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Primary market scenario post April 2022

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The world has been affected by Covid-19 for over 24 months now. However, capital markets used this opportunity and had a fantastic run during the same whether it be secondary markets or for that matter primary markets. A striking feature of primary market offerings during calendar year 2021 was the fact that the bulk of the offerings, as much as roughly 80 per cent was offer for sale. This OFS was dominated by PE investors who took advantage of the markets and sold their stake at unbelievable valuations. This was also the period when tech platform companies and new age companies hit the market. As usual, the market had its fair share of successes and failures.

The driving force behind the listing gains was the oversubscription witnessed across companies barring a handful. This oversubscription came at a cost- the cost of funding the application and this got built into the listing price. This gave a feeling that the issue did well post listing. In reality, most of these companies have lost sharply from their highs and have given up a large part of their gains. Physical events of companies launching their roadshows had stopped and they had become digital with Zoom webinars being the way. This system had its advantages and disadvantages with time to complete being reduced to just one day. Further it gave an unfair advantage to merchant bankers and promoters as conferences were conducted behind an effective censor board in the form of a moderator and tough questions being simply avoided.

An interesting incident was in the Zomato digital event where the company made its entire presentation in US dollars forgetting the basic fact that in an Indian issue, the currency of subscription is Indian Rupees. Fortunately, no other such event has happened thereafter thankfully.

Let us move to April 2022. The scenario has changed completely. There are new regulations imposed by RBI and SEBI. RBI has introduced a ceiling on the amount of money that can be lent by an NBFC against application at an upper cap of Rs 1 crore. This means every HNI can borrow just one crore each. This would mean in simple terms that the HNI portion which has seen oversubscriptions of 200-600 times would just not happen. The method of controlling this lending would be the PAN card. The second thing would be that this oversubscription came at a cost. The cost of funding. When there is no leveraging, there is no cost of funding. This would have a dramatic impact on the unofficial but rampant grey market. Premiums there would crash and the obnoxious returns made on listing would simply vanish. This would put pressure on subscriptions from other categories as well. The day when an IPO for Rs 1,000 crore garnered subscription across categories of Rs 40,000-60,000 would just stop.

SEBI has split the HNI bucket of 15 per cent into two with the first bucket of 5 per cent for application between 2 lakhs to 10 lakhs. The remaining 10 per cent is for applications which are greater than Rs 10 lakhs. The allotment in these categories in case of oversubscription would be on basis of lots like retail. This implies that allotment would be uniform to all applicants of the base lot size which would be Rs 2 lakhs and 10 lakhs as the case maybe on basis of lottery. In case of undersubscription, allotment would be on normal basis where the applicant would get shares on the basis of his subscription.

The other major change is with respect to anchor allocation and lock-in. Half the shares allotted to anchors would be locked for 30 days while the balance half would be locked in for 90 days. This would make anchor investors seek comfort on the pricing of IPO’s and indirectly seek comfort that the issue is reasonably priced so that they do not go under during the mandatory lock-in period.

Let us look at the HNI bucket with an example. For assumption we take a size of the primary offering which could include fresh issue and offer for sale of Rs 1,000 crore. Fifty per cent of the issue would be for QIB’s, 15 per cent for HNI’s and the balance 35 per cent for retail. Of the 50 per cent for QIB’s, 60 per cent would be for anchors. In this example, Rs 300 crore would be for anchors with Rs 150 crore of shares being locked in for the customary 30 days and balance Rs 150 crore for the new period of 90 days. Any anchor would now take a view that his invested price or issue price should not go below the issue price in 90 days. This would give additional comfort to other investors hopefully.

HNI bucket of 5 per cent for Rs 2 lakhs to 10 lakhs would mean Rs 50 crore. This would require 2,500 applications of Rs 2 lakhs to be subscribed on lots. The larger bucket of 10 per cent or Rs 100 crore would require 1,000 applications of Rs 10 lakhs to be subscribed. When the allotment is capped at this system unlike the earlier proportionate, many large applications would be deterred until and unless on the last day just before closing time there is a feeling that the issue may not get subscribed in the HNI category. Then people would look at the issue and make larger applications than 10 lakhs.

