The Weekly Stack 28th January to 3rd February
š China seeks Latin American partners as a manufacturing hub over India.
š SEBI to probe the role of short sellers in the recent Indian market decline.
š Adani cancels 20k crore share sale due to market fluctuations.
1. Brazil pits against India
India's Manufacturing Dips
India's share in the global manufacturing output has declined, due to the rise of automation and higher labour costs in recent years. This has put a strain on the country's economy, causing job losses and reduced competitiveness in the global market.
Brazil's Aspirations to Replace India
Brazil is aiming to become the next manufacturing hub, with favourable trade policies and abundant natural resources. However, the country faces significant challenges such as political instability and a shortage of skilled labour. Whether Brazil will succeed in replacing India as a manufacturing hub remains to be seen, as the country still has to overcome many hurdles to reach its goal.
China's Strategic Influence
China's increasing investment in Brazilian manufacturing industries and high-tech industries such as AI and automation has further fueled the competition between India and Brazil for the title of a top manufacturing hub. The Chinese government's "Made in China 2025" plan, aimed at making China a global leader in high-tech manufacturing, has led to the country investing heavily in industries in countries like Brazil.
Our Opinion: Whether Brazil will be successful in replacing India as a manufacturing hub remains to be seen, but the competition will likely lead to changes in the global manufacturing landscape. The impact on India's economy is a concern, but the country may be able to adapt and find new growth opportunities in the future.
2. SEBI probes Short Selling
SEBI to Investigate Short Selling in Indian Stock Markets
SEBI, India's markets regulator, to probe short selling in a recent stock market decline. Short selling, a controversial investment practice, is to be scrutinized for its potential role in the market drop.
Short Selling: Divided Views but Regulated by Most Securities Markets
Despite differing opinions on short selling, it is considered a legitimate investment activity by securities market regulators globally and recognized by the International Organisation of Securities Commissions. Short selling and securities lending practices have been recommended for transparency instead of prohibition.
Our Opinion: Short selling is considered a dangerous investment practice for individual investors as it involves significant risk and a deep understanding of market dynamics. It's easy to incur unlimited losses if the stock price rises, making it a high-stakes investment strategy. Furthermore, short selling can also increase market volatility, making it unpredictable and difficult to navigate for inexperienced investors. It's recommended for individual investors to avoid short selling and focus on long-term, diversified investments.
3. Adani cancels 20,000 Cr share sale
Adani Enterprises Calls Off Share Sale
Adani Enterprises Ltd has called off its ā¹ 20,000-crore share sale, saying it would not be "morally correct" in the current market condition. CEO Gautam Adani stated that although the FPO closed successfully the day before, the market had been unprecedented and the stock price fluctuated throughout the day. Given these circumstances, the company's board felt that proceeding with the issue would not be morally correct, and the interests of investors were paramount.
Citigroup and Credit Suisse Ramp Up Scrutiny of Adani Finances
Global investment houses are ramping up their scrutiny of the Adani group's finances in light of recent allegations of fraud by short seller Hindenburg Research. Citigroup Inc's wealth arm has stopped accepting securities of Adani's group of firms as collateral for margin loans. Meanwhile, Credit Suisse has decided to stop accepting bonds of the Adani group as collateral for margin loans to its private banking clients.
RBI Requests Report of All Bank Exposures to Adani Group
The Reserve Bank of India (RBI) has asked all Indian banks to submit a detailed report of all their exposures to the Adani group. The recent actions taken by global investment houses, along with the allegations of fraud, have put the Adani group under intense pressure. The RBI's request for a report is likely a precautionary measure to ensure the stability of the banking sector.
Our Opinion: The subsequent fall in the stock prices of Adani enterprises post the closure of the FPO made the situation untenable for the Management to continue with the FPO. Additionally with screws tightening in the debt markets, the group has no option but to hunker down, focus on deleveraging and cut their aggressive growth targets over the foreseeable future. Investors should tread with caution as this is likely to have implications on the abnormally high valuations of listed companies.