Despite stock market volatility and a negative return of 9.4 per cent from the Sensex, 2015-16 saw good participation in new equity issuances and companies raised a total of Rs 48,952 crore through various instruments, says a report.
“In financial year 2015-16, a total of Rs 48,952 crore was raised through various equity market instruments including initial public offers, qualified institutional placements, follow-on public offers and offers-for-sale,” a report by Centrum Wealth Research said today.
This was, however, lower than Rs 58,801 crore raised in fiscal 2015.
IPOs garnered Rs 14,772 crore in fiscal 2016, a massive leap from Rs 2,769 crore raised in the previous fiscal.
Money raised through QIPs stood at Rs 14,438 crore, lower than Rs 29,102 crore in the last fiscal, but rights issues raised Rs 8,785 crore, a 30 per cent jump from Rs 6,750 crore in FY15.
Despite the turmoil, the BSE IPO index performed relatively better than the benchmark Sensex. In 2015-16 fiscal, the Sensex shed more than 9 per cent, while the BSE IPO index was down only 1.8 per cent.
“While the year was good in terms of quantum of money raised and out performance of the IPO index, it turned out to be a mixed bag in terms of individual stock performances,” the report titled ‘Performance of New Equity Issues in FY16’ said.
Shree Pushkar Chemicals was the biggest gainer with an over 100 per cent return from its offer price, followed by VRL Logistics which gained 81 per cent.
Dr Path Labs, Syngene and Manpasand Beverages were all up 45-65 per cent each. Amongst the key drags were MEP Infra, UFO Moviez, Quick Heal and Coffee Day, that were down 30-40 per cent each.
“Even though new equity issuances witnessed robust participation in FY16, the Indian IPO market had to go through a slump at the start of 2016. This was in line with global IPO activity, which saw a sharp drop in Q1, 2016 led by worldwide economic slowdown,” the report added.
On the future outlook, the report co-authored by Sweta Chawla and Siddhartha Khemka said, “Central banks across the world are likely to maintain an accommodative monetary policy through the year and that should help check global market volatility. Earnings are expected to show an improvement in the second half of the year.
“A lot will depend on monsoon though. An overall positive market sentiment will keep the interest alive in primary market issuances and we could see lot more money raising.”
Jumping on to the startup bandwagon, Kerala based private sector lender Federal BankBSE -1.38 % is opening incubation centres in Bangalore and Ernakulam exclusively for startups. These would be specialised lounges within Federal Bank branches meant for funding advisory, regulatory support and if required even for direct investment.
“We have a dedicated startup fund worth Rs 25 crore which we would like to use to fund or lend to promising startups. These lounges, named Launchpad, with fast internet connections, support staff from the financial world and advisory mechanisms would be the perfect breeding ground for future entrepreneurs,” said Shyam Srinivasan, managing director, Federal bank.
The lounge would be manned by bank officers who would be capable of dealing with the financial requirements of the startups as well as local specialists who would be able to advise on regulatory issues that entrepreneurs need to handle.
“We are talking to 3 or 4 startups daily. The challenge for a bank is to move away from a conservative credit mind set to a more entrepreneurial mind set and to accept the fact that out of 40 or 50 investments only one might take off. So even we are in the process of understanding how to engage with startups better,” he said.
The bank follows the footsteps of HDFC Bank and Bank of Baroda to integrate their platform with mobile payments application Chillr. The addition that Federal Bank brings to the Chillr app is that they would allow even non Federal Bank users to instantly open a Federal Bank account through a selfie and Aadhar identification number and allow them to receive payments through Chillr.
“This is just another offer in the suite of offerings for the customer. We are in the major discovery process slowly there would be convergence in this field,” said Srinivasan.
NTT Data Corp, a unit of Japans former telephone monopoly, agreed to buy technology services businesses from Dell for $3.055 billion.
The acquisition was announced by the unit of Nippon Telegraph & Telephone Corp in a statement to the Tokyo Stock Exchange Monday. The company didn’t give a date for when it will acquire the Dell units.
