"Things cannot make
themselves impossible."
—Stephen Hawking (British,
1942-2018)
Word for the day
Pullulate (v)
To breed, produce, or create
rapidly.
Malice towards none
How would the life of
Indians change, if Google, Facebook, Twitter and WhatsApp services are
withdrawn from them?
#RaviShankarPrasad
First random thought this morning
Former RBI governor Raghuram Rajan reportedly said in an interview
that 7.5% economic growth was not enough to employ 1.2 crore people joining India’s
workforce every year. Rajan said India must grow in double digits and a 10%
economic growth was achievable in near future.
It is difficult to find out exactly when this wisdom dawn upon the
former governor of RBI.
Nonetheless, an overwhelmingly large number of people blame him
for wrongly choosing the inflation in a classical inflation vs. growth trade
off.
What is bothering Indian markets - 9
FY18 has been one of the best years for initial
public offerings (IPOs) of Indian equities. In first none months of the year
corporates garnered over Rs1.5trn of investment, against Rs1.4trn garnered in
FY08.
To make the temporal comparison, the fund raising at 1.5% of GDP
was lower than the 2.8% recorded in FY08 and 1.8% in FY10.
However, at ~24x PE ratio, the cost of equity was at ~4%, which is very
much comparable to the bubble years
Though the IPO momentum has continued in 1Q2018, the investors' interest
appears waning as the market corrected.
The fatigue is very much conspicuous as two high profile PSU IPOs
(Bharat Dynamics Limited and Hindustan Aeronautics Limited) in March have
failed to attract sufficient bids from non-institutional investors at least.
In Union Budget for FY19, the government has budgeted Rs800bn
receipts through disinvestment of public sector equity. The target may have to
be raised if GST revenue misses target. Some of this target could be met
through inter se sales (e.g., IOC buying government stake in OIL and
HPCL and BPCL buying government stake in GAIL). Nonetheless, these transactions
will need debt raising by the buying entity, thus straining the availability of
funds for growth financing.
PSBs are also required to raise Rs580bn equity from market as part
of the recapitalization approved in October last year. Given the recent
development and likely fresh round of write offs and slippages, the target may
have to be raised.
Besides, few high profile public offerings (e.g., NSE. six India
Railway ancillaries, GoAir, National insurance, Reliance General insurance, UTI
AMC, HDFC AMC, IREDA, EESL, are also planned to hit the market in next few
months.
Then there is this superstition amongst many market participants
that a large overpriced IPO always leads to the market fall. The popular example
cited is the infamous IPO of ADAG's Reliance Power Limited in early 2008. The
Rs115.6bn IPO was oversubscribed 72x, generating bids worth over Rs7trn.
Unfortunately, the listing of IPO coincided with the global melt down. Even
after a decade, the market value of that company is still 85% lower than the
IPO valuation.
Given (a) below par performance of many recently listed IPOs; (b)
just ~10% CAGR on Nifty during four years from FY15 to FY18; (c) one year FD,
Liquid Fund returns close to 7%; and (d) full tax exemption for LTCG being no
longer an USP for equities — the market is obviously worried about the
impending supply of paper.
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