True to the month’s reputation, September has brought in much volatility for markets in India and the world over and caution has set in among investors.

Beyond the September 17-18 meeting of the Federal Reserve wherein the central bank is poised to slash rates, focus on the outcome of the US presidential elections will be dialled up, which is likely to keep the volatility going.

In India, after hitting the milestone of 25,000, the benchmark Nifty is back to flirting with it, reflecting the volatility.

However, it is the frenzy around the SME IPO that has become a big theme in the Indian stock markets. In the last eight months, about 165 SME companies have raised a whopping Rs 5,894 crore, against 99 companies raising Rs 2,589 crore in the same period last year.

Another dominant theme is the overvaluation of stocks in the mid-cap and small-cap categories.

Invezz spoke to Sneha Poddar, vice president of research, and wealth management at the prominent Indian brokerage Motilal Oswal Financial Services to understand more about the current state of the market, how to navigate the volatility, and how to spot reasonable picks amid the overvaluation. Edited excerpts:

Invezz: It is all but certain that the Fed will cut rates later this month. How will markets in India be impacted?

People are already building in the rate cuts. Earlier, the hopes were for a 50 bps rate cut, but now somehow the kind of data that has come out from the US, chances are that the Fed might go ahead with a 25 bps rate cut.

If 50 bps comes in, then the event has played out and so there will be profit booking, and if 25 bps comes in, there will be a disappointment and there would be some sort of volatility and correction.

September and October to be volatile

In any scenario what we feel is probably the month of September will be highly volatile. We are already witnessing profit booking and that is most likely to continue this month. It would be largely trading in a broad range, witnessing a lot of ups and downs.

This should continue even into October because the US elections will take place at the beginning of November.

Once this event (rate cut) plays out, October will witness a focus on the US election. So, the volatility will again be induced in the markets.

Therefore, both September and October are expected to be highly volatile. It is already starting to play out.

Once these two major events- the US Fed meeting and the US elections- are over, the market would have seen decent correction by that time and post that we might see recovery.

Therefore, from November onwards things should start improving for the overall market.

Invezz: What is your word of caution for investors during such volatile times in terms of what sectors to stick to? Also, what kind of opportunities does this phase open up?

There are two types of investors- traders and long-term investors. For traders, my suggestion will be to stay a little light and trade cautiously. Don’t go overboard or make very aggressive calls.

Opportunity in volatility

But, for long-term investors, this presents a good opportunity. On days of sharp corrections, one should seek the opportunity and invest from a long-term perspective.

This is because overall from India’s perspective, we don’t see any risk per se in the market. The volatility which is being induced is because of the global factors.

On the Indian front, yes there are a few major state elections which are coming up, but still, they will not have a major impact.

So, from the next five-year perspective, the India story remains intact. The corporates can deliver decent earnings. And, of late, we have seen GDP growth upgrades from global agencies.

Therefore, with the India story intact, these corrections present a good opportunity to enter the market or to enter the sectors or stocks which will perform well from the next four to five years perspective.

Now, talking about what kind of sectors should one look at under this scenario, since the markets will be highly volatile, it’s important to stick to haven kinds of sectors.

Avoid commodity-related stocks for now, go for FMCG, IT, pharma

One should refrain from going for very volatile sectors or for the ones which are linked to the commodity prices as there would be lots of ups and downs.

FMCG, IT, and pharma are some of the safer sectors. You can also add insurance to that list.

Insurance has not performed so far but over the last month or so, they’ve started participating as the numbers have started coming in pretty decent from all the companies, and the outlook which they’re giving has turned quite positive.

In IT, what we’re witnessing is that at least a green shoot is visible in terms of a turnaround and probably as we move ahead things will get stronger.

IT is one space which has seen a run up but then we feel like the recovery has just started and there’s a long road to the runway.

In FMCG, over the last two quarters, the volume uptick has started and now with the monsoon being quite decent this time, rural recovery should start kicking in which should further support your volume update.

Therefore, both on these staple and discretionary sides things are looking good, plus the festive season is there.

It has already started with Ganesh Chaturthi. Next, there will be Onam, then Navratri, then Diwali, and then the wedding season will start.

Therefore, generally, the second half should be good for the FMCG companies and the commentaries have also turned quite positive from the FMCG players, especially in Q1.

In pharma, the numbers were quite decent in Q1 and the outlook which has come in looks quite positive. Therefore, these are the sectors we are positive about.

