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War, FPI exit play spoilsport; push IPOs worth Rs 77K crore to back burner

Initial Public Offering, LIC IPO, Russia Ukraine, Russia Ukraine Crisis, Russia-Ukraine tension, Ukraine, Ukraine Crisis, Business news, Indian express business news, Indian express, Indian express news, Current Affairs


The mega plans of over 50 companies to raise more than Rs 77,000 crore through initial public offerings (IPOs) seem to have been put on the back burner for now following the market volatility and exit of foreign portfolio investors in the wake of the Russian war on Ukraine. This is besides the LIC IPO through which the government plans to raise around Rs 60,000 crore. While the issue received Sebi approval last week, it is set to get delayed, given the current market situation.

Many of these issuers had planned their IPOs after the boom in 2021 saw a host of companies, including new-age companies, to firm up plans for IPOs in 2022. But their plans hit a roadblock with the benchmark Sensex falling over 8,300 points, or 13.5 per cent, between January 14 and March 7 amid the huge sell-off by FPIs as concerns over rising interest rates in the US, the Russian invasion of Ukraine and the rise in crude oil prices accentuated the already parlous situation, leading to further panic in the market.

Even as the Sensex staged a recovery of 9.5 per cent over the 8 trading sessions since March 7, in line with correction in crude price and progress on talks between Russia and Ukraine, market participants feel that as markets are expected to remain volatile, it may take some time before the issuers and merchant bankers have the confidence to roll out their IPOs.

Investment bankers say the sustained sell-off by FPIs has put a spanner in the works of issuers. FPIs were major subscribers of shares offered through the IPO route in 2021 as they bought shares worth Rs 80,314 crore in IPOs. This is at a time when FPIs had sold Rs 54,563 crore from the secondary markets. “FPIs were a major factor in the success of IPOs in 2021. They are missing in 2022,” said an investment banking source. Between January and March 2022, FPIs have sold equity holdings worth Rs 110,974 crore from Indian markets.

Market participants say that the primary market activity will only pick up once the secondary market stabilises and starts witnessing investor enthusiasm. While a large number of issuers bunched up their issues to capitalise on the investor enthusiasm in 2021 and capitalise on the premium that investors were willing to pay, investor focus has now shifted towards listed blue-chip companies.

Besides, market participants feel that investors are likely to take a very guarded call on new-age technology companies that come for listing this year. This caution is on account of the sharp correction in the share prices of some of these companies that got listed in 2021.

While Paytm is trading at 72 per cent below its issue price, CarTrade Tech is trading at 64 per cent below its issue price. If FSN Ecommerce Ventures has seen a sharp decline in its share price from an all time high of Rs 2,574 to Rs 1,552 now — a premium of 38 per cent over its issue price of

Rs 1,125, Zomato too is trading just above its issue price of Rs 75 and closed at Rs 80.7 on Thursday.

“The current situation in the market and high volatility is likely to continue due to geopolitical tensions and fear of stagflation on account on higher crude and other commodities prices,” said Ravi Singh, vice president and head of research, Share India.

As the response in primary market depends on the activities in the secondary market, the extraordinary volatility in the primary market since last few months has forced the companies to hit a pause button on their IPOs, he said.

“About 50 companies were set to raise Rs 77,000 crore from the market. The rising crude prices have caused inflationary concerns for companies, whose effect is seen on the stock prices. The IPO of LIC was expected to be launched by March-end but now it will be done in the next fiscal,” said Manoj Dalmia, founder and director, Proficient Equities Pvt Ltd. IPOs of Go Airlines, API Holdings, Delhivery, Emcure Pharma and Swiggy are among the companies that have planned IPOs. “However, the market is currently facing sell-off by FPIs, whose support is needed to create liquidity when such big-ticket size IPOs are involved,” he said.

The much-talked about public issue of LIC is expected to get deferred now in line with the weakness in equity markets over geopolitical concerns. Experts say that even if a company comes out with a public issue, it may not witness the enthusiasm received by many issues over the last one year and the returns too may be limited.

The validity period of Sebi’s observation letter is 12 months only — the company has to open its issue within the period of 12 months starting from the date of issuing the observation letter. This means if issuers who received the Sebi nod will have to submit a fresh prospectus if they are unable to launch the IPOs within 12 months.

In order to make the most of the rising market in 2021, as many as 50 companies managed to raise in excess of Rs 1.1 lakh crore from the equity markets — the highest mobilisation in a year. In line with interest from all categories of investors, retail investors too queued up in big numbers and, in many cases, returned dejected and empty handed, as issues got mobbed and some of them even received subscription of over 100 times. Many new-age companies, which raised money through IPOs last year, are now quoting below their issue prices.