NTT Data will acquire the divisions to strengthen its footprint in North America, and enhance cloud service and business-process outsourcing, or BPO service, according to its filing. The company will hire the 28,000 employees located mainly in North America and India from Dell, according to the statement.
The acquisition would be NTT Data’s largest, helping increase its sales outside Japan, where a shrinking and aging population has stymied economic growth. Dell, which paid $3.9 billion for what was formerly known as Perot Services in 2009, is selling some assets before completing a record deal – the $67-billion takeover of software and storage systems provider EMC Corp.
Dell plans to sell the division as part of a wider effort to raise as much as $10 billion from the disposal of assets that aren’t core to its business, Re/code reported earlier.
NTT Data has spent more than 72 billion yen ($634 million) buying companies since 2011, about 62 billion yen of it outside Japan, according to data compiled by Bloomberg. Overseas sales had risen to 450 billion yen by the year ended March 31, 2015, compared with more than 208 billion yen in the 12 months to March 2012.
Global rivals of NTT Data including Cognizant Technology Solutions Corp, Tata Consultancy Services Ltd and Atos SE had also previously participated in an auction for Perot Systems that failed to generate a deal, according to the Nikkei, Reuters and the website Re/code, which all cited people familiar with the matter.
The NTT unit has spent more than 72 billion yen on buying companies since 2011, about 62 billion yen of it outside Japan, according to data compiled by Bloomberg. By the year ending March 31, 2015, overseas sales had risen to 450 billion yen, compared with more than 208 billion yen in the 12 months to March 2012.
“Perot Systems has a large base of US clients in medical and other markets, so it fits NTT Data’s strategy to increase its presence there,” Hideaki Tanaka, an analyst at Mitsubishi UFJ Morgan Stanley, said before the deal was announced. “NTT Data can win big contracts in Japan, but in the US, it is less well-known.”
The systems unit of Japan’s former telephone monopoly has more than doubled in market value since 2011 on rising sales to financial and health care businesses using the company’s data centres and software. Profit will probably surge 85 per cent to a record 59.6 billion yen for the year ending March 31, according to average analyst estimate.
NTT Data services are used at hundreds of hospitals and thousands of health care facilities in the US, according to the company’s website.
The Tokyo-based company provides software and systems for functions including electronic medical records, surgery management, billing, insurance claims.
NTT Data cash, near cash and short-term investments stood at 183.1 billion yen as of Dec. 31, according to data compiled by Bloomberg.
Dell acquired Perot with plans to expand in the fast-growing market for data services. Perot was built H. Ross Perot, the billionaire who ran for US president in 1992 and 1996, and sold his first major company Electronic Data Systems to General Motors for $2.5 billion in 1984.
Dell’s Perot unit has won government contracts for health care IT services and work for the Defense Department, NASA, Homeland Security and Education departments.
Domestic investors have a lot to learn from their foreign institutional counterparts, who seem to have mastered the art of timing, raking in the moolah in the midst of market volatility.
On the other hand, domestic investors mostly buy when foreign institutional investors (FIIs) are booking profits at higher valuations, limiting their own upside.
For example, in the current rally, most of the FII purchases were in 2012 and the first half of 2013, when the price-to-earnings (PE) multiple of BSE 500 companies had hit a multi-year low.
In contrast, most of the accumulation by domestic investors, through mutual funds and insurance companies, occurred in 2015 when BSE 500 companies were trading at a multi-year PE high. FIIs accumulated India’s top-listed companies at an average valuation of around 16 times and offloaded it to domestic investors at around 24 times their value (see chart).
In all, FIIs’ stake in BSE 500 companies was up 550 basis points between March 2012 and March 2015, at an average PE of around 16 times the companies’ combined trailing 12-month net profits. FIIs stake peaked in the March 2015 quarter, coinciding with the peak in valuations of BSE 500 companies. One basis point is one-hundredth of a per cent.
