There were two declines this week - unrelated, but yet good!
Vegetable prices
In April 2023, vegetable prices declined by 6.5% YoY, thanks to a steep drop in the prices of onions and tomatoes, and a strong base from last year. The winter harvest has been bountiful, in addition to unseasonal rain not spoiling crops, which resulted in the sixth consecutive month of disinflation in vegetable prices, and easing of food inflation.
As reported last week, India’s retail inflation eased to an 18-month low in April 2023 at 4.7%, compared with 5.7% in the previous month. It is also the lowest reading since October 2021 and within the RBI’s comfort range of 4-6%.
Inflation was also eased by a sharp drop in fuel prices. Despite OPEC’s supply cuts and China’s comeback, Brent has fallen by 14% in just the last month.
At this rate, inflation might come down just as fast as it went up. The rapid cool-off in prices and the US seeing some initial signs of inflation going easy might just elongate the temporary rate hike pause.
No wonder the market has been seeing a risk-on mode again, with steep outperformance across mid and small-caps, growth stocks, and even internet stocks. This brings us to the second decline!
Startup valuations
Reality came knocking in, resetting the valuations of unicorns, slashing them anywhere between 35% and 75%; pretty much in line with the carnage that was seen in the listed start-up space.
Invesco marked down Swiggy's investment by nearly half, from its peak of US$ 10.7 billion, to US$ 5.5 billion
Ola saw a drop of 35% to US$ 4.8 billion in valuations by Vanguard
Softbank cut Oyo’s valuation by another 20% to US$ 2.7 billion. Since 2019, Oyo has seen its valuation drop by nearly three quarters from US$ 10 billion
Valuations for Byju’s were slashed to US$ 11.5 billion by Blackrock, which is half its peak valuation
The unlisted space was clearly very late in reacting to what was happening in the world. That said, the good part is that now the listed start-up space might just become interesting from a one-year perspective.
Consider this - stocks are down a hefty 50-70%, companies have got their stock market reality check and are focusing on profitability, the froth on valuations has settled, and the markets are regaining an appetite for risk as the macro-cycle stabilises.
While unrelated, both the declines do give out positive cues - one macro, and the other sectoral. Played right, both of them can make money!