Notice of Index Modifications: Ferrari ETPs

Аватар на автора

Author

Sandeep Rao

Date

U.S. Equities vs Indian Market: Hype vs Rationale

Your capital is at risk if you invest. You could lose all your investment. Please see the full risk warning here.

On the 12th of January, India’s equity markets scored yet another all-time high1 driven by a bevy of Information Technology (IT) stocks posting an encouraging forward outlook and over 50 small-cap stocks logging a double digit percentage rise in their stock prices in the course of a single week. On a 6-year basis, i.e. from the start of 2018 till the present, the relative performance can be laid out to show that this was no flash in the pan. Between the U.S.’ Nasdaq-100 and S&P 500, the United Kingdom’s FTSE All-Share Index and India’s NIFTY 50 index, NIFTY Midcap 100 index and NIFTY Smallcap 100, the Indian midcap and large cap (i.e. the NIFTY 50) indices come second and third to the Nasdaq-100.

Websim is the retail division of Intermonte, the primary intermediary of the Italian stock exchange for institutional investors. Leverage Shares often features in its speculative analysis based on macros/fundamentals. However, the information is published in Italian. To provide better information for our non-Italian investors, we bring to you a quick translation of the analysis they present to Italian retail investors. To ensure rapid delivery, text in the charts will not be translated. The views expressed here are of Websim. Leverage Shares in no way endorses these views. If you are unsure about the suitability of an investment, please seek financial advice. View the original at

Furthermore, the smallcap index is presently poised to overtake the broad-market S&P 500.

Some market watchers attribute this rise to foreign fund inflows; in fact, it was reported earlier that 2023 saw Indian ETFs attracting record levels of inflows2, including from “foreign portfolio buyers” (FPIs). A deeper look, however, indicates that this isn’t necessarily the case for a profound reason: not all market players behave the same way everywhere.

Ratios and Volumes

A key diagnostic for considering overvaluation lies in the consideration of price ratio evolution. Taking just one ratio – the Price-to-Earnings (PE) Ratio – for a demonstration, it’s immediately apparent that three Western indices show a marked level of similarity in overall trends in the 6-year period.

Up until mid-2022, the British index exhibited roughly similar trends as its U.S. counterparts before trending down after the British government launched measures to combat the affordability crisis and the impact of the Russo-Ukrainian conflict was factored in. While the U.S. too is currently in the midst of a elevated rate cycle to mop up cash and funnel it into now-attractive fixed income instruments, the effects on the American indices have not been as debilitating: the PE Ratios have, in fact, been climbing in fits and starts.

The Indian indices’ PE Ratios, on the other hand, have been charting a different story since 2018.

Of the three, the “FPI-favourite” NIFTY 50 was historically the most stable option. Starting circa Q1 2018, the smallcap index shed most of its overvaluation and has been broadly trending along the same lines as the NIFTY 50. The midcap continued to show bouts of overvaluation until around Q2 2022 – making it the last index to fall in line (to an extent) with the NIFTY 50.

Since then, with largely steady ratio discipline, Indian equities have been rising on the back of rising domestic consumption of goods and services efficiently translating into rising earnings for producers of said goods and services. With high moats of preference for indigenous goods and services, the biggest beneficiaries of this rise have been Indian companies. This has been a sustained phenomenon: from 1993 till 20233, the MSCI India Index rose 1,020% while the MSCI China Index rose 30%.

So what drives overvaluation? One predominant factor could be traded volumes. Considering the performance of day-over-day deltas (which would signify rise in market activity), it can be seen that the combined volumes of both Indian bourses – the National Stock Exchange and the Bombay Stock Exchange – as well as that of the London Stock Exchange (LSE):

show rapid spikes and troughs in overall volumes over the course of days, weeks and months. However, there is an overall trend of more sustained uptrends in the former than in the latter. Over the 6-year period, the Indian bourses have now overtaken London.

Meanwhile, the U.S. exchanges exhibit a very distinct and interesting pattern:

Note: “NYSE Arca” here denotes “Tape C” or regional exchange volumes, most of which is represented now via NYSE Arca.

