Here are some of the major updates that could move the markets on Monday:
Adani Group gets SEBI nod for open offer to buy stake in ACC and Ambuja
The Adani Group has made offers of Rs 385 per share for Ambuja Cements and Rs 2,300 a share for ACC. The company intends to buy a 26% stake in both cement companies respectively for an amount totalling ~Rs 31,160 crores. Adani will acquire the stake from Holcim Ltd after it announced to buy a controlling stake in Holcim’s India businesses.
IRCTC shares surge ~12% in two days after floating data monetisation tender
Indian Railway Catering & Tourism Corporation’s shares surged by nearly ~12% in the last two trading sessions after it floated a tender to hire a consultant to help it monetize its digital assets. The tender drew controversy as users questioned if IRCTC intended to sell private user data.
In response, IRCTC clarified as follows: “As a commercial entity, the company explores the business opportunities for new areas. As other business tenders, this tender has also been floated merely to appoint a consultant. The consultant will guide IRCTC and Indian Railways on monetization activities and advise on monetization value of Digital Assets by observing various Acts or laws, including IT Act 2000 and its amendments, User data privacy laws including GDPR (General Data Protection Regulation), and current Personal Data Protection Bill 2018 of India.”
India’s inflation target breach for first time in six years
India’s inflation has breached the upper tolerance limit of 6% for three consecutive quarters for the first time in six years. The RBI has decided to call a meeting after October 12 to discuss a report to be submitted to the Union Government explaining the breach. The limit of the inflation target is fixed every five years jointly by the RBI and the Union Government. Currently, the upper limit is fixed at 6%, while the lower limit is at 2% until March 31, 2026.
Syrma SGS Technologies IPO: GMP jumps 28% ahead of listing
Syrma SGS Technologies’ Rs 840 crore IPO got subscribed 32.61 times, whereas its retail portion was subscribed 5.53 times. The company’s shares are trading at a premium of 28% in the grey market, standing at Rs 35 per share. The tentative date for allotment of shares is August 23, 2022.
BSE’s market cap hits a new peak of Rs 283.5 lakh crore
Bombay Stock Exchange’s market cap has hit a new peak of Rs 283.5 lakh crore, with the SENSEX ending at 60,289 points at the day’s end. In January, the exchange had hit its last peak with a market cap of Rs 283.2 lakh crore. The rally in the previous two months is due to the net buying of Indian stocks by foreign portfolio investors
Government reviews windfall profit tax, RIL shares dip
On Thursday, the government increased the windfall profit tax on diesel exports to Rs. 7 per litre and reinstated a tax on jet fuel exports, although it decreased the tax on locally produced crude oil in line with softening rates. The tariff on domestic crude oil has been reduced from Rs 17,750 to Rs 13,000 per tonne.
Zomato-backed BlinkIt announces printout delivery to doorstep in 10 minutes
Zomato-owned quick delivery app Blinkit has started services to deliver printouts to your doorstep in just 10 minutes. Currently, the service is available in select areas of Delhi-NCR. It will charge an amount of ₹9 per page for black and white printouts, while ₹19 for colored. The service will now help users to get their documents printed and delivered quickly to their location by just uploading them on the Blinkit application
SBI shares dip after it sells KSK Mahanadi Power loan account to Aditya Birla ARC for Rs 1,622 crore
Aditya Birla ARC has purchased the KSK Mahanadi Power Company’s non-performing loan account from SBI for Rs 1,622 crore, taking an almost 58% haircut off the total outstanding balance in the process. As of April 2022, the total amount of loans still owed to the State Bank of India (SBI) by KSK Mahanadi Power Company was Rs 3,815.04 crore.
Passenger vehicle dispatches dip 4% in April: SIAM
Passenger vehicle (PV) dispatches from factories to dealers in the domestic market fell 4% YoY to 2,51,581 units in April. Two-wheeler sales increased by 15% YoY to 11.48 lakh units in April. Automakers are working hard to manage the supplier ecosystem with agility as supply-side challenges continue. The data was released by the Society of Indian Automobile Manufacturers (SIAM).
Dr. Reddy’s Labs to commercialise Tegoprazan in India
Dr. Reddy’s Laboratories Ltd. has entered into an exclusive partnership with South Korea-based HK inno.N Corporation for the supply and commercialisation of its patented novel molecule Tegoprazan. The drug is used to treat gastrointestinal diseases. Under this partnership, Dr. Reddy’s Labs will be responsible for local clinical development, registration, marketing, and sales of Tegoprazan in licensed territories.
Relaxo Footwear Q4 Results: Net profit falls 38% YoY to Rs 63 crore
Relaxo Footwear Ltd reported a 38.41% YoY decline in net profit to Rs 62.93 crore for the quarter ended March (Q4 FY22). Net profit fell 10.2% when compared to the previous quarter. Its revenue from operations fell 7% YoY to Rs 698 crore during the same period. EBITDA stood at Rs 111 crore in Q4, down 32% YoY. Relaxo Footwear’s board has declared a final dividend of Rs 2.5 per share.
LTI launches Innovation Studio for SAP Business Tech Platform
Larsen & Toubro Infotech (LTI) has launched its LTI Innovation Studio for SAP (System Applications & Products in Data Processing) Business Technology Platform. It helps global organizations accelerate their transformation journeys. The platform supports businesses in realizing the vision of an intelligent enterprise and enables them to amplify value from their digital core investments.
Orient Cement Q4 Results: Net profit falls 26% YoY to Rs 73 crore
Orient Cement Ltd reported a 26.67% YoY decline in net profit to Rs 73.23 crore for the quarter ended March (Q4 FY22). Net profit rose 67.7% when compared to the previous quarter. Its revenue from operations fell 3.34% YoY to Rs 803.86 crore during the same period. EBITDA stood at Rs 153 crore in Q4, down 24% YoY. The cement manufacturer’s board has declared a final dividend of Rs 1.75 per share.