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LIC IPO: Govt wants markets to stabilise before final call


NEW DELHI: The Centre is waiting for the stock market, which has become volatile in the wake of the Russian invasion of Ukraine, to stabilise before going ahead with the mega IPO of insurance behemoth LIC, official sources have said. This has triggered prospects of the issue being deferred for now.
Since Russia’s invasion, uncertainty has gripped the country’s biggest IPO and plans to list it before the end of the financial year on March 31 seem to be in jeopardy. Sources said the government has time until May 12 to unveil the IPO on the basis of the documents filed with the stock market regulator Sebi.
The government had filed the draft red herring prospectus with Sebi on February 13 and sources said all eyes are now on the state of the stock market and any listing would depend on when the volatility reduces.
The sources said authorities are watching the volatility index, which had spiked sharply after Russia’s invasion of Ukraine, and is currently ruling at around 25.3 and the view within the government is that it should settle at around 15 levels to take a call on the timing of the LIC IPO.
The markets have been choppy and the apprehension is that it may have a major impact on the LIC listing and hurt the Centre’s plan to raise close to Rs 70,000 crore from the IPO.





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Ukraine Crisis Could Disrupt Economic Recovery, Say Experts


India’s economic growth could be impacted by the Ukraine crisis, say experts

India is likely to rank among the emerging economies worst affected by the Russia-Ukraine crisis as a surge in global prices of commodities is set to upend spending plans and derail its pandemic recovery, analysts say.

If the conflict lasts, India, which imports close to 85 per cent of its oil needs, is likely to see its fiscal, trade and account deficits swelled by a surge in crude oil prices to their highest in more than a decade, which will also fuel inflation.

“The contagion from currently rising geopolitical tension is unlikely to remain limited to financial assets and warrants a change in our key macro forecasts for 2022-23,” said Abheek Barua, chief economist at HDFC Bank.

February’s budget was based on an average oil price of $75 to $80 a barrel for the fiscal year starting from April 1, but Brent briefly soared on Monday to nearly $140, its highest in over a decade.

A senior government official said if oil prices averaged $100 a barrel in the fiscal year to March 2023, that could shave 90 basis points off growth, taking it below 8 per cent, from a forecast range of 8 per cent to 8.5 per cent.

In such a scenario, inflation is seen rising by 100 basis points and the current account deficit could widen by 120 basis points to 2.3 per cent to 2.4 per cent of GDP.

DBS Bank says every increase of $10 a barrel in the price of oil lifts India’s consumer price index-based inflation by 20 to 25 basis points, widens the current account gap by 0.3 per cent of GDP, and poses a downside risk of 15 basis points to growth.

The oil price spike is also expected to pressure the government to lower fuel levies and reduce the burden on consumers. That in turn would dent revenues, narrowing the room for capital spending needed to boost growth.

Retail fuel prices could rise 10 per cent or more, starting from this week, as results flow in from elections in key states. To avoid voter backlash at the polls, state-run oil companies have not raised prices since November 4.

“Given the bunched-up increase in the offing, excise duty cuts might be undertaken, to ease pressure on purchasing power and incomes,” said Radhika Rao, an economist with DBS Bank.

But every rupee cut from fuel levies shrinks revenue for the government’s coffers by 130 billion rupees ($1.7 billion) a year. Economists say India could lose as much as 900 billion rupees in trying to lower pump prices.

And a recent battering of markets, which forced a rethink of plans for an $8-billion initial public offer (IPO) of state-run Life Insurance Corporation (LIC) by the end of March, is likely to further dent the government’s financial position.

RATINGS RISK

On the plus side, the government could turn a profit by selling some of its vast grain stockpiles following a rise in global wheat prices that could boost exports of the grain from India.

That could defray expenses on its vast annual purchases of grain at prices above global levels in the effort to support farm incomes.

But India’s fiscal deficit had widened to a record 9.3 per cent in the year that ended in March 2021, thanks to efforts to cushion the shock of the coronavirus pandemic and revive growth.

That meant the ratio of debt to GDP shot up to more than 90 per cent, for the worst among similarly-rated emerging markets.

Although India’s ratings have held steady, agencies have warned of long-term challenges and the need to cut the debt-to-GDP ratio to more sustainable levels.

Government officials said the fiscal deficit could slip by 20 to 30 basis points from a target of 6.9 per cent of GDP in the current fiscal year ending in March if LIC was not listed by then.

“The ratings agencies were not very happy with the fiscal consolidation path undertaken by us in the budget. Further deterioration could concern them,” said a second government official, who also spoke on condition of anonymity.

The government is reworking some key budget figures and the outcome of next year’s spending plans could look very different from the budget outlined last month, he added.