The analysis is based on the end-of-quarter shareholding pattern, market capitalisation and quarterly net profit of BSE 500 companies, beginning the March 2006 quarter. The sample is based on the data for 358 companies where the data is comparable across the period.
Analysts attribute this to the steady nature of fund flows FIIs receive, while domestic institutional investors are at the mercy of inflows from retail investors, which tend to take place late in the cycle.
“When FIIs were buying in 2012-13, insurance companies and mutual funds were still facing redemption, forcing fund managers to sell their holdings even when the valuations were low. Inflows turned positive only in late 2014 and 2015, when domestic retail investors were convinced about the rally,” said Dhananjay Sinha, head, institutional equities, Emkay Global Financial Services.
In comparison, FIIs receive a significant portion of their funds from large institutional investors in Europe and the US, whose investment sentiment remains steady over a long period.
Others also point to differences in the investing styles of FIIs and their domestic counterparts.
“FII investments are largely fundamental and research-driven compared to domestic investors, most of whom tend to get swayed by market sentiment and herd mentality,” said G Chokkalingam, the founder and chief executive officer of Equinomics Research & Advisory.
This explains why a majority of domestic investors fail to make money in the market, he added.
A similar trend was visible in the rally before the global financial crisis, when FIIs were net sellers for nearly two years in the run-up to the September 2008 crash while domestic investors were buyers.
Despite the trends, some analysts differ.
Nitin Jain, the president and chief executive officer of global asset and wealth management firm Edelweiss Capital, said there is no evidence of domestic investors being less smart than their foreign counterparts.
“We should not paint all FIIs with the same brush. Investment flows from exchange-traded funds, which is retail money – as volatile and sentiment-driven as domestic retail and mutual funds flows. FIIs, on the other end of the spectrum, also get pension money and sovereign wealth funds, which are long-term and their investment style is similar to that of domestic insurance companies,” said Jain.
It is not only Uber, the American taxi-hailing app, that is going all guns blazing in India with massive investment plans. Its biggest competitor, Bengaluru-based Ola, as well as e-commerce entities Flipkart and Amazon, are all planning to pump in big money to stay ahead, even in a scenario when investors are not as ready as earlier in opening their purse-strings.
Uber India has readied itself for another $500 million (Rs 3,300 crore) investment in the next three months, reports suggest. The app service had only nine months earlier committed $1 billion (Rs 6,600 crore) in India. Uber could not be reached for a comment.
For foreign giants such as Amazon, Uber and Alibaba, this country is a big market they all want to capture. Experts believe this is a trend which will continue, as a global economic slowdown will push a chunk of new investments towards India.
“We can clearly see a slowdown in overseas markets, while India is still managing annual growth of seven to eight per cent. So, companies such as Uber, Amazon and Alibaba want to bet big on India. While Amazon was not able to make a dent in China and Alibaba in Europe, they do not want to lose out on India. We will see this trend through the year,” says Amarjeet Singh, partner – tax, KPMG in India.
Ola, rival of Uber in the same segment, is on track to invest a chunk of its $1.3 billion (Rs 8,650 crore) capital raised so far. The firm recently announced it would invest Rs 200 crore in the Delhi-National Capital Region area over the next six months, “towards innovative green fuel technology, leasing of CNG cars and strengthening the system to catalyse greater CNG adoption in the region”, Rahul Maroli, its vice-president for strategic supply initiatives had said.
According to sources, Ola will further make strategic investments in all metro cities, as well as in Tier-II and Tier-III towns. “The company plans to add at least another 550,000 vehicles by the end of this year,” said one. Ola has at least 350,000 cabs and 80,000 auto rickshaws on its platform across 102 cities in the country.
American e-commerce major Amazon had said in October 2014 it was investing $2 billion (Rs 13,200 crore) in India. Later, its executives said the group had an open chequebook for the market. In February, it bought Noida-based payments services provider Emvantage, its first acquisition. This is aimed to help Amazon accelerate the development of payment solutions for customers.
