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Every Monday to Saturday, tune in as financial journalist and host Govindraj Ethiraj gives you the latest news in business, economy and technology
Good morning, it's Wednesday, the 28th of August and this is Govindraj Ethiraj, headquartered and broadcasting and streaming from Mumbai, India’s financial capital.
The Take: Why Indian investors need to be reined in.
There are two ways to see it.
The brute power of free market capitalism when a company operating two Yamaha motorcycle showrooms in Delhi employing 8 people raised Rs 12 crore in an IPO and is oversubscribed by 400 times already, attracting birds worth Rs 4800 crore.
The IPO price for this company Resource Automobile, pitched on the SME exchange is Rs 117 per share and apparently there is a grey market premium of 72%, according to MoneyControl.
Or the other way, investors have lost their collective heads and are now indulging in casino-grade punting like there is no tomorrow.
The answer may be somewhere in between.
Pranav Haldea of Prime Database tells me that last year, the average listing pop was 77% which means people who got shares in IPOs could sell at a 77% gain in the last financial year.
Which not only means that people are making some cool returns in a short period of time but also that others are buying in at that point hoping for even greater returns.
And in many cases, all parties are ending up satisfied, going by the data.
Moreover, Pranav tells me in our conversation that is coming up, in 2019 the SME exchange used to see an average 408 applications per IPO while this year, the average is running at 2.13 lakh or 213,000 applications per IPO, including of course our friendly motorcycle dealer.
Overall, the IPO market is likely to see amongst the highest raises ever and definitely more than in recent years.
And there is more to come, some 44 companies could raise around Rs 100,000 crore if all filings get cleared and they decide to hit the market this year.
There is a market and there is the ease of access to it.
Investing in IPOs like in many other segments of the market is via a swipe on the mobile phone.
Many investors are, like everywhere else, first timers and have got into the game only post Covid.
The lure of easy returns has only increased as anecdotal evidence piles up with most IPOs doing well and then shooting up further.
It takes a year for investors to figure that the stock they had bought with such glee was a fundamentally weak proposition to start with.
PayTm or ONe97 was offered around Rs 2080 per share, listed around Rs 1,950 in November 2021 and has never seen that level again, it's now down 65% since listing.
Nykaa listed a few days before PayTM at Rs 2,001 on the BSE, at a premium of 78% over the issue price of Rs 1,125, was down to Rs 406 in a few days and now quotes around Rs 226.
There are and will be several more examples.
I just took the two examples for which there will be recall.
SME IPOs are regulated by stock exchanges and Sebi does not play a role, unlike in the larger mainboard or larger IPOs. And the exchanges have been tightening the norms gradually.
The problem is very fundamental. There is little connection between the person who takes a punt with a swipe on the mobile phone and an equity market cult which has the larger objective of mobilising capital for productive use.
To be fair that is happening too. But at a level that has now entered a red zone.
We spent the many years before and into Covid inviting savers to invest in mutual funds in specific and the markets in general.
With high inflation and incomes not meeting aspirations, savers young and old are crowding into stock markets in desperation.
WIth the hope and aim that small bets are okay because the returns are high.
We have to now create more barriers to quick, app-based investing and educate investors to think more long term and see the stock markets as a longer term arena.
For it is they who will suffer when they are caught out as surely will.
And then the blame game starts, as it did when Nykaa’s share price slipped.
It's tough to preach free market dynamics to first time investors who were in it for a sure shot, short term gain.
That is the feature of every bull market everywhere, since time immemorial.
Headlines
Markets on steady upward trot for 9 straight sessions
Maruti says no inventory problem but the problem is larger
Zee and Sony say all claims on each other are off following failed merger, what this means for industry
Primary markets are overheated, what can be done?
Markets & More
It was yet another flat day which could set the tone for the current times since there are no major triggers either way on the horizon.
Remember, there is a lot of money flowing in but it is also going into primary markets.
The BSE Sensex closed at 81,711.76, up 13.65 points while the Nifty50 was up 7.15 points or 0.03 per cent higher at 25,017.75.
Despite the flat run, the Nifty50 has now risen for 9 straight sessions and is within sniffing distance of its record high.
Energy and consumer stocks fell even as financials did well, as a global rally kicked off by potential interest rate cuts has already slowed down thanks to rising tensions in the Middle East.
Domestic institutional investors have been buyers for 16 straight sessions, purchasing Indian stocks worth Rs 48,614 crore ($5.8 billion), Reuters reported, adding Asian stocks were weak even as Brent Crude held steady after rising last week.