(Except for the headline, this story has not been edited by NDTV staff and is published from a syndicated feed.)



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Rupee under pressure as FPIs rush to the exit door, pull out Rs 2 lakh crore since October


The ongoing sell-off by foreign portfolio investors (FPIs) has led to withdrawal of over Rs 2,00,000 crore from the domestic stock markets since October last year. The Russia-Ukraine conflict has added to the nervousness of FPIs, already bracing for interest rate hikes by the US Federal Reserve. The FPI pull-out has hit the rupee, with its exchange rate against the dollar falling below the 76 level to 76.16 despite heavy RBI intervention.

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On March 4, FPIs pulled out Rs 7,631 crore from the stock markets, taking the total outflows to Rs 18,614 crore in the last three sessions of March as Russia intensified the attack on Ukraine and oil prices soared. This outflow has come after withdrawals of

Rs 45,720 crore in February and Rs 41,346 crore in January. With this, FPIs have pulled out

Rs 2,06,646 crore (excluding FPI investments in IPOs) since October 1, 2021.

If the situation in Ukraine worsens and FPI sales continue, the rupee will cross the 77 level against the dollar in the coming days, analysts said. While banks have been purchasing dollars to facilitate FPI pull-out, the RBI has been selling dollar from its forex kitty to salvage the rupee, said a banking source.

During the week ended February 25, India’s foreign currency assets declined by $ 2.228 billion. “The Russia-Ukraine conflict is hurting Indian rupee, bonds and equities via three channels: oil prices, US dollar Index and global equity prices,” said a Kotak Securities report.

Analysts said there could be a further temporary shock if things worsen more in Europe or, for that matter, a new front opens up in Asia. While the rupee is likely to remain under pressure, the RBI with its forex kitty of $631 billion will be able to prevent a big slide in the currency.

However, domestic institutional investors (DIIs), led by LIC, mutual funds and insurance companies, have been stepping up their purchases, absorbing most of the FPI sales. “There is a tug-of-war going on between FPIs and DIIs,” said VK Vijayakumar, chief investment strategist at Geojit Financial Services.

Countering the FPI strategy, DIIs have invested Rs 12,599 crore in March 1-4, adding to their total investments of Rs 1,42,872 crore since October 2021. DIIs invested a record amount of Rs 42,084 crore in February, their highest monthly investment since they put Rs 55,595 crore in March 2020 when Covid pandemic hit the country.

Despite a correction of around 13 per cent from the peak in Nifty, FPIs continue to sell since market sentiments have been impacted globally by the uncertainty triggered by the war and the surge in crude prices. This is likely to impact the IPO market and LIC’s plan for listing this fiscal and push up the current account deficit (CAD).

The Sensex has already fallen 5 per cent, or 2,899 points, to 54,333.81 since February 24 when the Russian invasion of Ukraine started. Global markets are spooked with the events happening in Europe, which are causing volatility. “FPIs have been sellers for almost 6 months now. Commodities are hitting highs across the board – oil, coal, metals and agri-commodities,” said Vineet Bagri, managing partner, TrustPlutus Wealth.

The FPI pull-out is dampening the sentiment in equity and forex markets. “Their impact on markets is visible, with increase in volatility and declining equity prices. However, the fact that this selling by foreign investors has been absorbed by domestic investors bodes well for the outlook of Indian markets,” Bagri said.

According to a Morgan Stanley report, supply constrained oil price rises are bad for India. Indeed, the recent 25 per cent jump in oil prices will expand the current account deficit by 75 bps and inflation by 100 bps on an annualised basis, it said.

US Federal Reserve Chair Jerome Powell recently said he will back a quarter point rate increase when the Fed meets March 15-16, putting to rest debate over starting a post-pandemic round of rate hikes with a larger than usual half-point increase.





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War in Ukraine and the IPO market: what investors need to look at


Stock markets have taken a beating over the last 10 days following the Russian invasion of Ukraine. As oil prices continue to rise, the Sensex has lost 3.7% in the five trading sessions since February 24. This has raised concerns about the initial public offering (IPO) market, particularly upcoming IPOs, with 51 companies having received market regulator SEBI’s approval for their IPOs. While the IPO market witnessed a boom in 2021, investors need to be wary about upcoming issues, and should instead look at already listed companies that have good fundamentals.

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Will companies defer plans for IPOs?

If the Ukraine conflict drags on and crude prices remain elevated, there’s a possibility that the stock markets will remain subdued. As the IPO market is linked to the performance of the stock market, issuers are likely to wait for a better time — until the Ukraine conflict ends and stock markets stabilise, investment bankers said. The LIC public issue, through which the government planned to raise around Rs 60,000 crore, is expected to get deferred now. Experts say that even if a company comes out with a public issue, it may not see the enthusiasm seen over the last one year, and the returns too may be limited.