Alembic Pharma gets final USFDA approval for Arformoterol Tartrate inhalation solution
Alembic Pharmaceuticals Ltd has received final approval from the US Food & Drug Administration (USFDA) for its generic version of Arformoterol Tartrate inhalation solution. The drug is indicated for long-term treatment of bronchoconstriction in patients with chronic obstructive pulmonary disease. As per IQVIA data, the inhalation solution had an estimated market size of $251 million for the 12 months ended December 2021.
Balaji Amines Q4 Results: Net profit rises 28% YoY to Rs 108 crore
Balaji Amines Ltd reported a 28.67% YoY increase in consolidated net profit to Rs 108.72 crore for the quarter ended March (Q4 FY22). Net profit rose 21.4% when compared to the previous quarter. Its total income rose 87% YoY (or 38% QoQ) to Rs 781.15 crore during the same period. The chemical manufacturer’s board has declared a final dividend of Rs 6 per share.
Texmaco Rail secures order worth Rs 6,450 crore
Texmaco Rail & Engineering Ltd received an order worth Rs 6,450 crore from the Indian Railways. The order entails the delivery of 20,067 wagons to be executed over a period of 39 months. Texmaco Rail is a multi-discipline, multi-unit engineering and infrastructure company based in Kolkata.
Kalyan Jewellers Q4 Results: Net profit falls 2.55% YoY to Rs 72 crore
Kalyan Jewellers Ltd reported a 2.55% YoY decline in consolidated net profit to Rs 72.29 crore for the quarter ended March (Q4 FY22). Net profit fell 46.2% when compared to the previous quarter. Its revenue from operations fell 6.53% YoY to Rs 2,857.06 crore during the same period. EBITDA stood at Rs 218 crore, down 4.39% YoY. The company’s e-commerce division Candere reported revenue of Rs 39 crore in Q4, registering a growth of 77% YoY.
BSE Q4 Results: Net profit jumps two-fold to Rs 71.5 crore
BSE Limited reported a two-fold YoY jump in net profit to Rs 71.52 crore for the quarter ended March (Q4 FY22). The exchange’s revenue from operations rose 34.4% YoY to Rs 204.59 crore during the same period. The company posted a 73% YoY increase in net profit to Rs 244.93 crore for FY 2021-22. Revenue stood at Rs 743.14 crore in FY22, up 48% YoY. BSE’s board has declared a final dividend of Rs 13.5 per share.
OMCs sign purchase agreement for upcoming dedicated ethanol plants
Leading oil marketing companies (OMCs), including Bharat Petroleum Corporation Ltd, Indian Oil Corp Ltd, and Hindustan Petroleum Corp Ltd, have entered into a long-term purchase agreement (LTPA) for upcoming dedicated ethanol plants across India. Ethanol produced by these plants will be sold to OMCs for blending with petrol as per the Centre’s Ethanol Blended Petrol (EBP) program.
Nestle India Q4 Results: Net profit falls 20% YoY to Rs 387 crore
Nestle India Ltd reported a 19.9% YoY decline in net profit to Rs 386.66 crore for the quarter ended December (Q4 CY21). The company follows the January-Dec financial year cycle. Its revenue rose 9% YoY to Rs 3,739.32 crore during the same period. EBITDA stood at Rs 865.6 crore, up 11% YoY. The FMCG firm reported a one-time loss of Rs 236 crore due to past service costs. Nestle India’s board has declared a final dividend of Rs 65 per share.
Purvankara to invest Rs 1,550 crore in Kochi realty project
Puravankara Ltd will invest over Rs 1,550 crore to construct a 3 million mixed-use project at Kochi, Kerala. It is part of the realty firm’s plan to expand business amid the rise in demand for apartments post the second wave of the Covid-19 pandemic. The company is expecting a sales realisation of ~Rs 3,000 crore from this project over the next 6-7 years.
Reliance Jio lost 1.29 crore wireless subscribers, and its total subscriber base fell to 41.57 crore in December 2021. Bharti Airtel gained 4.75 lakh subscribers, and its overall mobile user base stood at 35.57 crore during the same month. Meanwhile, Vodafone Idea (Vi) lost 16.14 lakh subscribers in Dec, and its user base shrunk to 26.55 crore. The subscription data was released by the Telecom Regulatory Authority of India (TRAI).
Apollo Hospitals to operate, manage tertiary care hospital in Uzbekistan
Apollo Hospitals has entered into a partnership with Marafon Group to operate and manage (O&M) an upcoming tertiary care hospital in Uzbekistan. The O&M agreement is for 10 years, which can be extended automatically for a period of 10 years thereafter. Apollo will provide clinical, technical, and feasibility support, along with helping Marafon in setting up diagnostics and pharmacy.
Maruti Suzuki partners with Quicklyz for vehicle subscription program
Maruti Suzuki India Ltd (MSIL) has partnered with Quiklyz by Mahindra Finance for its vehicle subscription program, Subscribe. Quiklyz will offer a white plate subscription, wherein the vehicle is registered under the user’s name and hypothecated to the subscription partner for a range of MSIL vehicles. MSIL’s Subscribe service is currently available in 20 cities across India.
Ashok Leyland expects turnaround in CV biz; targets 30% market share in FY23
Ashok Leyland Ltd is eyeing a strong comeback in the commercial vehicle (CV) segment this year. The company is looking to consolidate its position in the intermediate commercial vehicle (ICV) segment. It is also betting on the overall improvement in economic conditions and gradual easing of supply chain issues to cross 30% of the overall market share in the CV segment in FY 2022-23.