Crude is over $80 a barrel now
Zee Entertainment stock was up around 12% after it announced that it settled a merger dispute with Sony. More on what that means and a quick look at the overall media sector shortly.
Maruti Says No Inventory Problem
India’s largest car maker Maruti Suzuki said its dealers held about 38 days of inventory in anticipation of the festival season, but this is expected to reduce to 10 days by the end of the year, its company chairman R C Bhargava told shareholders yesterday in a report in Business Standard.
Of course, this is not what the dealers are saying, who claim they are holding over 60 days of inventory.
The issue is not so much about whether it is 38 or 60 days in itself but the question as to whether demand is slowing down, which it evidently is, and by how much?
Or car makers have got their demand projections totally wrong.
Or in the case of Maruti specifically, maybe the inventory level is not that bad as the chairman suggests.
But that is not my sense.
The Maruti chairman also said he expected that demand for small cars, which had also slowed down, was likely to revive by March 2026.
Now this is where it gets interesting.
Maruti has been betting strongly on small cars doing well as a segment and that sounds logical. And perhaps that is the area where the vehicle pile up at dealers is higher.
“We firmly believe that low cost and small cars are necessary in our economic and social conditions. A temporary setback in demand is not going to change our strategy,." the Maruti chairman reiterated.
But data has been suggesting that people are actually not buying too many entry level cars because of the larger move towards premium products and challenges including getting loans at entry level segments.
This is the situation in low cost housing too by the way which has seen a dip in recent years.
Of course all this could change.
And do note that a pick up in the small car segment would suggest a much larger revival and shift in consumer behaviour from what we have been seeing in the last two years or so.
At this point, we don’t know how this will pan out.
All I would say is that the trend lines are much larger than just car sales.
Meanwhile, Maruti also said their first electric car will be launched in the next few months and would be exported to Japan and Europe and then brought into the Indian market.
Remember, Maruti, parent Suzuki, Toyota and others have been campaigning against full electric and pushing the hybrid cars instead, a strategy which of course has worked very well globally, including India.
Zee And Sony Split Is Done
Zee and Sony have reached an agreement to amicably resolve all their disputes following the calling off of a $10 billion merger between the two.
The merger was called off around January this year after being in the works for almost two years.
The result would have been a network with some 90 channels across entertainment and sports taking on Disney and Reliance who are of course set to merge now and more on that shortly.
Zee had then responded to the move by sending a notice to Sony asking for damages.
Sony had said it pulled out because it reportedly had more than 20 compliance issues with Zee.
Zee’s founders and promoters were investigated for diverting company funds by Sebi around the time the merger process was on.
Zee’s stock was up 10% so the markets received the news well though it would appear that both companies still need to find their footing for a new or renewed beginning.
The reason they were exploring merging, among other things, was obviously a market that was screaming for consolidation in the media.
I reached out to Karan Taurani, Senior VP of Elara Capital and media analyst and began by asking him where do Zee and Sony stand now and what does this say about the overall state of consolidation in media in India and of course the near future.
INTERVIEW TRANSCRIPT
Karan Taurani: So I think Officially, the merger was called off in the month of January. And I think, you know, this is just an addition to that. This will provide a respite to see, in terms of, you know, their valuations. This will provide them some kind of a headroom to potentially, you know, look out for another strategic partner, if at all, you know, they are in process of that. And in terms of Sony as well. You know, things are setting quite clear. It will probably help them also to find another strategic partner, in case they are so it's the end to the Zee-Sony story, and both these companies will now look at the future ahead with a new potential partner, or looking at, you know, going to the market on their own. Right now.
Govindraj Ethiraj: I'm going to address the larger issue of consolidation, but in both these cases, the reason they were coming together to merge was because they were being driven by certain macro factors. So where do those stand today? And can either of these companies survive on their own? Or, as you said, they will have to go and seek fresh partners.
Karan Taurani: So, you know, the major reason for doing the merger was, of course, you know, the converging growth rates in the linear TV side, digital seeing heavy content investments and, you know, hefty losses. So the logical reason to do this merger was to build synergies, to build synergies on revenues, to kind of go to market together, get better ad pricing, get better revenues on subscription side, to kind of get, you know, cost savings, which could lead to synergies as well on both technology, content and employee expenses, everything put together. So that was the entire rationale of, you know, doing this merger, so that they could grow at a faster pace, gain more market share, gain more clout in the market. Now, with the merger being called off, clearly, you know, they can obviously survive individually as well, you know, in terms of both these companies, but they may not be able to gain market share, they may not be able to see acceleration in terms of their growth rate. So I think those challenges and issues will persist. So in case, you know, they want to accelerate, and in case they want to kind of increase their momentum in terms of market share gain, they will need to tie up with the partner. Now the next question is that, who is the partner? I don't think there's any partner available now because of, you know, RIL-Disney already in talks. These two were the other two last players in the market today. So if this deal is not happening, eventually they don't have a partner, so they might look at, you know, probably, you know, getting some kind of a strategic partner, getting some kind of a funding, or getting some kind of a, you know, acquisition of a smaller company put together, but this was supposed to be like a very big powerhouse company which could kind of compete with the might of RIL-Disney. So both these companies, working individually, will not be able to compete in a same manner as they would have had the merger, it would have happened.