All exchange volumes tended to be pretty flat right until 2020 when Nasdaq-listed stocks’ traded volumes uptrended and stayed elevated over the other two exchange groupings. The large spikes largely coincide with actions around options rollover and index rebalance dates which, since 2020, are dominated by actions involving Nasdaq-listed stocks.

Juxtaposing the exchange volumes over PE Ratio trends and index levels lead to the following conclusion: while American and British valuations tended to be aligned in valuation trends, the effect of “special events” (such as rollovers and rebalances) on valuations have become more sticky in America (particularly in Nasdaq-listed stocks), thus laying bare a change in market player behaviour, with the British and Indian bourses’ players exhibiting greater “rationalized” behaviour, i.e. a muted reaction to hyped narratives driven by incomplete consideration of data.

Juxtaposing the exchange volumes over PE Ratio trends and index levels lead to the following conclusion: while American and British valuations tended to be aligned in valuation trends, the effect of “special events” (such as rollovers and rebalances) on valuations have become more sticky in America (particularly in Nasdaq-listed stocks), thus laying bare a change in market player behaviour, with the British and Indian bourses’ players exhibiting greater rationalized behaviour.

It bears noting, however, that the bulk of this non-rationalized behaviour is centered around Nasdaq-listed stocks, which tend to be tech stocks. “Tech” dominates market attention quite heavily, with a select few among them attracting attention to the cost of all other companies’ stocks.

Key Takeaways

So trenchant is the Indian market players’ preference for ratio discipline that on Wednesday, i.e. the 17th of January, a missive by the Reserve Bank of India (the country’s central bank) directing banks to increase risk weights on consumer loans led to a rapid correction4 on bank stocks, followed by a downward adjustment on virtually every other sector barring IT. This correction took place despite every bank posting gains in their most recent quarter and an overall net positive forward outlook. This net positive outlook is a common theme in all other sectors. While a number of other global events have been attributed to this, said events are of little impact to a universe that is increasingly self-contained. Such a scenario is vanishingly rare in today’s equity universe in the universe.

Ironically (or perhaps quixotically), this ratio discipline is largely why a large-scale flight of capital from U.S. markets to India isn’t likely. While hype may or may not be the leading factor behind compelling overvaluation which leads to volatility, volatility presents tactical opportunities. India’s FPI universe is predominantly comprised of institutional long-term growth players seeking a “rationalized” asset mix and not, say, profit-seeking hedge fund from all over the world especially when the country’s financial regulators are prone to lay a heavy hand across an errant player’s back. While lowering “rationalization” in the U.S. bourses might have compelled some flight, it’s all within the rubric of adjusting risk.

As the examination of volumes vs ratios and index levels indicate, the market players’ playbook is steadily disaggregating across the world. For a player in the American market, the pent-up lack of market breadth is a sign that sector rotation evident in the past week is likely to continue to pick up steam over the next couple of weeks. However, whether this will lead to a period of sustained and more “rational” behaviour isn’t necessarily a given.

Professional investors can access a host of Exchange Traded Products that gives daily-rebalanced exposure to the upside or the downside of index equity movements as well as that of high-conviction U.S. stocks that can be employed for tactical gains. Click here for a complete list of Leverage Shares’ products.


  1. “Over 50 smallcap stocks rise 10-40% as Sensex hits lifetime high driven by IT shares; do you own?”, Mint, 13 January 2024
  2. “India ETF flows hit record in 2023, analysts see momentum persisting in election year”, Reuters, 15 January 2024
  3. “Market Views: Will India overtake China in investment opportunities?”, AsianInvestor, 11 May 2023
  4. “After HDFC Bank results, US Fed signals, markets fall sharpest in 19 months”, New Indian Express, 18 January 2024

Your capital is at risk if you invest. You could lose all your investment. Please see the full risk warning here.

Share this:

Related Products:

Related Products:

Related Articles

Inflation Rate Cools, Fed Rate Cut Likely
Inflation Rate Cools, Fed Rate Cut Likely
Inflation Rate Cools, Fed Rate Cut Likely

Required Information

Get the Newsletter

Never miss out on important announcements. Get premium content ahead of the crowd. Enjoy exclusive insights via the newsletter only.

Welcome to Leverage Shares

Terms and Conditions

Notice

If you are not classified as an institutional investor, you will be categorised as a private/retail investor. At this time, we cannot send communications directly to private/retail investors. You are welcome to view the contents of this website.