Vedanta signs pact with TERI to accelerate ESG goals
Vedanta Ltd has signed a pact with The Energy and Resources Institute (TERI) to accelerate its environmental, social, and governance (ESG) goals. The company plans to invest ~Rs 200 crore over the next 5-10 years in research & development (R&D) and various initiatives to promote and build a sustainable ecosystem.
RITES, IIT-Madras signs MoU for marine infra works
RITES has signed a Memorandum of understanding (MoU) with the Indian Institute of Technology, Madras (IIT-M), to cooperate and explore marine infrastructure works. The two entities will collaborate for providing engineering consultancy services and enhancing knowledge sharing for the development of marine infrastructure.
Punjab & Sind Bank’s gets board approval to raise Rs 4,600 crore by issuing shares to govt
The board of Punjab & Sind Bank (PSB) has given the approval to raise equity capital worth Rs 4,600 crore by issuing preference shares to the government. The Delhi-headquartered bank had posted a record net profit of Rs 301 crore in the quarter ended December 2021. It had posted a net loss of Rs 2,376 crore in the same quarter a year ago.
BSE EBIX partners with LIC to distribute insurance products
BSE Ebix Insurance Broking Pvt Ltd has signed an Insurance Broker Agreement for the distribution of Life Insurance Corporation (LIC) products on its platform. Under this agreement, BSE EBIX will offer its clients insurance products offered by LIC using its omnichannel digital presence. BSE Ebix is a joint venture of BSE Limited and Ebix Fincorp Exchange Pte Ltd.
GAIL to connect Srinagar to gas grid; Mumbai-Nagpur line by May 2023
GAIL India Ltd has announced plans to lay a pipeline to Srinagar to take natural gas to the Kashmir Valley. The company is doubling down on efforts to expand infrastructure to support the government’s vision of a gas-based economy. By May 2023, GAIL will complete a 700-km pipeline from Mumbai to Nagpur. This will enabe the flow of gas to central India. GAIL is on track to meet the target of mid-2022 for completing major portions of the Urja Ganga project.
India’s mineral production rose 2.6% in December 2021 over the corresponding month a year ago. The index of mineral production of mining and quarrying sector stood at 120.3. As per provisional data from the Indian Bureau of Mines (IBM), there was a cumulative growth of 16% YoY during the April-December period of 2021-22. The production of important minerals that showed year-on-year growth during December includes magnesite (73.2%), gold (71%), bauxite (27.1%), and lignite (21.4%).
Mankind Pharma to acquire Combihale, Daffy brands of Dr Reddy’s Labs
Mankind Pharma has signed a pact with Dr. Reddy’s Laboratories to acquire two brands— Combihale and Daffy. Combihale is used for the treatment of asthma and chronic obstructive pulmonary disease. Meanwhile, Daffy is a soap-free moisturizing bar for infants. Mankind Pharma said the market for Combihale is valued at Rs 900 crore, growing at 14%. The total market for Daffy is valued at Rs 1,000 crore and growing at 18%.
Cyient launches private 5G networks CoE; signs MoU with IIT-H
Cyient Ltd announced the launch of its Private 5G Networks Center of Excellence (CoE). It has signed a Memorandum of Understanding (MoU) with the Indian Institute of Technology, Hyderabad, as a research partner for the CoE. The CoE will combine Cyient’s enterprise and network experience with IIT-H’s research and technology expertise to develop and test private 5G network solutions.
Vodafone Idea appoints SBI Cap to negotiate loan recast of up to Rs 23,000 crore
Vodafone Idea Ltd has appointed SBI Capital Markets to negotiate the restructuring of loans worth Rs 20,000-23,000 crore that it is due to repay within the next four years. The cash-strapped telco has also sought an additional half-billion dollars as loans for capital expenditure (capex) requirements critical to expanding its 4G network.
TCS partners with MATRIXX Software to offer subscription management platform for CSPs
Tata Consultancy Services (TCS) has announced a partnership with US-based MATRIXX Software. The IT firm will integrate TCS HOBS, its plug-and-play digital business platform for subscription, device, and data management, with the cloud-native capabilities of the MATRIXX digital commerce platform. The integrated solution will help Communication Service Providers (CSPs) transform their prepaid and postpaid businesses for superior customer experience and growth.
India wants Tesla to buy $500 million of local auto parts: Report
According to a report from ET, Tesla Inc. would need to commit to sourcing at least $500 million of auto components from India for the electric carmaker’s request for an import tax cut on its vehicles to be considered. The EV maker would need to agree to ramp up Indian parts purchases by around 10-15% a year until a satisfactory level is achieved. The govt has formally told Tesla to ramp up domestic sourcing. However, it is yet to relay a procurement target to the company.
Wipro Ltd has secured a five-year strategic engagement to drive transformation for ABB’s Information Systems digital workplace services. The agreement is worth over $150 million (~Rs 1,126.7 crore). Wipro will help ABB’s Information Systems deliver enhanced, consumer-grade digital experiences for its 105,000 employees in over 100 countries.
BSE collaborates with 4 regional associations to promote EGRs, International Bullion Exchange
BSE Ltd has collaborated with four regional associations from Maharashtra and Tamil Nadu to promote Electronic Gold Receipts (EGRs). These pacts are aimed at providing a boost for the growth and development of the commodities segment in general and the proposed EGR market. Apart from knowledge sharing and research, the collaboration will help standardise EGRs for Indian markets at the regional level and enhance transparency in pricing.
Tata Motors’ JLR partners with Nvidia for AI-powered vehicles
Jaguar Land Rover (JLR), a subsidiary of Tata Motors, announced a partnership with Nvidia for all new vehicle platforms slated for production beginning in 2025. Future JLR vehicles will be based on the Nvidia Drive Hyperion 8 platform featuring the Orin-based computing system. It combines safety, security, networking, and sensors systems required for autonomous driving.