How have recent issues performed?

Over the last 11months, 50 companies managed to raise over Rs 1.1 lakh crore from the equity markets — the highest mobilisation in a year. Retail investors queued up in large numbers and many returned empty-handed as the issues got mobbed; some of them even got subscription of over 100 times.

The performance of the issues shows why the investor needs to be careful. While 22 of the 50 issues launched this financial year are trading below their issue price, nine generated returns of less than 11% – the Sensex gain since April 1, 2021. Some new-age companies have fallen in the market volatility recently.

Should you invest in new companies?

Market experts say investors need to be very careful about these. Currently, One 97 Communications (PayTM) is trading at a discount of 63% to its issue price, and Car Trade Tech at a discount of 65.8%. FSN E-Commerce Ventures (Nykaa), which hit a high of Rs 2,574 over its issue price of Rs 1,125, closed at Rs 1,502 on Thursday — a premium of 33.6% over the issue price. Zomato, which saw its share price more than double after listing, is trading at a premium of 8.1% over its issue price.

Experts feel that while these new-age technology companies demanded high premium and benefited from market liquidity and investor enthusiasm, sentiments are tapering. “Globally, there is lot of irrationality around start-ups. It is important to understand that when the market corrects, the investor confidence gets shaken even if a company declares a decline in profits in one quarter. So, in most of these companies where profitability is not visible for the next five years, it is very tough for an investor to stay invested, and that is what has been happening over the last couple of months,” said the head of research with a leading financial services firm.

Should you go for current IPOs?

After the buoyancy over the last 11 months, equity markets are expected to remain volatile in the near future on various accounts: global inflation concerns, withdrawal of global liquidity, rise in bond yields and interest rates — and now geopolitical tensions and rising crude oil prices. Upcoming issues may not be able to match the interest received by those launched over the last 11 months.

While that may limit listing gains, investors can go for companies that have a sound business model and growth potential. Relatively weak equity markets would also mean that the issues may be more reasonably priced, which is good for investors.

Is high subscription a good indicator?

In many cases, it holds true. If the qualified institutional segment gets strong subscription, it indicates institutional investors, who have the resources to do due diligence, are comfortable with the company’s prospects.

However, in several issues in the last 11 months, this has not been the case. Krsnaa Diagnostics Limited, whose issue had an oversubscription of more than 64 times, is currently trading at 41.5% below its issue price. Windlas Biotech, oversubscribed over 22 times, is trading 47% below its issue price.

 

What should investors look at?

An IPO is a derivative of the secondary market. If the secondary markets are strong, investor sentiments are high, and IPOs tend to fare well. However, that is not true for all cases. Investors need to thoroughly study the company — quality of promoters, business fundamentals, and financial and peer review analyses. Corporate governance practices should be given top priority. Investors must study other listed companies in the sector and compare their growth, and their PE ratio (market price to earnings per share). If the company coming with its IPO is demanding a higher valuation, they can choose to skip the issue.

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TMS Ep116: Russia-Ukraine crisis, NSE, markets, red herring prospectus


Just like the world, India too caught its breath and figured out the next course of action as Russian troops stormed into Ukrainian cities early Thursday. The Indian government is now scrambling all the resources to evacuate its 20,000 citizens from the eastern European country, whose air space has been shut since the offensive. Apart from this, the war will also have its economic consequences too. Back home, the India’s largest bourse, National Stock Exchange, is at the centre of a controversy. And at the heart of that controversy is a mysterious yogi everyone is talking about now. Chitra Ramkrishna, a founding member of NSE who was at the helm between 2013 and 2016, has told investigators probing alleged irregularities during her tenure, that she was being guided by the mystic who lived in Himalayas. But did that mystic really lived in the Himalayas? Or was he moving around in the plush exchange office of Mumbai? Meanwhile, the Russian invasion led to a bloodbath on Dalal Street.

Global financial markets were rattled too. While most equity markets across the globe corrected sharply, Brent Crude oil hit the psychological level of 100 dollars a barrel. These developments along with other headwinds have kept the markets choppy in the February F&O series, which turned out to be one of the most volatile series since April 2021 F&O expiry. Will the March series be equally volatile? What should your strategy be in this backdrop? Markets are eagerly awaiting the IPO of government-owned Life Insurance Corporation of India or LIC. But even before it hits the primary market, LIC filed a draft red herring prospectus (DRHP) with the Securities and Exchange Board of India. This episode of the podcast tells more about this document and why it is filed.

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