the making? FTC thinks so. Read: FTC to Block Microsoft-Activision Merger.
• Whose century is it going to be? Joachim Klement summarizes a study in: Is China going to be the largest economy in 2100? Or India? Or sub-Saharan Africa?
• The Bank for International Settlements (BIS) warns there is $80 trillion of hidden FX swaps debt. Read: The BIS ”Hidden USD Debt” Story Explained
• What’s happening in the U.S. housing market? Read on: Check Engine
• The now-quintessential crypto primer by Matt Levine: The Crypto Story.

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What’s on Youtube? 🎙

Check out our latest episode, especially for two key topics: a) How sector rotation works and b) Should you invest at market highs?

(If you have questions you would like to ask us, do join in LIVE every Friday at 4:00 PM on our Capitalmind youtube channel)