Cabinet clears Rs 76,000 crore incentive scheme for semiconductors
The Union Cabinet has approved a Rs 76,000 crore incentive scheme for semiconductor production. Under this scheme, India will set up more than 20 semiconductor design, components manufacturing, and display fabrication (fab) units over the next six years. The scheme has been named the “Programme for Development of Semiconductors and Display Manufacturing Ecosystem.” This policy will help deepen India’s manufacturing base.
SBI to offload 6% stake in mutual fund arm via IPO route
The executive committee of State Bank of India’s central board has given its approval to sell a 6% stake in SBI Mutual Fund (MF) through the fund house’s upcoming IPO. SBI MF manages assets worth Rs 5.78 lakh. SBI currently holds a 62.6% stake in the fund house, while France-based Amundi holds a 36.8% stake.
L&T’s construction arm secures large order from UP State Water & Sanitation Mission
Larsen & Toubro’s (L&T) water and effluent treatment business has secured a large order (in the range of Rs 2,500-5,000 crore) from the Uttar Pradesh govt to implement rural water supply projects. The company will implement water supply projects at 1,900 villages in the Prayagraj revenue division. The scope of the order comprises the construction of tube wells, pump houses cum chlorination rooms, overhead tanks, and treatment systems.
Burger King plans to raise Rs 1,500 crore via securities
Burger King India Ltd plans to raise up to Rs 1,500 crore through the issuance of securities. The company’s board has approved the increase of its authorised share capital from Rs 550 to Rs 600 crore. It has also approved the changing of the company’s name from Burger King India Ltd to Restaurant Brands Asia Ltd.
BSE Ltd has signed a Memorandum of Understanding (MoU) with the Gem & Jewellery Council (GJC) to provide a boost for the growth and development of commodities and the proposed Electronic Gold Receipts (EGR) market in India. The MoU will help standardise EGRs for Indian markets and enhance transparency in pricing. Both entities will also explore potential business and facilitate growth by sharing knowledge and expertise to promote the launch of the India International Bullion Exchange at GIFT City IFSC.
Ashoka Buildcon secures LoA for construction project
Ashoka Buildcon Ltd has received a Letter of Award (LoA) from the Ministry of Road Transport & Highways for a construction project in Goa. The project consists of the construction of a six-lane link road (NH-166S) with paved shoulder configuration to Mopa Airport in Goa. The accepted quoted offer of the project is Rs 769.41 crore.
Advanced Enzyme signs exclusive distribution agreement with Azelis
Advanced Enzyme Technologies Ltd (AETL) has entered into a mutually exclusive distribution agreement with Azelis Singapore. The agreement is for the distribution of food enzymes and probiotics for the food & dietary supplement industry in Indonesia, Malaysia, the Philippines, Singapore, Thailand & Vietnam.
Tata Motors partners with Bandhan Bank to offer financing options for passenger vehicles
Tata Motors Ltd has signed a Memorandum of Understanding (MoU) with Bandhan Bank to offer financing options to all its passenger vehicle customers. As part of the partnership, Bandhan Bank will provide loans to Tata Motors’ customers at an interest rate starting from 7.50%. This scheme will offer a maximum of 90% financing on the total on-road cost of the vehicle.
Debt-ridden telecom operator Vodafone Idea Ltd (Vi) has paid holders of non-convertible debentures (NCDs) that matured early this week. Vi made the payment on December 13 (the date of maturity of the bonds) and averted any financial default. The company’s total gross debt (excluding lease liabilities) stood at Rs 1,94,780 crore as of September 30, 2021.
Nykaa launches AI-powered virtual try-on tech ‘ModiFace’ for beauty shoppers
Nykaa has launched L’Oreal’s advanced, artificial intelligence (Al)-powered virtual try-on technology ModiFace. The new technology will help create an enhanced beauty experience for makeup enthusiasts while buying beauty products online. It will allow photo-realistic results and AI-enabled shade calibration.
TVS Motor partners with BMW Motorrad for EV production
TVS Motor Company Ltd has announced plans to develop electric vehicles (EV) with BMW’s motorcycle brand (Motorrad) in India. TVS and BMW Motorrad had signed a long-term agreement in 2013 to make motorcycles. They are now expanding on this deal to develop exclusive products that will be sold globally. The first product from this partnership will be showcased in the next 24 months
Earlier this week, the Securities and Exchange Board of India (SEBI) announced that stock exchanges would have the option to move to a T+1 (Trade Date+1 Day) stock settlement cycle starting from January 1, 2022. While many have welcomed the proposal, a lot of concerns have emerged regarding the implementation of the new system. In this article, we take a closer look at how this move could impact the stock exchanges and market participants.
What is the T+1 Settlement Cycle?
Stock exchanges around the world follow a well-defined clearing and settlement system. Since 2003, India’s NSE and BSE have been offering the T+2 settlement cycle. Here, ‘T’ stands for the date of transaction, and ‘2’ denotes how many days later the transfer of stock ownership and payment to the buyer and the seller, respectively, takes place. Let us look at an example.
Suppose you buy 100 shares of ITC Limited at Rs 200 per share on September 1. The total buy value is Rs 20,000. The day you make the transaction is referred to as the trade date or ‘T Day’. An amount of Rs 20,000 (plus all applicable charges) will be debited from your trading account on that date. On T+1 (Sept 2), the amount required to purchase the shares is collected by the exchange. The exchange transaction charges and Securities Transaction Tax (STT) is also collected. On T+2 (Sept 3), the shares are debited from the Demat account of the person who sold you the shares and credited to the broker with whom you are trading. The broker will then credit the 100 shares to your Demat account. On T+2, the amount that was debited from your end is credited to the person who sold the shares.
