Diwali is done. But fireworks are set to continue on Dalal Street
There was a time when Bollywood regularly churned out memorable rib-tickling comedies. That job is now being performed by Dalal Street. Not just that, D-Street is now locked in an intense contest with Mumbai’s property market over who can stretch incredulity the most.
And going by recent trends, the equity market is winning by a mile.
Just earlier this month, a pharma company proudly announced the launch of “India’s first pure Jain dog biscuit”.
“The product is the first of its kind to be thoughtfully crafted to align with Jain dietary principles, being completely free from root vegetables, meat, and all animal-derived ingredients,” it helpfully explained in an exchange filing.
Canine religious preferences can be a tricky area of discourse, but the market reaction was unambiguous.
Shares of the microcap company hit their 5% upper limit that day. In fact, its shares have surged over 115% this year so far, handily beating every company in the Nifty Pharma index. Dogs really seem to be man’s best friend.
It is not as if the rest of the market is an alcove of sanity. The hottest stock in the benchmark Nifty 50 is a case study in contrarian investing, if you subscribe to outdated notions like cash flow and net profit. The company’s profitability hinges on its bank deposits and mutual fund investments as its core operations continue haemorrhaging cash. And yet investors can’t get enough of the stock, which is up 70% over the past year, while the broader markets languish.
Many defence and shipping companies have priced in order inflows for the next two decades. Realising that delivering flats on time involves too much work, several real estate players have pivoted to being ‘data centre enablers’. And they are trading at PE ratios which would make Nvidia’s Jensen Huang blush.
Not to mention the distinguished list of soap and paint makers who trade at earnings multiples exceeding those of AI hyperscalers on Wall Street.
Investment folly
Perhaps the average Indian investor, fed on a steady diet of mythology and movies, is the most optimistic in the world. Or hope is the most potent drug, capable of infusing equity-like energy into debt-like instruments.
On 16 October, Anantam Highways Trust InvIT listed on the bourses. But uncharacteristically for an InvIT, it surged up to 14% as retailers got starry-eyed hearing the words “highways” and “IPO”.
Infrastructure investment trusts (InvITs) are mandated to distribute as much as 90% of their net distributable cash flows to unitholders, and are thus considered debt instruments for investment purposes. But why let something as insignificant as facts come in the way of exuberance.
Ask Coimbatore-based auto components maker LG Balakrishnan & Bros Ltd.
On 14 October, shares of this smallcap company saw an astounding 21-times spike in daily volumes. Had the company signed a multi-million dollar deal with Tesla?
Nothing of the sort. It’s just that LG Electronics made its market debut on that day, and in the mad scramble to buy anything with the letters ‘L’ and ‘G’, punters scooped up shares of LG Balakrishnan.
Now, can any Bollywood script come up with this level of lollapalooza?
Markets, as all of us must have realised by now, can stay irrational for longer than many of us can stay solvent. But the defining characteristic of post-Covid life is that irrationality is indistinguishable from reality. Which means markets will keep spinning around the axis of its own rationality, in a sparkling kaleidoscope of folly and fortune.
Diwali, at least on Dalal Street, is a year-long festival.
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