Invezz: Indian markets are quite overvalued currently. Valuations of which sectors justify their fundamentals, and which sectors are seeing a high mismatch between fundamentals and valuation?

Talking about valuations, the large caps are not overly priced. They are fairly priced because if we look at one year forward earnings for large-cap, it is currently around 20.5-21 times.

And if you look at the long-term average, it also hovers around a similar level of 20-20.5.

It’s the mid-cap and the small cap which is quite aggressively priced in. In that case, one should be cautious and take more of a stock-specific approach.

I’m not saying that there are no pockets wherein you can find opportunity. But, if you are building your portfolio, then large caps should occupy 60%- 70% because there’s still a room for price appreciation, whereas mid caps and small caps are largely overvalued.

It is because they are concept stocks or they are witnessing sharper growth therefore somehow they’re justifying the higher valuation.

But because the markets will be volatile over the next few months you should move more towards large caps rather than mid and small caps.

One should go for mid and small caps for alpha generation and a lot a smaller portion to them in your portfolio.

Finding fairly priced stocks in an overvalued Indian market

Talking about sector-wise valuation, there are just a few sectors wherein the valuation comfort is there, but then somehow the triggers are missing.

For example, auto has corrected a little and now, it’s trading at a discount to its long-term average.

But in the case of auto, what we’re witnessing is some sort of moderation in growth. The sector has already witnessed a sharp run-up over the last few years. Now, the base impact is also there.

Plus at the same time, the overall growth has slowed down a little. So if we talk about any particular pocket then within auto probably the four-wheelers and four-wheelers SUV segment is still doing decent otherwise in other pockets there’s a slowdown.

Now, the two-wheelers segment is expected to perform decently if you’re buying during the festivals and the wedding season.

Therefore, we can look at auto selectively, but otherwise, one should not go too overboard on it because the growth has slowed down a little.

Coming to banking, obviously with the rate cut expected, the banking sector will not perform well. Also, we have seen a decent correction in banking especially in the PSU banks.

So even though they are trading at a discount, we are not suggesting banking to clients now, but long-term investors can accumulate it during the stock correction.

But we are not suggesting banking to medium-term investors or investors with a short-term horizon.

NBFCs, insurance, oil & gas fairly priced

NBFC has not participated so far in the rally and the valuation comfort is there. They will also obviously benefit from the rate cut as well because their cost of borrowing will get lowered, which will drive growth for them.

So, we are turning positive on NBFC.

Insurance, I mentioned that we’re quite positive on and that is one sector which is fairly valued.

In retail also the valuation comfort will be there, but the sector is not doing well per se. The footfalls haven’t improved at the stores so that concern continues.

It has to be seen, whether during active times it picks up or not but the management commentary so far is also not providing comfort.

Trent is one outlier which is why the valuation is also expensive for them. But apart from Trent, none of the other players are participating per se from the retail sector.

Oil and gas is marginally overpriced but not too expensive. Within oil and gas, OMCs are currently one segment where one can focus because oil prices are at a 18-months low.

So, that provides a lot of comfort in terms of improvement in marketing margins. Therefore, we are pushing OMCs to the clients.

What is fuelling the SME IPO demand in India?

Invezz: India has also been an outlier in terms of IPO demand at a time when the IPO market is down the world over. SME IPOs are especially seeing a lot of frenzy…

IPO market follows the secondary market which is booming in India. The market is at an all-time high and they have seen a sharp run-up over the last year, especially the mid-caps and the small caps.

So obviously when the markets do well the unlisted companies want to take benefit out of it. 

Therefore, a majority of the IPOs that we see are from the midcap and the small caps space because everyone wants to benefit from the high valuation.

Otherwise, when the markets are dim, they cannot seek very high valuations. It’s only during a vibrant market that you can demand any sort of premium and people would be ready to pay for it.

Post listing probably whatever be the case but at least from a listing perspective, you get a very healthy listing.

Some companies even see listing at a 100% premium. All this happens because the markets are doing well, and when the markets are very bullish, then in those scenario, obviously, the valuations don’t hold that much importance. Investors don’t think very rationally.

That’s the main reason why the Indian IPO market is doing well because of the strong bull run that we witnessed over the last year.

Historically also, if the profit booking which has started, continues for a few months, again, the IPO market will go down and people will start delaying their IPO.

Can India see more all-time highs before fiscal end?

Invezz: Is there still some room for more all-time highs in the Indian market before the fiscal ends?

That’s a difficult thing to predict. It all depends upon how the earnings delivery happens in the second half. 