Now, SEBI has introduced a shorter settlement cycle— the T+1. Once you place a buy order for a stock, the entire settlement process will be completed within the next day. A stock exchange will have to give at least one month’s prior notice to the public regarding the move to a T+1 settlement on any stock. After opting for a T+1 cycle for a stock, the exchange will have to mandatorily continue with the same system for a minimum of six months.
How Will This Move be Beneficial?
The move to a T+1 cycle will accelerate the entire settlement process. It would benefit retail investors as they will get quicker access to cash and securities (shares) after trades are executed. Moreover, it will reduce the risks associated with fluctuations in share prices during the settlement cycle.
A shorter settlement cycle will provide greater flexibility to the stock exchanges. It will make them more efficient, free up capital, boost liquidity, and reduce default risks. [Default risks refer to the inability to make timely payments]. NSE and BSE had moved from a T+3 cycle to T+2 on similar grounds in 2003.
Concerns Regarding SEBI’s Proposal
Zerodha co-founder Nithin Kamath posted a tweet stating a potential complication of the move to a T+1 settlement cycle. He said the concerned authorities may need to figure out how the settlements will work if one exchange adopts T+1 and the other is on T+2 when the same stock trades on both exchanges. A mismatch in the settlement cycle will prove to be confusing and chaotic for investors and traders. It may affect trading volumes as well. However, many experts argue that either NSE and BSE will both move to the T+1 cycle, or both will stick to the current regime.
Many operational and technical challenges need to be tackled before implementing the T+1 settlement system. All institutions involved in the stock market (brokers, exchanges, banks) will have to increase their efficiency for the delivery of shares and exchange of money within one day. This move will lead to an increase in the working capital requirements for brokers. Banks and depository participants will face extended working hours. These institutions could pass down the costs to us investors and traders.
Pressure from FPIs
T+1 might prove to be difficult for certain classes of institutional shareholders. The Association of National Exchange Members of India, the Asia Securities Industry and Financial Markets Association (ASIFMA), and overseas traders have expressed concerns over the operational and technical implications of the move. Since working hours in the US and Europe are not aligned to Asia Pacific markets, T+2 settlement effectively functions as T+1. Any error or disparity in a transaction is normally discovered on T+1. Thus, shortening the settlement cycle could lead to high costs and settlement risks for Foreign Portfolio Investors (FPIs).
A move to a T+1 cycle in India would mean that FPIs will have to keep money and shares ready with them on the day of the transaction. Thus, inflows from foreign investors would be adversely affected. FPIs have written to SEBI regarding a potential reversal of market gains due to unforeseen consequences of moving to the new system.
What are your views on SEBI’s proposal for a move to a T+1 settlement cycle? Let us know in the comments section of the marketfeed app.
Cadila Healthcare Q1 Results: Net profit rises 29% YoY to Rs 587 crore
Cadila Healthcare Ltd reported a 29.34% YoY increase in consolidated net profit to Rs 587.2 crore for the quarter ended June (Q1 FY22). Net profit declined by 13.5% when compared to the previous quarter. Its revenue from operations rose 14.5% YoY to Rs 4,025.4 crore during the same period. Revenue from its India business grew 43% YoY to Rs 1,943 crore, while US sales declined by 11% YoY to Rs 1,451 crore in Q1.
The pharma company has also applied to the Drugs Controller General of India (DCGI) for Emergency Use Authorisation (EUA) for its Covid-19 vaccine, ZyCOV-D.
L&T to divest entire stake in hydroelectric power project to Renew Power
Larsen & Toubro (L&T) has announced the divestment of a 100% stake in the 3×33 megawatt (MW) run of the river hydroelectric power plant owned by L&T Uttaranchal Hydropower Ltd (LTUHPL) to Renew Power Services Pvt Ltd. The sale consideration is Rs 985 crore. This move is in line with the declared L&T focus of divesting non-core assets and improving shareholder value.
Pidilite Industries Q1 Results: Net profit jumps 721% YoY to Rs 220 crore
Pidilite Industries Ltd reported a 721.77% YoY jump in consolidated net profit to Rs 220 crore for the quarter ended June (Q1 FY22). Net profit declined by 28.13% when compared to the previous quarter. Its total income rose 116.4% YoY (but declined by 13.7% QoQ) to Rs 1,942.91 crore during the same period. Pidilite Industries is a leading manufacturer of adhesives and sealants, construction chemicals, and polymer emulsions in India.
RBL Bank gets accredited as an Agency Bank to RBI
RBL Bank has been empanelled by the Reserve Bank of India (RBI) as an ‘Agency Bank’ to conduct banking business for the Centre and state governments. The authorization will enable the private sector lender to handle a broad range of transactions related to government business, such as distributing subsidies, pension payments, and collecting taxes. With RBI’s accreditation, RBL Bank will be in a position to offer the government cost and time-efficient products and solutions.
Kitex Garments Q1 Results: Net profit rises 62% YoY to Rs 20.5 crore
Kitex Garments Ltd reported a 62.13% YoY increase in consolidated net profit to Rs 20.51 crore for the quarter ended June (Q1 FY22). Net profit jumped 148.3% when compared to the previous quarter. Its total income rose 71.9% YoY (or 39.5% QoQ) to Rs 159.04 crore during the same period. Kitex Garments is a leading manufacturer of fabric and readymade garments in India.
KFC, Pizza Hut operator Sapphire Foods files IPO papers with SEBI
Sapphire Foods India Ltd has filed a Draft Red Herring Prospectus (DRHP) with market regulator SEBI to raise funds via an initial public offering (IPO). The company primarily operates KFC and Pizza Hut outlets in India, Sri Lanka, and the Maldives. The IPO will be entirely an offer for sale (OFS) of up to 1.75 crore equity shares by promoters and existing shareholders. Sapphire Foods is the largest franchisee of Yum! Brands in the Indian subcontinent. It is backed by prominent investors such as Goldman Sachs, Samara Capital, and Edelweiss.