As for Alibaba, the Chinese e-commerce giant, it already has a foothold in Indian e-commerce through its investments. The group is majority stakeholder in One97Communications, owner of mobile payments giant Paytm. Also, online marketplace major Snapdeal raised $500 million (Rs 3,300 crore) from a group of entities last year which included Alibaba.
The Chinese company now plans to directly enter India.
“We plan to enter the e-commerce business in India in 2016,” recently said J Michael Evans, group president. “We have been exploring very carefully the opportunity in this country, which we think is very exciting against the backdrop of (the) Digital India (programme of the government).”
Indian e-commerce giant Flipkart had, in March, infused Rs 338 crore into its online fashion store, Myntra, documents filed with the registrar of companies stated. Flipkart has so far raised $3 billion (nearly Rs 20,000 crore).
“All these developers face this threat, even if they have been paying interest on their loans. This will affect their credit worthiness for future bank loans.”
Investment of Rs 4,000 crore in wind energy projects is on the verge of becoming non-performing assets, as over 550 MW of projects that are ready to generate electricity are stranded because a state utility has refused to sign power purchase agreements (PPA) or issue commissioning certificates.
Projects of Tata Power, ITC, Jindal Steel subsidiary Maharashtra Seamless, Hero Future Energies, Green Infra Wind Energy and Continuum Wind Energy are facing the risk. “Wind energy projects, which do not start generating power within two years of taking loans can be declared ‘non-performing’ by the RBI,” said Sunil Jain, President, Wind Independent Power Producers Association. “All these developers face this threat, even if they have been paying interest on their loans. This will affect their credit worthiness for future bank loans.”
Project developers are waiting for action from the Maharashtra State Electricity Distribution Co Ltd (MSEDCL), which has refused to sign PPAs or issue commissioning certificates.
Jain said 364.15 MW of wind projects were ready in 2014-15 and another 192.05 MW were completed in 2015-16.
The distribution company defended its position. “We are working in accordance with the state’s new renewable energy policy,” said MSEDCL Chairman Sanjeev Kumar, unwilling to go into details. The Maharashtra Energy Development Agency (MEDA), which handles nonconventional energy in the state, did not respond to queries.
Maharashtra released a new renewable energy policy in July last year, which said “a total of 5,000 MW capacity of wind energy projects shall be commissioned. Out of that, an initial 1,500 MW will be used to fulfill RPO (renewable purchase obligations) of distribution companies, and the rest, 3,500 MW capacity of wind projects, can be utilised as open access for inter-state/ intra-state open access/captive consumption/REC (renewable energy certificates), etc.”
MSEDCL, however, has conveyed to developers that the 1,500 MW of installed capacity from which it will accept wind power, will be from 2011 and not from the time of release of the new policy. Between 2011 and July 2015, when the new policy was unveiled, MSEDCL had already signed PPAs for around 1,000 MW of wind power, which meant it would accept only 500 MW more.
In practice, it has not done even that, developers said. “Not a single PPA with a wind energy producer has been signed since the new policy came out,” said Jain. “Besides, it is absurd to apply a policy retrospectively. We have projects ready to start generating at the press of a button, but we are not being allowed to do so.”
As of December 2014, Maharashtra had 3052.7 MW of installed wind capacity.
Panel has sought the overhaul of the bankruptcy framework to allow the speedy winding up of failed businesses to protect shareholders and lenders, aiming to modernise an outdated system.
A government panel has sought the overhaul of the bankruptcy framework to allow the speedy winding up of failed businesses to protect shareholders and lenders, aiming to modernise an outdated system that drags out closure proceedings.
It has recommended new institutions and structures for a fresh regime that will encourage entrepreneurship and foster a startup culture, among the stated objectives of the Narendra Modi administration. The government has indicated it will move a Bill in the winter session of Parliament to give effect to the recommendations, addressing one of the key issues that has kept India low on the ease of doing business rankings.
The Bankruptcy Law Reform Commission headed by former law secretary TK Viswanathan has proposed insolvency resolution within 180 days and a new regulator to oversee the process. It’s also laid down a clear and speedy system for early identification of financial distress and revival of companies.