Govindraj Ethiraj: You touched upon Reliance-Disney. So where does that stand now? So they had some feedback, we understand from the competition Commissioner saying that, you know, they'll have to shed some businesses and and come back with a fresh proposal. So where does that stand? And, of course, the next question is, where does the whole sector stand at this point.
Karan Taurani: So I think in terms of RL Disney, you know, the CCI approval process was bound to take time. I think, you know, you have to, you know, articulate the fact here is that both these companies have got a strong market share, viewership share across multiple genres. So if you look at the GEC genre, they would have a ad revenue market share of, you know, more than 40% on the linear TV side. If you look at the OTT market again, with both these platforms coming together, they will control about, you know, 35% of the India's OTT market as well. So I think given the kind of size and scale, like, if you look at sports genre, for that matter, they would have a command of more than 80-85% of India's, you know, sports ad revenue. So I think it's quite logical that these kind of obstructions will happen. But net, I think, you know, there's a very high likelihood of this, you know, merger going through. I think on the GEC side, or the OTT side, they might have, you know, kind of shed some assets, or some smaller channels wherein there's a very big overlap, or the market share is more than 40% 50% rather. And on the sports side, their market share is about 80-85% now you're, I don't see them kind of shedding away in terms of their content, because sports is a very different kind of a proposition. You don't own the sports content on a permanent basis. You know, the renewals happen for these kind of lights every four years, five years. So, you know, this kind of market share cannot, you know, persist forever for them. That's the first point. Second point is, of course, you know, you probably these platforms are making empty losses. So you know, if at all, they are kind of stopped from bidding in terms of sports rights, the rights value will not be correct or will not be fair, right? So I think there has to be some legal ego through this. And I think the teams will be working very closely, you know, to kind of sort this issue as well. But high probability, I think the merger will eventually go.
Govindraj Ethiraj: Yeah, and it's interesting that you say the area where they have the maximum, let's say market share, is the one area that may not be touched. So anyway, let me pose the slightly even larger question then. So when you take a step back, how is the media and entertainment sector looking like? Is it in flux? Is it muddled? Is there chaos? Where is it right now? And obviously all of this is in context of revenue that there is and the number of players that there are.
Karan Taurani: Yeah. So I think if you look at the media industry of look at it from two perspectives. One is on the traditional side, and the other than digital side, the traditional side, it's a good business with, you know, very good premium margins, maybe 25-30% EBITDA kind of margins. But the growth rates have converged, you know, to about 3-4, 3-5% which is phenomenally low. So in terms of ROI return investment, you will hardly see any returns from here on going ahead, or any uptake in terms of valuations. So that's been a major problem on the digital side. Again, the growth rates are premium 15% 20% in more than that in certain cases. But again, there is no margin. You know, most of the all OTT platforms, rather than India, are making losses because of hefty content costs, high technology costs, everything put together. So on a nutshell, I think you know, what you'll see is that, you know, growth rates will be in the range of about 7 to 10% for the media industry, for the larger players, which are there, and margins will constantly be under pressure or remain as stable levels. We may not see, you know, kind of big margin improvement because of heavy content cost investment, which will always keep on coming. So typically, you will see margin improvement for large players like maybe RIL Disney, because of synergies, because of route to market together, because of lower distribution costs, lower content costs, lower technology cost. But otherwise, if standalone players like Zee and Sony operating, they will constantly be margin pressures because of larger players like RIL-Disney competing hard with them, and they not able to, you know, being able to scale up, you know, beyond the point.
Govindraj Ethiraj: Got it. Thank you so much for joining me.
Karan Taurani: Thank you so much.
Primary Market Goes Haywire
It's not just Indian investors. Even foreign investors, according to a Reuters report quoting Central Depository Services numbers, have bought $1.47 billion of issuances in the primary market even as they have net sold $3.5 billion of equities in the secondary market.
The stock markets are booming and the primary markets are at levels that would be best termed stratospheric.