India Cements Q1 Results: Net profit more than doubles to Rs 37 crore
The India Cements Ltd reported a 120% YoY jump in standalone net profit to Rs 37.4 crore for the quarter ended June (Q1 FY22). Its revenue from operations rose 35% YoY to Rs 1,022.5 crore during the same period. EBITDA stood at Rs 165 crore, recording a growth of 3.77% YoY. The company’s cement production rose to 1.88 million tonnes (MT) in Q1 FY22, compared to 1.34 MT in Q1 FY21.
Zomato divests stake in subsidiary NexTable for $100,000
Food tech startup Zomato has divested its stake in step-down subsidiary NexTable Inc for $100,000 (~Rs 74.2 lakh). The company’s step-down subsidiary, Zomato Inc, had entered into a stock purchase agreement with three individuals— Justin Doshi, Thusith Desilva, and Robert Tyree— for the sale of shares held by it in NextTble. US-based NexTable is a cloud-based restaurant reservation and table management platform.
Bajaj Electricals Q1 Results: Net loss at Rs 22 crore
Bajaj Electricals Ltd (BEL) reported a consolidated net loss of Rs 21.87 crore for the quarter ended June (Q1 FY22). It had posted a net loss of Rs 15.93 crore in Q1 FY21 and a net profit of Rs 54.6 crore in the previous quarter (Q4 FY21). The company’s total income rose 22.3% YoY (but declined by 26.3% QoQ) to Rs 875.36 crore in Q1 FY22. BEL is a leading consumer electrical equipment manufacturing company based in Mumbai.
BSE issues clarification on circular regarding additional price surveillance measures
Bombay Stock Exchange (BSE) has issued a clarification on its circular on additional price surveillance measures that had triggered a major sell-off in midcap and smallcap stocks over the past two days. BSE clarified that the add-on measures that sought to limit movement in stock prices beyond their price-band limit on a weekly, monthly, and quarterly basis is only limited to X, XT, Z, ZP, ZY, Y group shares exclusively listed on BSE. The new surveillance measure will only be applicable on shares worth Rs 20 or above and having a market capitalisation of less than Rs 1,000 crore.
[The securities traded on BSE are classified into different groups. You can learn more about it here]
Stock exchanges are the powerful platforms or marketplaces that allow us to invest or trade in securities. Most beginners in the stock market have a doubt regarding the exchange they should transact in— whether it should be BSE or NSE. In this article, we dive into the two prominent stock exchanges of India. We shall also analyse the factors that helped NSE become our country’s largest stock market exchange.
A Brief Profile on NSE and BSE
The Bombay Stock Exchange (BSE) was established way back in 1875. Located in Dalal Street, Mumbai, it is the oldest stock exchange in Asia. There are more than 5,400 companies listed on the BSE. Its benchmark index, the S&P BSE Sensex, is widely tracked by investors across the globe. The Sensex (Sensitive Index) tracks the performance of 30 of the largest and most actively traded stocks on the BSE. As of 2020, BSE is the 10th largest exchange in the world in terms of the cumulative market capitalisation of all companies listed on its platform.
The National Stock Exchange (NSE) was incorporated in 1992. It is also located in Mumbai. NSE is ranked the third-largest stock exchange globally in terms of the total number of trades in equity shares. There are more than 1,600 companies listed on the NSE. It is the first bourse in India to implement electronic or screen-based trading. The Nifty 50 is NSE’s benchmark index that represents the weighted average of 50 of the largest companies listed on its platform.
Both NSE and BSE provide a platform for companies to raise funds efficiently. The exchanges allow investors to trade in equities, currencies, debt instruments, derivatives (F&O), and mutual funds. Moreover, they provide services such as risk management, clearing and settlement, and investor education. The exchanges operate under the strict guidelines of the Securities and Exchange Board of India (SEBI).
Factors That Led to the Rise of NSE
For more than a century, BSE had complete dominance over stock trading in India. To break this monopoly and improve transparency in the capital market, our government decided to create the NSE. It was India’s first computer-driven stock exchange and was promoted by some of the leading financial institutions at that time. NSE was given the right to set up trading terminals across the country, while BSE was not allowed to do so. [Trading terminals are intermediary software that allows investors and traders to place buy/sell orders without having to call their brokers]. Meanwhile, it took a few years for BSE to receive permission for the same.
Thus, NSE was able to capture a significant portion of share trading across India. They used state-of-the-art technologies to ramp up the performance of trading systems. NSE was the pioneer of automated and paperless trading in the Indian market. It set up the first depository— the National Securities Depository Ltd (NSDL), which initiated the demat revolution in the country. NSE was also the first stock exchange to establish a clearing corporation (NSE Clearing Limited), which helps reduce trading and settlement risks in the market.
With the arrival of NSE, investing and trading in stock markets became highly transparent, efficient, and less costly.
High Liquidity
Ever since NSE was established in 1992, there has been fierce competition between the two bourses for attracting more trading volumes. Higher volumes would ultimately allow exchanges to obtain more revenue. More importantly, it would lead to better liquidity, an aspect that is vital while trading in shares and derivatives. Higher liquidity allows traders to quickly and easily buy or sell shares at the exact price specified by them.
As a result of its revolutionary offerings, NSE has the highest average daily turnover for equity shares than any other stock market in India. The turnover for an exchange refers to the overall value of shares traded during a certain period.
