Your dreams don’t work unless you do.
Why Do People Buy Overpriced Stocks?
Ever seen a stock price go up a lot even though the company doesn’t seem to be doing well? You might wonder why people are buying it.
The answer could be the “Greater Fool” theory.
What’s this theory about?
The Greater Fool Theory says that people buy assets not because they think they’re worth a lot, but because they believe they can sell them to someone else for a higher price.
They’re hoping to find a "greater fool" who will pay even more.
Let’s say you buy shares of a new tech company, “TechGenius Inc.,” at ₹500 each. The company isn’t making much profit, but everyone is hopeful the price will rise. You buy the shares with the plan to sell them later for more.
Here’s what happens: You buy at ₹500, and after a few weeks, the price jumps to ₹700 because people are excited about a new product. You decide to sell at ₹700, happy you made a profit.
But later, the price drops to ₹300 because the product didn’t do well. The person who bought from you at ₹700 ends up losing money.
A real-world example is the housing bubble from the mid-2000s. People bought houses at high prices, hoping to sell them for a profit. Many weren’t interested in the true value of the homes but were just trying to find someone who would pay more.
When the bubble burst, house prices dropped, and many investors lost money.
This is why it's important to look beyond the hype. Don’t just buy something because you think you can sell it for more later.
Instead, invest in things that have real value and potential.
Meme of the week:
Market kya Keh Raha Hai, Sir?
Recently, there's been an important development in international trade negotiations that could affect various industries.
India has successfully convinced the European Union (EU) to include the bloc’s proposed carbon tax, known as the Carbon Border Adjustment Mechanism (CBAM), in the ongoing free trade agreement (FTA) discussions.
This is a big development because earlier, CBAM was kept separate from these trade talks to speed up the process. Now, adding CBAM into these discussions could result in important benefits for Indian steelmakers and other industries affected by this tax.
What Is CBAM and Why Does It Matter?
CBAM is a policy by the EU that plans to put taxes on imports of carbon-heavy products like steel, cement, aluminum, and fertilizers. The goal is to make sure European companies that follow strict environmental rules aren’t at a disadvantage compared to foreign companies that don’t have similar regulations.
However, this tax is a concern for Indian industries, which see it as an unfair trade barrier. Indian manufacturers argue that they shouldn’t be held to the same standards as companies from wealthier countries since their economic situations are different.
Indian officials are also trying to include CBAM in trade talks with the UK. Although the UK hasn’t agreed yet, Indian negotiators are hopeful this could change.
The Timeline and Impact of CBAM
From October 2023 to December 2025, European importers will need to report the carbon emissions involved in producing certain materials. Starting in January 2026, they’ll have to buy CBAM certificates to cover the extra emissions from foreign manufacturers that go beyond European limits.
Indian steelmakers are particularly worried because these costs could cut into their profits by $60-165 per tonne of steel over the next decade.
For context, a tonne of steel sold to Europe currently costs around $540-550 at the factory gate. The extra costs from CBAM could make Indian steel less competitive compared to products from countries like Vietnam, Japan, and South Korea, which already compete with Indian steel in Europe.
Why Is This Important for Indian Steelmakers?
Europe is a key market for Indian steelmakers. In the fiscal year 2024 (FY24), nearly half of the 8.8 million tonnes of steel exported by Indian companies went to Europe.
This makes the EU the largest buyer of Indian steel.
Although exports are a small part of India’s overall steel production (most of the 139 million tonnes produced is used within the country), selling to Europe is crucial for expanding their market.
Including CBAM in the FTA talks gives India a chance to negotiate better terms for its steelmakers, who would otherwise face higher costs due to the carbon tax.
Indian steel producers emit 12% more carbon dioxide per tonne of steel compared to the global average, putting them at a disadvantage. Competing with countries like Turkey, Ukraine, South Korea, and Japan, which have more efficient and cleaner production processes, could get even harder under CBAM.
Why Is Europe So Important for Indian Exports?
Despite these challenges, Europe remains an attractive market for Indian steel due to limited competition from Chinese exporters, who face higher tariffs in the EU. Analysts say that markets where China isn’t a major player are key for Indian mills.
Even though Indian steel is sold at a lower price in Europe compared to domestic prices, exports are essential for Indian steelmakers. As they quickly increase capacity, they need to find new markets to handle the extra production. Europe, with its steady demand and relatively better pricing, offers a good opportunity.
What’s Next?
The inclusion of CBAM in the FTA talks with the EU could be a win for Indian negotiators if they manage to secure some relaxation in the carbon tax rules.
They are pushing for lower emission reduction targets for developing countries like India, as well as more flexible timelines for compliance.
As the negotiations continue, the outcome could significantly impact the future of India’s steel industry and its role in the global market. With Europe being a key export destination, the progress of these talks will be closely watched by industry players and policymakers alike.
What More Caught My Eye:
Banks and financial stocks suffer Rs 15,000 crore shock from FIIs.
Zomato to acquire Paytm’s movie ticketing, and events biz for Rs 2,048 crore.
Must Watch Finance Podcasts.
Ponzi-like model of P2P lenders prompt crackdown, RBI finds high NPA.
Recommendations:
Our first recommendation this week is a movie called Neeru.
Remember the thrill you felt after watching Drishyam? Neeru delivers a similar experience with its gripping storyline and unexpected twists, it keeps you on the edge of your seat, leaving you guessing till the end.
Our second recommendation is a youtube video where Ms. Ayesha Tariq dives into the potential outcomes of the 2024 US Presidential Election between Trump and Harris, focusing on how it could shape global markets, commodities, and India's economy.
She provides insights on key economic policies and the ripple effects they might create worldwide.
That’s it for this week’s recommendations!
We hope you’re finding the newsletter enjoyable and gaining value from it as you continue learning and growing. We love to hear your feedback and any ideas for future editions of TVS Weekly. Feel free to share your thoughts in the comments!
Song of the week:
This is Parth Verma,
Signing off.
Amazing content as always! Thanks! 💙
THANK YOU SIR FOR THIS NEWSLETTER AND THE AMOUNT OF EFFORT YOU AND YOUR TEAM IS PUTTING IS VERY COMMENDABLE