I spoke to Pranav Haldea of Prime Database, the country’s best known data integrator on primary markets for over 3 decades and began by asking him how he was seeing the froth in the market and also where the overall market for issuances stood right now.
INTERVIEW TRANSCRIPT
Pranav Haldea: We'll start with the main board IQ segment. And you know, as we speak, in this financial year, you had 28 IPOs already, close to 40,000 crores has been raised, and we are at the end of August right now. In comparison to previous years. Of course, it's early to say, but indications are that I think we might be heading for the best ever year in terms of main board IPOs. Just for some context, last year you had 76 IPOs raising about 62,000 crores. And the year before that was 37 IPOs raising 52,000 crores. But of course, you need to remember that in 2022 23 we had the mega LIC IPO as well. If one were to exclude that, then you know, only around 30,000 crores worries. The reason I see that we could be heading for a record year is because of the pipeline. Which is there? One interesting part which I would like to mention, of course, is something which I have never seen in 20 years in the primary market, which is actually IPOs getting launched during election months of April and May. You know, we looked at the data going back to 2004 election cycle, and 2004, 2009, 2014, and 2019. You didn't have any IPO during April and May, given the volatility which is typically associated with elections this year, of course, you know there was a lot of prediction for a certain result which ultimately did not bear fruit, but you saw required IPO activity in the months of April and May, you have seven IPOs raising close to 15,000 crores, then itself. And then, of course, you know, after that, election event has gone by. And more recently, the budget event has also gone by. You've seen more and more issuances hitting the market. Even as far as the pipeline is concerned, there are 22 companies which are sitting with SEBI approval, looking to raise close to 20,000 crores. Of these is the mega issue of Bajaj housing, which is going to be close to a billion dollars. Apart from this, you have another 44 companies looking to raise close to 100,000 crores, which is a huge figure. Of course, all of this may not materialize. And this includes the mega issue of Hyundai Motor, which is expected to be, you know, launched later this year, which is likely to be in the range of around $3 billion we also had the Sugi IPO, which is quite anticipated, and then other few large IPOs, like Vishal, Mega Mart, Niva, Bupa, some of these companies which have been, you know, creating Sebi approval. The filings continue. So, you know, just after the budget, and in August you've seen, you saw 16 filings in July, 17, in August, and there are several other companies which are in the pipeline. So I think the pipeline looks extremely strong. So this is, of course, the supply part. And as far as the demand is concerned, as you know, not just the primary market is shown, but even the secondary market has shown. Over the last couple of years, there seems to be no dearth of demand. You know, whether it is individual investors, retail investors, or HNIs or on the institutional side, and there, you know, the dependence that the primary market, or even the secondary market in India, which has had on foreign investors, has significantly reduced. And this has, you know, been in line with the growth of the domestic asset management industry, the domestic mutual fund industry, who are, you know, become big players in both primary and secondary market. And our issuers and investor issuers have the confidence that they can launch issues and the issues can go through just with the support of domestic industry.
Govindraj Ethiraj: Got it okay. So this is the main board space, and some of the fraught and therefore concern seems to be clearly in the SME space, which, of course, is supposed to be a more liberal platform, but that liberal-ness means also that things get in which maybe are not fully ready or maybe a little tricky for investors. What's your sense there?
Pranav Haldea: You know, it's been a bit of a mixed bag, and you've seen a lot of regulatory action against some of the SME companies off late, as well. Some additional regulatory guidelines have come out from the stock exchanges. Some warnings have been issued from Sebi. So of course, it's not to say that all companies need to be painted the same brush, but it's been a bit of a mixed bag. Investors, in my view, need to approach this segment extremely with a lot of caution. You know, of course, we know that a lot of investors, especially retail investors, are coming into IPOs, whether main board or SME, from a listing point of view. And you know, here's an interesting statistic for you, that in 2024-2025 the average listing gain of an SME IPO has been 77% this is, you know, the crew calculated on the closing price on the day of listing. Now that's a huge return. Now, the other interesting data point here, which I would also like to quote here, is the number of retail application in the SME segment. And, you know, in 2019-2020 financial year, the average number of retail applications was just 408 in SME IPOs, just 408 per issue. This number in the current year, 2024-2025 is already at 2.13 lakh. This an average. So what? What I'm going to say is that, on an average in an SME IPO, about 2.13 lakh investor are investing. Of course, why are they investing? Because they're getting attracted by the huge listing gains which they are seeing. To examine these companies, not coming from a listing gain point of view, but you know, study the company, study its business, study the promoters, its governance, and only then invest in this particular sector.