Let’s look at an example. On July 12, 2021, around 15.76 lakh shares of Reliance Industries were traded on the BSE. At the same time, ~39.6 lakh shares of RIL were traded on the NSE— more than double! Since NSE has high trading volumes, the price a buyer offers per share (bid price) and the price the seller is willing to accept (ask price) will be fairly close to each other. This helps intraday and swing traders enter and exit a trade at the exact price specified by them and realise their targets.
Trading in Derivatives
For those who are not aware of what derivatives trading really is, here’s a quick explanation:
A derivative is an instrument whose value is derived from an underlying asset. The underlying can be a stock, commodity, index, etc. Derivatives are used by large institutions or traders to hedge risk and to speculate on price changes in the underlying asset. Futures and options (F&O) are the most common types of derivatives trading. An agreement (or contract) can be formed between a buyer and seller to buy/sell a predetermined quantity of the underlying asset at a specified price on a specified date. You can learn more about basic options terms here.
Coming back to the point, NSE has always been the most liquid exchange for derivatives. It is the undisputed leader when it comes to futures and options (F&O) trading. This is clear when you compare the volumes (options chain) of F&O activated stocks on NSE and BSE. In most instances, there are zero contracts formed in BSE. On the other hand, NSE’s Nifty 50 and Bank Nifty are traded heavily in the stock market.
Conclusion
Despite its exceptional growth, NSE lags behind BSE on one aspect: the brand. Sensex is still widely used across the world to measure the health of the Indian markets and the economy.
To summarise, NSE is the preferred exchange for intraday, swing, and derivatives trading due to high liquidity. If you are a long-term investor, it does not really matter where you buy/sell shares. However, BSE gives access to more than 5,000 stocks across various sectors. There could be a minor/insignificant difference in the prices of scrips in NSE and BSE. The costs related to investing and trading are similar for both exchanges.
Over the past few years, stock exchanges have come under the scanner due to frequent technical glitches. You may recall the four-hour-long halt in NSE’s trading system that occurred in February 2021. The exchange informed that the instability of telecom links from two of its service providers had affected the functioning of its risk management system. Unfortunately, it resulted in heavy losses for investors. There was a complete lack of accountability from NSE.
Recently, SEBI came out with a standard operating procedure (SOP) to curb technical glitches in stock market operations. NSE and BSE could face a penalty of up to Rs 2 crore or more if they fail to respond to technical disruptions within 30 minutes and restore operations within 45 minutes. Stock exchanges and other market infrastructure institutions (MIIs) will have to submit a root cause analysis report within 21 days of an accident.
Let us hope such events do not occur in the future!
ITC Q4 Results: Net profit falls 3% YoY to Rs 3,755 crore
ITC Limited reported a 3% YoY decline in consolidated net profit to Rs 3,755 crore for the quarter ended March (Q4). Net profit has increased by 6.4% when compared to the previous quarter. The FMCG firm’s consolidated revenue from operations rose 22.6% YoY to Rs 15,404 crore during the same period. The revenue from its hotel business declined by 38% YoY to Rs 302 crore. ITC’s cigarette business reported an 11.5% YoY increase in revenue to Rs 6,508 crore in Q4. The company’s board has recommended a final dividend of Rs 5.75 per share.
Factory activity in India fell to the lowest level in 10 months in May, as the surge in Covid-19 cases caused a severe impact on new orders and output. Overall manufacturing activity has slowed down, and job loss has accelerated. The IHS Markit India Manufacturing Purchasing Managers’ Index (PMI) stood at 50.8 in May, compared with 55.5 in April. PMI is a month-on-month calculation, and a value above 50 represents an expansion when compared to the previous month.
Auto companies post sharp fall in sales in May amid second wave
Automakers posted a sharp fall in sales in May 2021 due to the resurgence of the Covid-19 pandemic. India’s largest automaker Maruti Suzuki posted a 71% decline in total sales to 46,555 units in May, compared with 1.59 lakh units in April. Mahindra & Mahindra’s passenger vehicle (PV) sales in May fell 56% over the previous month. Tata Motors’ PV sales declined by 40% month-on-month (MoM) to 15,181 units during the same month. TVS Motor Company reported a 30.16% fall in total sales to 1.66 lakh units in May over the previous month.
Salasar Techno Q4 Results: Net profit rises 163% YoY to Rs 9.85 crore
Salasar Techno Engineering reported a 163.36% YoY jump in consolidated net profit to Rs 9.85 crore for the quarter ended March (Q4). Its revenue from operations rose 94.73% YoY to Rs 211.50 crore. For the financial year ended March 31, 2021 (FY21), net profit rose 33.61% YoY to Rs 28.89 crore. The company’s board has approved the proposal of issuing bonus shares in the ratio 1:1. Its board has also declared a final dividend of Re 1 per share.
BSE signs MoU with ESC to encourage listing of startups
Bombay Stock Exchange (BSE) has signed a Memorandum of Understanding (MoU) with Electronics and Computer Software Export Promotion Council (ESC) to create awareness about the benefits of listing among small businesses and startups. ESC will utilise its pan India network of electronics and IT exporters and evaluate the small and medium enterprises (SMEs) and startups amongst these for listing on the BSE SME platform. ESC will also assist in sensitising its investor network for investing in SMEs listed on the BSE SME platform.
Balrampur Chini Q4 Results: Net profit declines 2% YoY to Rs 235 crore
Balrampur Chini Mills Ltd reported a 2.46% YoY decline in consolidated net profit to Rs 235.5 crore for the quarter ended March (Q4). Its revenue from operations declined by 41.41% YoY to Rs 1,019.35 crore during the same period. The company’s revenue from sugar manufacturing fell 41.8% YoY to Rs 1,031.3 crore in Q4. For the financial year ended March 31, 2021 (FY21), net profit declined by 3% YoY to Rs 199.51 crore.