US Fed will cut the rates but then the market focus will shift to if and when the RBI will cut the rate.

People are not expecting the RBI to cut the rate this year. They are expecting that it will start cutting rates probably beginning of next year.

So, that will also play a very important role. Also, we have already crossed 25,000 mark, therefore the market is slightly on a higher valuation side.

For the markets to reach 26,000 or 27,000, that kind of visibility is not there currently.

Probably, by the end of this fiscal, we might again near the previous highs that got created recently.

Fed rate cut, MSCI weightage likely to attract FPI inflows

Invezz: Will the Fed rate cut lead to higher FPI inflows?

One thing is visible the FII selling has moderated now. There are days of ups and downs where some days they sell more and some days they buy more but at least the selling part has moderated.

With the rate cut, obviously there will be some sort of a push for FPI  flows to come into the Indian market but with what intensity it comes in that has to be really seen.

I don’t see it coming with greater intensity over the next two months at least because till the clarity doesn’t emerge on the US front with regards to the election, I think people will be more in a wait-and-watch kind of mode.

Post that, probably, the flows should start kicking in.

Also, in MSCI, India’s weightage has increased so this can also lead to increased FPI flows into the Indian market. 

Message to long-term investors

I feel like from November we should see a good recovery in the market. My message to the long-term investors is to make the most of these next two months.

A lot of volatility will be seen so one can take benefit of this and build a good quality portfolio which should be well diversified across mid-caps and large-caps because if mid-caps and small-caps do witness a sharp correction then that will actually present them a very good entry point, especially to the retail investors who are more keen to invest in smaller companies rather than larger companies. 

Also, with the rate cut coming in, the mid-caps and the small-cap companies will benefit more compared to the large caps.

It will be a boon for them. So, one can do their homework and with good stock selection, one can build a good portfolio.

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Speculation surrounding a potential cryptocurrency launch by former US President Donald Trump has intensified, with betting markets placing an 84% probability of the event occurring before the November 2024 elections.

This surge in odds, seen on the prediction platform Polymarket, follows the announcement of the Trump family-backed World Liberty Financial project, which aims to release a new governance token called “WLFI.”

Source: Polymarket

Betting markets react to Trump token rumors

Polymarket, a platform that allows users to bet on the likelihood of various real-world events, saw an influx of bets on whether Trump would issue a cryptocurrency before the upcoming presidential election.

On Friday, the probability of Trump launching a token by November 2024 surged to over 84%, though it later retracted slightly.

Just a day earlier, the odds were 40%, up from only 16% the previous month.

The sharp rise in interest reflects growing speculation in the cryptocurrency market, as investors weigh the likelihood of a Trump-backed digital asset.

The betting market for Trump’s potential crypto launch has attracted over $1.7 million in wagers.

To settle the market, conclusive proof must be provided that Trump is involved in launching a new token by November 4, 2024, at 11:59 PM ET.

Simply planning or announcing the project will not be enough; the token must be officially issued on a blockchain and verifiable by market participants.

What is the World Liberty Financial token?

The Trump family’s project, World Liberty Financial, plans to release a governance token named “WLFI.”

According to the project’s white paper, the token is part of a broader financial vision aimed at empowering users.

However, Trump’s direct involvement in issuing the token remains unclear, adding a layer of uncertainty to the speculation.

Investors are divided on whether the project will be launched in time to meet Polymarket’s deadline.

One Polymarket user, “Car,” who holds over 4,400 “Yes” shares, has pointed to recent developments, including the launch of several test tokens on Ethereum by the World Liberty Financial development team.

“Car” believes these activities could be enough to confirm a token launch and settle the market in favor of “Yes.”

On the other hand, another user, “Tenebrus7,” holding 2,000 “No” shares, remains skeptical.

They argue that even if a token is launched, it may be associated more with Trump’s son than with the former president himself, particularly given Trump’s history with controversial projects.

If Trump’s World Liberty Financial token is launched, it could significantly affect the cryptocurrency market, especially in the realm of meme coins and politically themed tokens.

A Trump-backed crypto token would likely garner significant media attention, potentially driving volatile price movements in the early stages of its release.

However, questions about its long-term viability remain, particularly given the lack of detailed information on its governance structure and use cases.

The novelty of a Trump-backed token could attract a wave of public interest, but its success will depend on more than just hype.

Investors will be looking for clear guidance on how the token will function, its specific utility, and whether it can generate sustained value in an increasingly crowded cryptocurrency market.

The potential launch of a Trump-affiliated cryptocurrency ahead of the 2024 elections could have broader political implications.