If you are an ‘Institutional investor’, you affirm either that you are a Per Se Professional Client, or that you wish to be treated as an Eligible Counterparty Client, both as defined under the Markets in Financial Instruments Directive, or an equivalent in a jurisdiction outside the European Economic Area.

Risk Warnings

The value of an investment in ETPs may go down as well as up and past performance is not a reliable indicator of future performance. Trading in ETPs may not be suitable for all types of investor as they carry a high degree of risk. You may lose all of your initial investment. Only speculate with money you can afford to lose. Changes in exchange rates may also cause your investment to go up or down in value. Tax laws may be subject to change. Please ensure that you fully understand the risks involved. If in any doubt, please seek independent financial advice. Investors should refer to the section entitled “Risk Factors” in the relevant prospectus for further details of these and other risks associated with an investment in the securities offered by the Issuer.

This website is provided for your general information only and does not constitute investment advice or an offer to sell or the solicitation of an offer to buy any investment.

Nothing on this website is advice on the merits of any product or investment, nothing constitutes investment, legal, tax or any other advice nor is it to be relied on in making an investment decision. Prospective investors should obtain independent investment advice and inform themselves as to applicable legal requirements, exchange control regulations and taxes in their jurisdiction.

This website complies with the regulatory requirements of the United Kingdom. There may be laws in your country of nationality or residence or in the country from which you access this website which restrict the extent to which the website may be made available to you.

United States Visitors

The information provided on this site is not directed to any United States person or any person in the United States, any state thereof, or any of its territories or possessions.

Persons accessing this website in the European Economic Area

Access to this site is restricted to Non-U.S. Persons outside the United States within the meaning of Regulation S under the U.S. Securities Act of 1933, as amended (the “Securities Act”). Each person accessing this site, by so doing, acknowledges that: (1) it is not a U.S. person (within the meaning of Regulation S under the Securities Act) and is located outside the U.S. (within the meaning of Regulation S under the Securities Act); and (2) any securities described herein (A) have not been and will not be registered under the Securities Act or with any securities regulatory authority of any state or other jurisdiction and (B) may not be offered, sold, pledged or otherwise transferred except to persons outside the U.S. in accordance with Regulation S under the Securities Act pursuant to the terms of such securities. None of the funds on this website are registered under the United States Investment Advisers Act of 1940, as amended (the “Advisers Act”).

Exclusion of Liability

Certain documents made available on the website have been prepared and issued by persons other than Leverage Shares Management Company. This includes any Prospectus document. Leverage Shares Management Company is not responsible in any way for the content of any such document. Except in those cases, the information on the website has been given in good faith and every effort has been made to ensure its accuracy. Nevertheless, Leverage Shares Management Company shall not be responsible for loss occasioned as a result of reliance placed on any part of the website and it makes no guarantee as to the accuracy of any information or content on the website. The description of any ETP Security referred to in this website is a general one. The terms and conditions applicable to investors will be set out in the Prospectus, available on the website and should be read prior to making any investment.

Leverage Investment

Leverage Shares exchange-traded products (ETPs) provide leveraged exposure and are only suitable for experienced investors with knowledge of the risks and potential benefits of leveraged investment strategies.

Cookies

Leverage Shares Management Company may collect data about your computer, including, where available, your IP address, operating system and browser type, for system administration and other similar purposes (click here for more information). These are statistical data about users’ browsing actions and patterns, and they do not identify any individual user of the website. This is achieved by the use of cookies. A cookie is a small file of letters and numbers that is put on your computer if you agree to accept it. By clicking ‘I agree’ below, you are consenting to the use of cookies as described here. These cookies allow you to be distinguished from other users of the website, which helps Leverage Shares Company provide you with a better experience when you browse the website and also allows the website to be improved from time to time. Please note that you can adjust your browser settings to delete or block cookies, but you may not be able to access parts of our website without them.

This website is maintained by Leverage Shares Management Company, which is a limited liability company and is incorporated in Ireland with registered offices at 2 Grand Canal Square, Grand Canal Harbour, Dublin 2.

By clicking you agree to the Terms and Conditions displayed.

