Fed Red 📉

☀️ Morning, Thursday is here.

📈 U.S. stocks dropped sharply during the day, with the S&P sinking nearly 3%.

🤝 The Fed cut interest rates by 0.25%, but generally took a hawkish stance.

The Sensex, down 0.6% yesterday, could face more pressure at open.

Let’s hit it!

1 Big Thing: Jerome Shuts the Party 👎

U.S. Federal Reserve wrapped up its final meeting of the year, cutting interest rates by 0.25%.

However, Fed Chair Jerome Powell was quick to put a lid on investor hopes, making it clear that big rate cuts aren’t coming in 2025.

Context: Fed’s interest rate sets the cost at which banks borrow from the central bank. Higher rates make borrowing more expensive, which generally slows down economic activity.

Yes, and: The Fed spent most of last year aggressively raising rates to fight inflation, but since September 2024, they’ve been cautiously dialing them back.

Markets, however, were hoping for more aggressive cuts. Spoiler: not happening.

Big moves: the reaction was swift — the S&P dropped 3%, while the Dow lost over 1,100 points, now on its worst 10-day losing streak since 1974.

Zoom out: the Fed’s dilemma is preventing inflation from picking up again without choking off growth.

Why should I care: Indian stock markets, which have shown signs of cooling off lately, were hoping the Fed might soften its stance and provide a general boost to global markets. Looks like that’s not happening anytime soon.

2. IPO markets dance to a different tune 📈

While the broader market drags its feet, all the action is happening in the IPO space.

New listings that struggled to gain traction just a couple of years ago are now absolutely killing it.

Take MobiKwik, for example, which had a stellar listing — opening more than 50% above its issue price and ultimately closing the first day up 90%.

Worth recalling that MobiKwik operates in a hyper-competitive payments market, has average fundamentals, and even had its IPO pulled back a few times in the past.

On a similar note,

Small town retailer, Vishal Mega Mart, listed 40% higher than asking, giving the company a ₹35,000+ market cap on debut.

The company operates 626 stores across the country, offering groceries, apparel, and general merchandise, primarily catering to middle- and low-income customers across Tier 2 and below regions.

FYI, the entire IPO was aimed at liquidating existing shareholders.

3. Major auto M&A incoming🚗

Japanese car giants Nissan and Honda are talking about a potential merger, aimed to help stay competitive and to take on the OG Toyota.

What matters: simply put, the transition to EVs, amidst fierce competition, has left some of these old-school giants in a tricky spot.

Launching new models seems fun, but the reality of managing sales to service to customer delight loop, while defending razor thin margins, can be hard.

Honda has a $39 billion market cap, while Nissan is worth roughly $7.6 billion.

In addition to Japan, the merger is expected to also give both companies strong footing in markets like the U.S.

Big trend: global EV sales are expected to top 16.7 million for 2024, up 20% YoY. From less than 5% of all cars sold, EVs will quickly become nearly 20% of all cars sold in 2024.

4. New asset class dropped 💥

SEBI introduced a new asset class called Specialized Investment Funds (SIFs), similar to Mutual Funds (MFs) and Portfolio Management Services (PMS).

What’s different: while MF and PMS rules are a bit rigid, SIFs are designed for more experimental, concentrated, and dynamic investment strategies.

What matters: SIFs are also expected to reduce red tape, and help curb high-risk, unregistered products.

Quick snapshot of SIFs:

• Minimum investment: ₹10 lakh (vs. ₹50 lakh for PMS)

• Allows up to 15% allocation in a single security (vs. 10% in MFs)

• Managed by NISM-certified fund managers

Big picture: the launch reflects SEBI’s effort to adapt to India’s evolving investor base and market needs, despite having a reputation for being an aggressive watchdog.