If successful, the project could energize Trump’s supporter base by leveraging the growing interest in cryptocurrencies to generate attention for his campaign.

However, any missteps or controversies surrounding the token could also provide fodder for criticism from his political opponents.

As the November election approaches, the Trump family’s World Liberty Financial project will remain under scrutiny.

Investors, political analysts, and cryptocurrency enthusiasts alike are watching to see whether the speculation surrounding Trump’s potential crypto launch will materialize—or whether it will remain another unfulfilled rumor in the fast-moving world of digital assets.

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In a historic policy shift, China has announced its first increase in the retirement age since 1978, aiming to address its shrinking labor force and aging population.

Endorsed by top lawmakers, the new regulations will gradually extend the retirement age for both men and women, allowing employees to work longer.

This change comes amid China’s slowest economic growth in five quarters, heightening the scrutiny of policymakers’ decisions.

Phased approach to retirement age extension

Starting in January, China will implement a phased approach to raising the retirement age over the next 15 years.

Men will now retire at 63, up from 60, while women will retire at 55, an increase from the current 50 for ordinary workers.

Women in management roles will retire at 58, up from 55.

This extension aims to boost productivity and address the economic strains of a rapidly aging population.

Despite the potential benefits, the policy risks amplifying public dissatisfaction.

Workers already facing economic challenges may view the prospect of working longer as an additional burden.

Surge in health and elderly care stocks

Following the announcement, shares in health and elderly care companies surged.

Shanghai Everjoy Health Group Co. hit the daily limit with a 10% increase, while Chalkis Health Industry Co. and Youngy Health Co. saw gains of over 6%.

This market response reflects anticipated increased demand for healthcare services as more people work into older age, potentially boosting the need for eldercare facilities and health services.

Source: Bloomberg

Widening China’s tax base

China’s current retirement age is among the lowest globally, despite rising life expectancy.

The new policy aims to “adapt to demographic changes and fully utilize human resources,” according to the National People’s Congress.

By delaying retirement, the government hopes to broaden the tax base and delay pension payouts, easing financial pressures associated with a growing elderly population.

Starting in 2030, the minimum contribution period for pension accounts will increase from 15 to 20 years.

This change reflects the government’s strategy to ensure the sustainability of the pension system amid a shrinking working-age population.

China’s aging population

China’s demographic landscape is rapidly evolving.

A report by state broadcaster CCTV forecasts that people aged 65 and older will comprise 30% of the population by 2035, up from 14.2% in 2021.

Despite efforts to boost birth rates, the rate remains at a historic low.

The decision to raise the retirement age is seen as a critical response to the challenges posed by an aging society and the legacy of the one-child policy, which has led to a generation responsible for supporting a large elderly population.

The decision to extend the retirement age has sparked considerable public discontent, particularly on social media platforms like Weibo.

Many users express frustration over competing with younger generations for jobs and potential age discrimination.

Authorities have acknowledged these concerns. Li Zhong, Vice Minister at the Ministry of Human Resources and Social Security, noted that the gradual implementation of the changes aims to mitigate the impact on youth employment.

As China navigates this significant policy shift, balancing the economic benefits of an extended workforce with the social implications will be crucial.

The success of these reforms will depend on how effectively they address the dual challenges of an aging population and a competitive job market.

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The Biden administration is set to overhaul US trade regulations with a new rule that seeks to close the “de minimis” exemption loophole, which currently allows low-value imports to bypass tariffs.

Announced on Friday, this policy shift aims to impose tariffs on imports that fall under Sections 201 or 301 of the Trade Act of 1974 and Section 232 of the Trade Expansion Act of 1962.

The rule specifically targets Chinese e-commerce giants like Temu and Shein, who have exploited this exemption to flood the US market with inexpensive goods, potentially reshaping US-China trade dynamics.

Under the existing “de minimis” rule, shipments valued at $800 or less are exempt from tariffs.

This loophole has enabled numerous Chinese companies to send low-cost products to the US without incurring import taxes.

The White House reports a dramatic increase in these shipments from 140 million to over 1 billion annually.

The proposed rule aims to close this gap by applying tariffs to all imports covered under specific trade sections, thereby reducing Chinese companies’ ability to exploit this exemption.

Focus on Temu, Shein, and other e-commerce giants

The new rule is expected to have a significant impact on Chinese e-commerce companies such as Temu and Shein.

These firms have utilized the de minimis exemption to offer ultra-cheap products, particularly in clothing and textiles, which has allowed them to gain substantial market share.