The timelines are on par with international norms for insolvency resolution. “The endeavour would be to introduce the Bill in the next session of Parliament,” Finance Minister Arun Jaitley said at the World Economic Forum in the Capital on Wednesday. Viswanathan submitted the report to the minister later in the day. The report, along with the draft legislation, has been made public for feedback. “The Bill seeks to improve the handling of conflicts between creditors and debtors, avoid destruction of value, distinguish malfeasance vis-a-vis business failure and clearly allocate losses in macroeconomic downturns,” the report said.
The World Bank has ranked India at 136 out of 189 countries in ‘resolving insolvency,’ estimating that it takes 4.3 years on average in Mumbai to settle a case.
Jaitley had identified bankruptcy law reform as a key priority for improving ease of doing business in his February budget speech. He said that a comprehensive bankruptcy code, meeting global standards and providing the necessary judicial capacity, would be unveiled in the fiscal year. Under the current system, proceedings take several years, hurting investors and lenders besides costing taxpayers crores of rupees.
Banks are groaning under bad debt stemming from projects that have got stuck, drawing the Reserve Bank of India’s concern. “We need a bankruptcy code. We need equity to be seen as equity and debt to be seen as debt. Today there’s a lot of confusion… We need that confusion to be changed,” RBI Governor Raghuram Rajan has said previously.
90 Days for Key Categories. The prescribed resolution timeline of 180 days can be cut further to 90 days from the trigger date for key categories. The proposed insolvency regulator will cover professionals and agencies specialising in the field.
The proposals include information utilities that will collect, authenticate and disseminate financial information from listed companies. An Insolvency Adjudicating Authority will hear cases by or against debtors. The Debt Recovery Tribunal should be the adjudicating authority with jurisdiction over individuals and unlimited liability partnership firms, it said. The National Company Law Tribunal (NCLT) should be the adjudicating authority with jurisdiction over companies and limited liability entities, it added.
The draft bill has consolidated existing rules relating to insolvency of companies, limited liability entities, unlimited liability partnerships and individuals, all of which are currently scattered across a number of laws, into a single legislation.
According to the draft bill, during the transition phase, the Centre will exercise all regulatory powers until the agency is established. The panel’s report suggests that an insolvency resolution plan prepared by a resolution professional has to be approved by a majority of 75% of the voting share of financial creditors. As part of the insolvency resolution process, creditors and debtors will engage in negotiations to arrive at agreeable repayment plans.
The draft proposes that any proceeding pending before the Appellate Authority for Industrial and Financial Reconstruction (AAIFR) or the Board for Industrial and Financial Reconstruction (BIFR) before the new law goes into force should stand abated or stopped.
“However, a company in respect of which such proceeding stands abated may make a reference to Adjudicating Authority within 180 days from the commencement of this law,” the recommendation said, keeping in view continuity of the process. Minister of State for Finance Jayant Sinha said the required infrastructure needed to be put in place.
“We also have to ensure that necessary judicial capacity is available,” he said. “We also need to resolve many of the situations immediately because they are short of cash in most of these bankruptcy types of cases.” The minister said the government was trying to put together a comprehensive solution where “we can resolve default and bankruptcy cases as quickly and efficiently possible.”
Industry feels the new system will create a robust and globally competitive insolvency regime. This will significantly reduce the time taken for insolvency proceedings in India, which at present, on an average basis is estimated at about 4.3 years as against only 1.7 years in high-income OECD countries,” said Chandrajit Banerjee, director general of the Confederation of Indian Industry.
“The architecture proposed by the Viswanathan committee of establishing an insolvency regulator to have oversight of the new class of insolvency professionals, agencies and information utilities will enhance the systemic efficiency of dealing with insolvency cases in a timebound manner,” he said.
Despite stock market volatility and a negative return of 9.4 per cent from the Sensex, 2015-16 saw good participation in new equity issuances and companies raised a total of Rs 48,952 crore through various instruments, says a report.