In the new scheme of things there would be two major factors which would see a change. The first is subscription levels where three-digit subscription levels in HNI category would be a thing of the past. Second would be as far as premiums are concerned. They would fall significantly as there is no logical cost of interest which could decide the logical premium. The impact of these two factors combined should put pressure on pricing by merchant bankers and promoters.

As an analyst, a person like me would be very happy that management and merchant bankers would now have to justify valuations rather than take the easy way out of suggesting that there is a 50-60 per cent grey market premium. If you feel the price is high, sell in the grey market.

Interesting times ahead for primary markets which will learn to evolve with these changes as well.

Business

‘Its Prime Real Estate’: Anand Mahindra Expresses Awe At Grandiose Of Brabus Big Boy 1200

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In the City of Dreams that is Mumbai, one of the biggest ‘dreams’ of most who live in the metropolis is to find an abode, that they can call it their own. Real estate in Mumbai is known for its sky-high pricing, with figures of Rs 10-15 crore not surprising anyone.

The Motorhome

Space is a major issue in city, given the paucity of it, in a region that encompasses millions. However, what happens when the space is not only available but also mobile? That is precisely what a ‘motorhome’.

It may not been the most commonly seen or discussed avenue in this part of the world, but in other parts of the world, particularly in the US, an RV or recreational vehicle is the way of life, either by choice or by circumstance.

Mahindra Group chairman, Anand Mahindra recently reacted to one such motorhome. In a post on X, he shared a minute-long clipping of the Brabus Big Boy 1200. This is an uber-luxe, profligate motorhome manufactured by the German automobile company Brabus.

Mahindra, while reacting to the video of a person showing around the bus said, That’s not transport. It’s prime real estate.”

And one may arguably agree with Mahindra on this. The vehicle is extravagant and has a length of 12 meters or 39.4 ft and over 30 square meters or 320 sq ft. For context, the average size of homes in city of Mumbai hovers around 400-700 sq ft.

What Are The Features Of This Motorhome?

In addition, the vehicle also has two electrically extendable slide-outs on each side. These slide-outs can extend the bedroom and saloon to a width of 4.50 meters.

In addition, the motorhome also consists of a double bed measuring 160 x 200 centimeters.

A closet is integrated into the rear wall of the vehicle.

For amusement, the vehicle also has a desk and a 43-inch 4K television. Here one could watch TV programs that have been made available on the system play games on the integrated Playstation 5 system.

In addition, one can also connect to the internet through the Starlink system.

When it comes to the vehicle, it runs on a12.8-liter six-cylinder turbodiesel engine. This engine can deliver 390 kW / 530 hp and can generate a maximum torque of 2,600 Nm.

The vehicle is priced at around USD 1.5 million or a whopping Rs 12 crore.

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Business

Maha will play key role in achieving India’s $5 trillion economy goal: Minister Tatkare

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Nagpur, Dec 21: Representing Maharashtra in the pre-Union Budget meeting held in Jaisalmer, Minister Aditi Tatkare on Saturday assured that Maharashtra would play a pivotal role in India’s journey towards becoming a $5 trillion economy.

She emphasised the need for special financial assistance to the state in the upcoming Union Budget.

Minister Tatkare presented Maharashtra’s vision, highlighting its strategic role in realising the Prime Minister’s goal of a ‘Viksit Bharat’ by 2047.

Minister Tatkare outlined several critical issues and proposals for inclusion in the Union Budget. She urged the finance minister for central assistance for state Capital Investment by enhancing the allocation under the Scheme for Special Assistance to States for Capital Investment.

She emphasised the need for streamlining fund disbursement timelines to provide qualifying states with a minimum one-year utilisation window.

In the wake of rapid urbanisation, Minister Tatkare called for central support to tackle the challenges faced by the state.

“Maharashtra, with urbanisation expected to surpass 50 per cent in the upcoming census, faces challenges in resource mobilisation for urban local bodies (ULBs). The state government urges support for ULBs to access long-term loans for planned urban development and infrastructure enhancement,” she said.