With the removal of the tariff exemption, these companies may face higher costs and less competitive pricing compared to domestic alternatives.

This move is part of a broader strategy by the US to reduce economic reliance on China, especially in strategic sectors like electric vehicles and advanced technology.

The Biden administration’s focus on limiting Chinese imports is designed to protect emerging US industries from foreign competition.

However, this policy shift could further strain relations between the two largest economies in the world.

The proposed rule also introduces stricter standards for de minimis shipments, including a requirement for a 10-digit tariff classification number and detailed information about the person claiming the exemption.

These measures are intended to increase transparency and assist customs enforcement in preventing fraudulent declarations.

Concerns over illegal imports

Another key driver behind the rule change is the challenge of blocking illegal imports, such as fentanyl and synthetic drugs, under the current exemption.

The Biden administration argues that the de minimis rule has facilitated the entry of these substances into the US, posing a serious public health threat.

Tightening the exemption criteria is expected to bolster controls and help curb the influx of illegal drugs.

Section 301 tariffs and trade disruptions

Currently, Section 301 tariffs already cover approximately 40% of US imports from China, including 70% of textile and apparel products.

Extending these tariffs to low-value goods could further disrupt trade flows and compel Chinese exporters to adjust their strategies.

The loss of the de minimis exemption may significantly impact Chinese manufacturers who rely on low-cost exports, potentially leading to increased operational costs and adjustments in their business models.

The proposed rule underscores the Biden administration’s commitment to addressing perceived imbalances in the US-China trade relationship, with potential long-term effects on both markets.

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Venezuela, a country blessed with natural wealth and stunning landscapes, faces a tourism paradox.

Despite its abundant resources, the nation struggles to attract international visitors due to severely reduced aviation connectivity.

The suspension of commercial flights to key destinations like Panama, the Dominican Republic, and Peru on July 31 has led to a drastic 54% drop in international connectivity, severely hindering tourism development.

According to Marisela de Loaiza, president of the Venezuelan Airlines Association (ALAV), the number of weekly international flights has plummeted from 181 to just 83, resulting in a loss of 98 flights and 15,000 fewer seats each week.

This drop, she asserts, is a major blow to the tourism sector and the broader Venezuelan economy.

Political instability and its impact on tourism

Vicky de Díaz, president of the Venezuelan Association of Travel and Tourism Agencies (AVAVIT), attributes the declining tourism industry to Venezuela’s ongoing political turmoil.

Before recent political developments, there was renewed optimism as new airlines and international tourists began to return, aided by influencers promoting Venezuela’s hidden tourism gems.

However, political events, particularly around the July 28 election, disrupted this recovery.

The flight suspensions have cut off crucial routes to Panama, the Dominican Republic, and Peru, which were vital to Venezuela’s tourism connectivity.

Díaz stresses that the impact of these suspensions is significant, not only for travelers but also for businesses dependent on international tourism.

Despite these challenges, Díaz highlights that charter flights have emerged as a potential lifeline, drawing visitors from previously untapped markets such as Russia, Poland, China, and Trinidad.

However, she underscores the need for regular commercial flights to support long-term growth in the tourism industry and build a reliable operational framework for sustainable recovery.

Why has Venezuela fallen off the tourism map?

Two decades ago, Venezuela was a popular destination for European and American tourists, with bustling beaches and cities.

However, rising crime rates after 2010 and the humanitarian crisis in 2014 drove visitors away.

Today, Venezuela is not only costly to travel to—with flights from London to Caracas ranging from £627 to £969—but it is also expensive for tourists once they arrive.

Dining out in Caracas can easily cost between $100 and $150, making it a luxury out of reach for most Venezuelans, who earn an average monthly wage of $3.50.

While crime has decreased in recent years and conditions have improved, high costs, political instability, and unreliable public services continue to deter tourists from returning.

Many businesses, particularly hotels, have adapted by installing backup generators and water supply systems, but the recent flight suspensions have dealt a severe blow to an already fragile sector.

The Venezuelan paradox—an oil-rich country with immense tourism potential yet struggling to attract visitors—remains a compelling story of geopolitics and economics.

The country’s ongoing challenges in aviation connectivity and political stability paint a bleak picture for the tourism industry.

However, stronger international relations and smarter governance could one day restore Venezuela to its rightful place on the global tourism map.

For now, the journey toward that goal remains fraught with difficulties, but it is a journey worth pursuing for a nation with so much to offer.

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