The markets had big swings intraday and also on closing basis all through the week. Clearly there was news flow to justify the same. The BSESENSEX ended the week with gains of 261.07 points or 1.03% to end at 25,489.57 points. NIFTY gained 81.45 points or 1.05% to close at 7,814.90 points.
The second part of the budget session of parliament ended with more legislative business being transacted than before. While the bankruptcy bill was passed the GST bill remained in limbo. The FM in an interview to All India Radio has said post the session that in the monsoon session of parliament they would call for a vote on the GST bill. I believe the idea is to call the opposition’s bluff on rejecting the bill.
The contentious issue of double taxation avoidance treaty with Mauritius has finally been amended. Capital gains arising out of investments made from 1st April 2017 would be taxed. While there may be some short term pain on this count, the flip side is that fresh investments are likely considering that the window remains open for over 10 months. Secondly the barb that the government does not clarify tax matters would be put to rest.
Taking advantage of the above SEBI has also said it would look at the issues regarding KYC of beneficial owners of P-Notes. Every time there is a rally in markets and one needs to derail the momentum the ‘bad word’ P-Note is used to kill the momentum. Hopefully if SEBI takes a strong stand even at the cost of killing the instrument it would be welcome as long as the stand is clear and final.
Another piece of news which dampened the sentiment was the fact that retail inflation has moved up. This would probably derail or delay the anticipated rate cut from RBI to well into the monsoon season when it is proved that they are a success and food prices would soften if not rise.
The primary market was where all the action happened. Monday saw the listing of Thyrocare Technologies which through a secondary offering had raised about Rs 475 crs in a price band of Rs 420-446. The issue was a resounding success and the leveraged HNI portion was subscribed a massive 225 times. The cost of funding was Rs 185-190 per share. The share listed at Rs 266 and very quickly weakened. The counter saw huge volumes of 155 lakh shares which was 1.45 times the IPO size and delivery volumes of 42 lakh shares which was 27% of the traded volume. This however translated into 39% delivery of the IPO and almost 56% if one considers the non-anchor portion where anchor is locked in for 30 days. The share performed well and even today trades around Rs 620-625 implying a gain of Rs 175-180 or almost 40%, but not enough for the HNI. While the issue was good, HNI’s lost.
The second issue to list was from Ujjivan Financial Services Limited which raised approximately Rs 875-880 crs through a simultaneous offer. The issue received excellent response and was priced at the upper band of Rs 210. In this issue FII’s were not allowed to participate. The leveraged HNI portion was subscribed 135 times and the cost of funding was between Rs 48-50. The greed of financers and HNI’s kept on rising and the rate of interest which used to be in the region of 7-7.5% was raised to 9-9.5%. The share listed on Tuesday and saw huge volumes of 579 lac shares which was 1.39 times the IPO size. The share debuted at Rs 227 on the BSE and Rs 231.90 on the NSE. Delivery volume was 165 lakh shares which was 28.54% of traded volume and 39.36% of the IPO size. If one were to consider the non-anchor portion the delivery volume was 56.22%. The share has been gaining from its listing day and the cost of funding is now almost in the price. However none of the leveraged investors survived to see this price.
The third issue was Parag Milk Foods Limited which had failed to garner subscription in the first attempt which ended on Friday. In the second attempt the issue was subscribed by QIB’s and it appears one of the anchor investors from the Far East was the subscriber. The price at which the issue would be subscribed is still not clear and it would be interesting the call the management takes on the issue.
Looking at the two issues which listed one wonders whether the regulator would take note of the happenings. The fact that the HNI is allowed to subscribe to the whole issue and not his own bucket, even though there is no spill over allowed from QIB portion is absolutely illogical. Whether the issue is 75% QIB or 50% QIB there is no spill over permitted in the category. Spill over if any is permitted from retail to HNI and vice versa. Therefore in the best case scenario the only thing that should be permitted is 50% in normal issues and 25% in those issues where QIB portion is 75%.
This change would reduce the distortion of demand to a great extent and also ensure that the rampant grey market which everyone is talking about will subside. Hope the regulator does something as in the present state there is only one beneficiary – The lender or the NBFC who lends the money and invariably happens to be associated with the merchant bankers.