Govindraj Ethiraj: We have a free market for issuances given, obviously, with some factors constant in terms of meeting all the requirements of disclosure and so on. But the SME thing, of course, as in any bull cycle, throws up some interesting examples. The latest one being a small two wheeler dealership in Delhi, which is on this thing. And there seems to be very little fundamentals. I mean, it's a dealership at the end of the day, there's no real asset there, but, and maybe it's a good business too. So what could an investor look for? I mean, what's the one metric you would say, Okay, look for this. If you don't find this, then move on. I mean, not that they'll listen to you, but you know.
Pranav Haldea: Well, so you know, of course, this particular company has been all over the news today, I think since last night. Look, you know, my view is that I think the number which is being floated around is that it got 400 times subscribe. The point actually, which I wanted to make was that, you know, these SME issues, as you know, are very small issues. This particular issue, also which is being spoken about, is just a 12 crore issue. So, you know, given the number which I gave earlier, which is 2.13 lakh, let's assume that even this issue about 2.13 lakh applications. That shows, you know, a lot of retail interest coming in. And hence, even a 400 times subscription is not something really to be alarmed about, because the issue size is very small. In fact. Again, for 2024-2025 on an average, every single SME IPO, you know, the average over subscription has been 200 times in this year. So 400 Yes, of course, it's double, but it's not something which is, you know, out of the park completely.
Govindraj Ethiraj: You said, the average over subscription has been
Pranav Haldea: 200 times for over 105 SME issues that we've already had in this financial year,
Govindraj Ethiraj: Right. You're saying that there is nothing that can be done to, let's say, either make investors aware or to maybe check the IPO before it gets, you know, put out into the market by the regulator. Or, let me put it differently, is there a need for greater regulatory intervention when, particularly when it comes to the more frothy kind of IPOs?
Pranav Haldea: Well, yes. And I think both the regulator and the exchanges are looking at this space closely, of course, you know, there's a different process for SME, IPOs versus the main board. IPOs, they don't require an approval, so to speak, from Sebi. The approval comes in from the exchanges, and exchanges are also, you know, free to shape the guidelines. In fact, I think couple of days back, you also saw something coming out from NSE, wherein they have prescribed further limit for SME IPOs hitting from first September, if I remember correctly, of course. You know, the other aspect is that these are small companies. There is relatively lesser information about these companies in the public domain. So the advice would be, you know, in fact, similar to whether it's an SMB IP or a main board IP, which is, you know, you need to understand whether you're coming in from a long term investment point of view or just from a listing gain point of view. Right now, SEBI itself put up very interesting statistics at the beginning of the year, wherein they said that three out of four individual investors actually move out of the IPO within a month of listing, which actually shows that, you know, most of the individual investors are primarily coming from a listing point of view. In that case, you know, in a secondary market, you historically seen that the chance of getting a listing gain is reasonably high. And I think what you are seeing is essentially that playing out, which is, you know, retail investors are essentially investing in every single IPO which is coming out, hoping that they get some allotment. You know, obviously you have the kind of subscription that you're seeing allotment is not a sure shot. In fact, the other you know, given the annotation methodology, at most, in a lot of main board IPOs, you will get one lot, which is worth 15,000-20,000 rupees. So actually, it is not significant in terms of moving the needle. But what you're seeing is essentially, you know, individual investors. And this has been made even easier because of various apps which are available, wherein, in a matter of two or three clicks, you can invest in an IPO, unlike the earlier time, where you have to get the form, fill it, give a check, so on, so forth. So it becomes so simple. So what you're seeing is, you know, investors investing into every single IPO, hoping they get an allotment. If they get the allotment, this side premium and then liquidating.
Govindraj Ethiraj: Yes, and it's interesting, because when you say that it popped at 77% on an average, or has been in the last year, it also means that people are buying at that point hoping for a further appreciation for that same IPO.
Pranav Haldea: Yes, absolutely. And I think that's where you know, the regulators and exchanges need to look more closely in terms of who are the investors at the time of IPO, and who are the subsequent investors? They, of course, have all this data. You know, is it that the price is being driven up by a limited number of you know people, and then you know, the shares are being offloaded to undoing public the other you know, important point to be kept in mind here is also that a lot of investors in India have actually come to the capital market only in the last three, four years. As you know, the numbers have Sure, and hence they don't they are not aware of the kind of shenanigans which have played out in the markets over the years. They would be even more gullible, so to speak.
Govindraj Ethiraj: Right. Pranav, thank you so much for joining me.
Pranav Haldea: Pleasure. Thank you.