Under the MukhyaMantri Saur Krushi Vahini Yojana 2.0, aimed at solarising agricultural feeders, Minister Tatkare sought increased targets and funding allocations for Maharashtra.

She requested expansion of Battery Energy Storage System (BESS) capacity from 500 MWh to 9,000 MWh to meet the state’s energy storage goals.

In order to further boost the modernisation of the home department, Minister Tatkare sought funds on a 60:40 basis, for projects such as digital forensic labs, mobile forensic vans, AMBIS systems, and the Cyber Security Project (Rs 837.86 crore).

She highlighted the need for funding major initiatives like Dial 112 emergency services integration and Maharashtra Police Station CCTV projects.

She urged financial support for faster case disposal through enhanced infrastructure for the judiciary.

She requested funding for constructing the Bombay High Court Complex in Bandra (East), estimated at Rs 3,750 crore.

Further, to push the implementation of the Mumbai Metropolitan Region (MMR) economic master plan, Minister Tatkare proposed a special package.

The master plan is aligning with NITI Aayog’s vision to transform MMR into a national growth hub by 2030.

According to NITI Aayog, the MMR has a potential to increase its GDP to $300 billion by 2030 from the present level of $140 billion.

The Centre’s public policy think tank has asked the Maharashtra government to concentrate on seven growth drivers and attract investment of $125-135 billion from the private sector to achieve the target.

In a bid to push the state government’s ambitious plan to make Maharashtra drought-free, the state government has sought central government support to include state-funded river-linking projects like Wainganga-Nalganga and Damanganga-Godavari under the National Interlinking of Rivers Scheme.

Further, the state government appealed to the Centre to ease revenue expenditure pressures to create fiscal space for capital projects and establish a ‘Kisan Vishesh Sahayata Nidhi’ to compensate farmers affected by trade policy interventions.

The state government also appealed for the enhancement of funding for ongoing schemes like the Jal Jeevan Mission and financial assistance for disaster-affected areas.

Minister Tatkare said the comprehensive representation highlighted Maharashtra’s ambitions and challenges, ensuring the state’s priorities were well-articulated for the Union Budget deliberations.

She reiterated Maharashtra’s commitment to becoming a cornerstone of India’s economic growth and development trajectory.

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Business

Domestic stock markets to end 2024 on positive note, Nifty clocks 13 pc gain

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New Delhi, Dec 21: Riding on resilient economic growth, the domestic stock markets are ending 2024 on a positive note, with Nifty registering a 13 per cent gain (year-to-date) — its ninth consecutive year of positive gains, a Motilal Oswal Wealth Management report said on Saturday.

The first half of the year saw robust corporate earnings, a surge in domestic flows, and a resilient macro landscape, driving the Nifty to an all-time high of 26,277 in September.

In fact, the markets navigated significant events, such several global geo-political issues, General Elections and Budget in India, and any dips were swiftly met with strong buying activity, the report mentioned.

“The year 2025 could unfold as a tale of two halves. The first half may continue to see market consolidation, while a recovery could take place in the second half,” it added.

In the last two months, the market has corrected 11 per cent from its all-time high, amid selling by foreign institutional investors (FIIs) due to a combination of domestic and global factors.

Going forward, the Indian markets are likely to face significant influences from a combination of global and domestic economic events.

The anticipated rate cut by the RBI in February, the ongoing trend of US rate cuts, and the expectations surrounding trade policy changes post Donald Trump taking over as US President in January will contribute to market volatility.

“Additionally, the Union Budget in February will offer important signals to the market. With a fragile global economic environment and mixed macroeconomic factors at home, the market is expected to remain in consolidation mode in the near term,” the report noted.

Earnings are expected to recover in H2 FY25, driven by increased rural spending, a buoyant wedding season, and pickup in government spending.

“We further expect earnings to gain momentum, delivering a 16 per cent CAGR over FY25-27E. We remain optimistic about the long-term trend, given the strength of corporate India’s balance sheets and the prospects for robust, profitable growth,” the report said.

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