Terms and Conditions

Notice

If you are not classified as an institutional investor, you will be categorised as a private/retail investor. At this time, we cannot send communications directly to private/retail investors. You are welcome to view the contents of this website.

If you are an ‘Institutional investor’, you affirm either that you are a Per Se Professional Client, or that you wish to be treated as an Eligible Counterparty Client, both as defined under the Markets in Financial Instruments Directive, or an equivalent in a jurisdiction outside the European Economic Area.

Risk Warnings

The value of an investment in ETPs may go down as well as up and past performance is not a reliable indicator of future performance. Trading in ETPs may not be suitable for all types of investor as they carry a high degree of risk. You may lose all of your initial investment. Only speculate with money you can afford to lose. Changes in exchange rates may also cause your investment to go up or down in value. Tax laws may be subject to change. Please ensure that you fully understand the risks involved. If in any doubt, please seek independent financial advice. Investors should refer to the section entitled “Risk Factors” in the relevant prospectus for further details of these and other risks associated with an investment in the securities offered by the Issuer.

This website is provided for your general information only and does not constitute investment advice or an offer to sell or the solicitation of an offer to buy any investment.

Nothing on this website is advice on the merits of any product or investment, nothing constitutes investment, legal, tax or any other advice nor is it to be relied on in making an investment decision. Prospective investors should obtain independent investment advice and inform themselves as to applicable legal requirements, exchange control regulations and taxes in their jurisdiction.

This website complies with the regulatory requirements of the United Kingdom. There may be laws in your country of nationality or residence or in the country from which you access this website which restrict the extent to which the website may be made available to you.

United States Visitors

The information provided on this site is not directed to any United States person or any person in the United States, any state thereof, or any of its territories or possessions.

Persons accessing this website in the European Economic Area

Access to this site is restricted to Non-U.S. Persons outside the United States within the meaning of Regulation S under the U.S. Securities Act of 1933, as amended (the “Securities Act”). Each person accessing this site, by so doing, acknowledges that: (1) it is not a U.S. person (within the meaning of Regulation S under the Securities Act) and is located outside the U.S. (within the meaning of Regulation S under the Securities Act); and (2) any securities described herein (A) have not been and will not be registered under the Securities Act or with any securities regulatory authority of any state or other jurisdiction and (B) may not be offered, sold, pledged or otherwise transferred except to persons outside the U.S. in accordance with Regulation S under the Securities Act pursuant to the terms of such securities. None of the funds on this website are registered under the United States Investment Advisers Act of 1940, as amended (the “Advisers Act”).

Exclusion of Liability

Certain documents made available on the website have been prepared and issued by persons other than Leverage Shares Management Company. This includes any Prospectus document. Leverage Shares Management Company is not responsible in any way for the content of any such document. Except in those cases, the information on the website has been given in good faith and every effort has been made to ensure its accuracy. Nevertheless, Leverage Shares Management Company shall not be responsible for loss occasioned as a result of reliance placed on any part of the website and it makes no guarantee as to the accuracy of any information or content on the website. The description of any ETP Security referred to in this website is a general one. The terms and conditions applicable to investors will be set out in the Prospectus, available on the website and should be read prior to making any investment.

Leverage Investment

Leverage Shares exchange-traded products (ETPs) provide leveraged exposure and are only suitable for experienced investors with knowledge of the risks and potential benefits of leveraged investment strategies.

Cookies

Leverage Shares Management Company may collect data about your computer, including, where available, your IP address, operating system and browser type, for system administration and other similar purposes (click here for more information). These are statistical data about users’ browsing actions and patterns, and they do not identify any individual user of the website. This is achieved by the use of cookies. A cookie is a small file of letters and numbers that is put on your computer if you agree to accept it. By clicking ‘I agree’ below, you are consenting to the use of cookies as described here. These cookies allow you to be distinguished from other users of the website, which helps Leverage Shares Company provide you with a better experience when you browse the website and also allows the website to be improved from time to time. Please note that you can adjust your browser settings to delete or block cookies, but you may not be able to access parts of our website without them.

This website is maintained by Leverage Shares Management Company, which is a limited liability company and is incorporated in Ireland with registered offices at 2 Grand Canal Square, Grand Canal Harbour, Dublin 2.

By clicking you agree to the Terms and Conditions displayed.