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Primary market scenario post April 2022

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3 years ago

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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.

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Bharat NCAP Awards 5-Star Crash Test Rating to Mahindra Thar Roxx

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12 hours ago

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November 15, 2024

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The Mahindra Thar Roxx has earned a prestigious 5-star rating in Bharat NCAP’s latest crash tests, reflecting its commitment to safety. Recently evaluated under stringent testing, the SUV excelled with a 31.09 out of 32 score for adult occupant protection and 45 out of 49 for child safety.

Tested in its AX5L and MX3 variants, the Mahindra Thar Roxx delivered notable results, scoring 15.09 out of 16 in the Frontal Offset test and a perfect 16 out of 16 in the Side Impact test. The assessment revealed strong protection for most areas, with adequate ratings for the driver’s chest and lower legs.

The Mahindra Thar Roxx has received high marks for child occupant safety, scoring 24 points in Bharat NCAP tests, along with 12 points for CRS (Child Restraint System) installation and a Vehicle Assessment Score of 9. This top-tier safety rating applies to all Thar Roxx units produced from November 2024 onward, underscoring Mahindra’s dedication to enhancing safety features across its SUV range. Additionally, Mahindra’s XUV400 and 3XO models have also achieved 5-star safety ratings, further emphasizing the automaker’s commitment to robust safety standards.

The Mahindra Thar Roxx offers two interior themes – Classic Ivory and a new Dark Mocha Brown. Comfort and convenience are prioritizing with ventilated seats, leatherette upholstery, a digital driver display, a larger 10.25-inch touchscreen, a high-quality Harmon Kardon sound system, a panoramic sunroof, rear AC vents, wireless connectivity for Apple CarPlay and Android Auto, and a six-way adjustable driver’s seat, combining practicality with luxury.

Mahindra Thar 5-door comes packed with safety and interior upgrades to enhance its appeal. On the safety side, it includes essentials like six airbags, three-point seatbelts for all occupants, hill control features, electronic stability control, and a seatbelt reminder. Advanced driver-assist features, such as autonomous emergency braking, adaptive cruise control, lane-keeping support, lane departure alerts, and a 360-degree camera system with blind spot monitoring, add an extra layer of protection.

Mahindra Thar Roxx offers two engine choices: a 2.0-litre turbo-petrol and a 2.2-litre diesel. The petrol engine comes in two setups—150 bhp and 330 Nm of torque for the manual, and 174 bhp with 380 Nm for the automatic. The diesel option is available only with four-wheel drive.

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Why The Indian Stock Market Struggled: Inflation, FPI Outflows, And Currency Pressure; Everything You Need To Know

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2 days ago

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November 13, 2024

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The Indian stock market on Wednesday (November 13) wrapped the another challenging day, marking the fifth consecutive session of losses.

The Sensex and Nifty, the two benchmark indices, both ended lower amid concerns over inflation and a broad selloff in metal stocks.

Market Snapshot

By the close of the trading session, Sensex was down by 984.23 points, or 1.25 per cent, ending at 77,690.95. Nifty 50 followed suit, shedding 324.40 points, or 1.36 per cent, to settle at 23,559.05.

The day saw a sea of red on both the Sensex and Nifty, with the majority of stocks ending lower. Among the few gainers were NTPC, Tata Motors, and Infosys, which saw minor upticks on BSE.

However, the broader market was dominated by heavy losses, especially in stocks such as JSW Steel, State Bank of India (SBI), Adani Ports, Mahindra & Mahindra (M&M), and Tata Steel, all of which posted declines.

Reasons behind the sharp decline

One of the major factor contributing to the market’s downward trajectory is the growing concern related to inflation.

As per the data which released by the Ministry of statistics and Programme Implementation regarding the India’ retail inflation, it showed that for the month of October, it surged to 6.21 per cent, breaching the Reserve Bank of India’s (RBI) upper tolerance limit of 6 per cent for the first time in over a year. The primary factors that contributed to surge include rise food prices, driven by the extended monsoon season and crop damage.

Adding to the pressure is the continued outflow of foreign portfolio investments (FPIs). On November 12, FPIs sold shares worth Rs 364.35 crore, bringing the total outflows for November to Rs 23,911 crore

The Indian rupee also struggled on November 13, weakening by 1 paisa to close at 84.38 against the US dollar.

The rise of the US dollar, which surged 1.8 per cent in November, has been exacerbated by the US presidential election result and higher bond yields. The US 10-year bond yield spiked to 4.42 per cent, further diverting capital away from emerging markets like India.

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Trump Victory Revives The Crypto Mania; Bitcoin Touches 81,000 Mark, Other Virtual Currencies Also Surge

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4 days ago

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November 11, 2024

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The world of cryptocurrency, which was enduring its long-drawn-out winter since the end of the pandemic, appears all set to come out of its ‘haitus’.

And this new surge has been powered by the recent triumph of Donald Trump at the 2024 US election. The president-elect, Donald Trump, who once thought that crypto was a ‘scam’, has come a long way. Donald Trump, by all means, is the most crypto-friendly president that the US has had so far.

Bitcoin

As a result of this newborn optimism, major names in the crypto business. The biggest of them all, Bitcoin, saw the biggest jump. Bitcoin scaled the USD 80,000 mark for the first time.

In the past 5 days, the cryptocurrency has surged in value by 7.76 per cent or USD 5,865.47, taking the overall value to 81,456.88 for one USD. In the Indian context, one Bitcoin is worth Rs 68,72,585.50.

Ethereum

And it is not just Bitcoin that has seen its value gallop. The second biggest name in the crypto world, Ethereum has observed a rise in its price since Trump’s victory. 8.71

In fact, this crypto has seen an even bigger jump of 17.00 per cent or USD 462.66, in the past 5 days, taking the overall value to USD 3,184.54.

Ripple

Another cryptocoin, Ripple, has also seen its prices rise. In the past 5 days alone, the value of this digital currency has jumped to USD 0.59.

This came to pass after an 8.71 per cent USD 0.05 rise in its value.

Dogecoin

The meme coin or a currency that was started as a joke, Dogecoin or ‘Dog Coin’ also saw a gargantuan rise in its prices. Just in the past 5 days, Dogecoin jumped in value by a substantial 49.76 per cent.

The price increased by USD 8.24, taking the overall value to USD 24.80. It is to be noted that Tesla boss Elon Musk, who is a close ally of Donald Trump, is a major proponent of this cryptocurrency.

One of the controversial policies that Trump has advocated throughout his campaign is weakening the US Dollar and loosening any scope of scrutiny on cryptocurrency. In fact, it is even reported that he would ‘fire’ the Security Exchange Commission chair, Gary Gensler. Gensler has been at the forefront of attempts to regulate cryptos.

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