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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.

Crime

Mere recovery of blood-stained weapon matching deceased’s blood group not sufficient to prove murder: SC

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suprim court

New Delhi, June 27: Upholding the acquittal of an accused, the Supreme Court has ruled that mere recovery of a blood-stained weapon bearing the same blood group as that of the deceased would not be sufficient to prove the charge of murder.

A bench of Justices Sandeep Mehta and P.B. Varale was dealing with a criminal appeal filed by the Rajasthan government challenging a judgment of the Rajasthan High Court, which had acquitted the respondent-accused of the offence of murder.

In its impugned order, a division bench set aside the judgment passed by the Additional Sessions Judge in December 2008, which had convicted the respondent for the offence punishable under Section 302 of the Indian Penal Code, 1860 and sentenced him to undergo life imprisonment and pay a fine of Rs 100, and in default of payment of fine, to further undergo 3 months simple imprisonment.

During the trial, the respondent was charged with the murder of Chotu Lal, which took place on the intervening night of March 1 and 2, 2007.

Initially, an FIR was filed against unknown assailants, and at a later stage, the respondent was arraigned in the case on the basis of suspicion and circumstantial evidence.

The prosecution led circumstantial evidence in the form of motive, alleging the respondent was having an evil eye on the wife of the deceased; recovery of the weapon of offence and the FSL report indicating that the blood group on the weapon matched with the blood group of the deceased (B +ve).

Contrary to the findings of the trial court, the Rajasthan High Court opined that the prosecution could not prove the complete chain of circumstances required to bring home the guilt of the accused in the case, which was based entirely on circumstantial evidence, and proceeded to acquit the respondent.

Concurring with the view taken by the Rajasthan HC, the Justice Mehta-led Bench said: “We find that the incriminating circumstances relied upon by the prosecution, i.e., the motive and the recovery of the blood stained weapon, even taken in conjunction cannot constitute the complete chain of incriminating circumstances required to bring home the charges against the accused.”

“The High Court seems to have overlooked the FSL report, which fact was stressed upon by learned counsel for the appellant (state government). However, in our view, even if the FSL report is taken into account, then also, other than the fact that the weapon recovered at the instance of the accused tested positive for the same blood group as that of the deceased (B +ve), nothing much turns on the said report,” it added.

The apex court, relying upon a previous judgment of the apex court, opined that mere recovery of a blood-stained weapon even bearing the same blood group of the victim would not be sufficient to prove the charge of murder.

It discarded the theory of motive, saying the evidence in that regard seems to be very vague and vacillating.

The Justice Mehta-led Bench added that the law is well settled by a catena of apex court decisions that in an appeal against acquittal, interference can only be made if the only possible view based on the evidence points to the guilt of the accused and rules out his innocence.

Dismissing the appeal of the state government, the Supreme Court said: “In the present case, we are duly satisfied that the prosecution failed to lead clinching evidence to bring home the charges. The only possible view is the one taken by the High Court, i.e., the innocence of the accused.”

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National

BJP accuses Congress of opposing voter verification to shield fake votes in Bihar

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New Delhi, June 27: Following Congress’ objection to the Election Commission of India’s special revision of the state’s voter list ahead of the upcoming Assembly elections in Bihar, the BJP has launched a sharp counterattack, accusing the grand old party of attempting to protect fake voters.

BJP state president Dilip Jaiswal defended the ECI and called Congress’ objections baseless.

“The Election Commission is an independent body which works independently. It is its responsibility to ensure that elections are conducted with complete transparency. If any political party opposes this, it is wrong. Fake voting can be prevented by the revision of the voter list. Voters who have died will be identified. This process will also make it clear whether the voter is actually in Bihar or voting somewhere else. This is a very necessary step for transparency. I congratulate the Election Commission for this,” Jaiswal said.

Bihar Congress president Rajesh Kumar on Thursday criticised the ECI for initiating the voter list revision process in a limited time frame.

He alleged that the move is part of a conspiracy to suppress the electoral rights of marginalised communities.

Reacting strongly to these allegations, BJP leader and Minister Nitin Nabin questioned Congress’ intent behind opposing the exercise.

“I say that Congress should clarify what exactly they are objecting to. If genuine voters are being verified and fake voters are being removed, is Congress sitting here to commit fraud? I want to ask the opposition members who are opposing this, are you trying to gain power through fake votes? Such fake voters will definitely be stopped, and the parties doing fraud will also be taught a lesson,” Nabin asserted.

The ECI has issued instructions for holding Special Intensive Revision (SIR) in Bihar, where polls are to be held by year-end. This means electoral rolls for the state will be prepared afresh.

The special voter list inspection has been undertaken by the ECI as a standard pre-election procedure to ensure the accuracy of electoral rolls.

Officials have stated that the process will help remove deceased or duplicate voters and correct errors, ensuring a fair and transparent election.

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Crime

Kerala HC judge files complaint of theft at his residence, police probe on

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Kochi, 27 June: The Kochi police have received a theft complaint from Kerala High Court Judge, Justice A. Badharudeen, according to officials on Friday, stating that six sovereigns of gold were missing from his residence.

The complaint, which was filed on Thursday, mentions that the gold has been stolen from the judge’s bedroom. The police have registered an FIR under Section BNS 305.

What has surprised many is that the thief has decamped with gold from a high-security guarded house located in the heart of the commercial capital of the state.

The judge registered the complaint with the Kalamassery police under which his residence falls.

After the preliminary probe, the police are now planning to prepare a list of those who need to be spoken to, as this incident occurred in the bedroom of the senior judge.

More details are awaited.

The incident has raised concerns regarding the security situation in the state. The Congress-led UDF has been accusing the state government of failing to curb the crimes.

It has been found that Kerala is a haven for organised gangs hailing from neighbouring states who specialise in robbing homes, and the cases against non-Keralaite thieves are also on the increase.

According to information prepared by the home department, which was placed before the Assembly last year, it showed 192 cases of theft involving non-Keralites were registered in 2021, and the numbers have been steadily increasing. This rose to 360 in 2022.

In 2023, the number increased further to 519, and by September 2024, a total of 307 such cases were registered. But the image of the Kerala Police got a boost when over 1,350 thieves during this period were put behind bars.

However, with regards to the case being registered in the burglary at the home of a judge, the police appear to have a tough job ahead.

Likewise, with other crimes also on the increase, the Ernakulam Police have come out with a directive to landlords who are seeking to rent out their properties. The police have urged the landlords to get a police clearance certificate from the prospective tenants from their local police station where they stayed.

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