The Board of Directors of Balrampur Chini Mills has approved an investment of Rs 425 crore for establishing a new distillery facility with a capacity of 320 kilo-litres per day (KLPD). The unit is scheduled to commence operations from December 2022.
Glenmark Pharma launches anti-epileptic drug in the US
Glenmark Pharmaceuticals Ltd announced the launch of anti-epileptic drug Rufinamide tablets in the US market. The newly launched drug is a therapeutic equivalent of Banzel tablets of Japan-based Eisai, Inc. The drug is used in combination with other medications to treat children with Lennox-Gastaut syndrome, a severe form of epilepsy that causes developmental problems. According to IQVIA data, Banzel tablets had achieved annual sales of approximately $285.3 million (~Rs 2,079 crore) for the 12 months ended April 2021.
Radico Khaitan Q4 Results: Net profit rises 91% YoY to Rs 73.55 crore
Radico Khaitan Ltd reported a 91.3% YoY increase in consolidated net profit to Rs 73.55 crore for the quarter ended March (Q4). Its revenue from operations rose 18.7% YoY to Rs 694.73 crore during the same period. For the financial year ended March 31, 2021 (FY21), net profit increased by 18.9% YoY to Rs 270.56 crore. The company’s board has recommended a dividend of Rs 2.4 per share. Radico Khaitan is one of the leading manufacturers of Indian-Made Foreign Liquor (IMFL).
SEBI bans 8 entities in Infosys insider trading case
Market regulator SEBI has banned eight entities, including two Infosys employees, from trading in the stock market due to violation of insider trading norms. An investigation conducted by SEBI revealed that two employees of Infosys were found to have used insider information to trade in the IT company’s stock last year. The value of illegal gains to the tune of Rs 3.06 crore has been impounded from Capital One Partners, Tesora Capital, and several individuals associated with both firms.
Honeywell Automation Q4 Results: Net profit declines 6% YoY to Rs 104 crore
Honeywell Automation reported a 6.4% YoY decline in net profit to Rs 104.02 crore for the quarter ended March (Q4). Net profit has declined by 30.6% when compared to the previous quarter. Its revenue from operations fell 4.48% YoY to Rs 672.70 crore during the same period. For the financial year ended March 31, 2021 (FY21), net profit declined 6.4% YoY to Rs 460.04 crore. The company’s board has declared a dividend of Rs 85 per share. Honeywell Automation is a leading provider of integrated automation and software solutions.
Gujarat Gas Q4 Results: Net profit rises 40% YoY to Rs 350 crore
Gujarat Gas Ltd reported a 40.1% YoY increase in consolidated net profit to Rs 350.86 crore for the quarter ended March (Q4). Net profit has declined by 10.56% when compared to the previous quarter. Its revenue from operations rose 28.2% YoY to Rs 3,489.3 crore during the same period. For the financial year ended March 31, 2021 (FY21), net profit has increased by 6.5% YoY to Rs 1,277.72 crore. The company’s board has declared a dividend of Rs 2 per share.
The Government has successfully divested its 20% stake in the Indian Railway Catering and Tourism Corporation (IRCTC), through an offer for sale (OFS). The Centre had set the floor price of the OFS at Rs 1,367. The IRCTC stated that the retail portion of the OFS saw a 228% demand for the shares on offer. Following the OFS, the government’s stake in IRCTC will drop to 67.4%.
India’s industrial production grows 3.6% in October
India’s industrial output, as per the Index of Industrial Production (IIP), grew by 3.63% YoY in October. The IIP had shrunk by 6.6% in October 2019. The data was released by the Ministry of Statistics & Programme Implementation (MoSPI). The rise in IIP data during October is primarily on account of the electricity and manufacturing sectors. The country’s industrial production turned positive in September, after six months of negative growth.
Passenger vehicle sales rise for the fourth straight month
The domestic wholesales of passenger vehicles increased by 4.85% YoY to 2.64 lakh units in November. Car sales declined by 2.77% YoY to 1.49 lakh units, while sales of utility vehicles were up by 17.16% YoY to 1.03 lakh units. The data was compiled by the Society of Indian Automobile Manufacturers (SIAM). The industry body stated that the rise in sales was primarily on account of the festive season.
AstraZeneca to test combination of its Covid-19 vaccine with Sputnik V
AstraZeneca has initiated a program to assess Covid-19 vaccine combinations. The British pharma company will co-operate with Russian vaccine developers to test the combinations of its experimental Covid-19 vaccine with Russia’s Sputnik V shot. The program will be aimed at boosting the efficacy of AstraZeneca’s vaccine. The trials will start by the end of the year.
TVS Group has decided to go for restructuring, by giving each family group complete ownership of businesses they currently manage. The group’s holding company has also been scrapped. The TVS brand will be allotted to each family group for use in their lines of business on a perpetual, royalty-free basis. The TVS group, consisting of over 50 companies, has a claimed turnover of $6.5 billion (Rs 47,949 crore).
The Bombay Stock Exchange (BSE) has launched an electronic spot platform for agricultural commodities. The BSE e-Agricultural Markets Ltd (BEAM) will function as a national level, electronic, and transparent commodity spot trading platform. BEAM would offer customised solutions to farmers, traders, and stakeholders to facilitate risk-free purchase and sale of various agricultural commodities
The Board of Hatsun Agro Product Ltd has approved the allotment of 5.38 crore bonus equity shares of ₹1 each. The bonus shares will be issued to members holding equity shares as of 10 December 2020. The ratio for allotment of bonus shares has been set at 1:3. This means that one bonus share will be issued for every 3 fully paid-up equity shares held by a shareholder. The bonus shares will be credited/dispatched on or before 17 December 2020.
Blackstone to acquire Piramal Glass for $1 billion: Report
According to a report from CNBC-TV18, Blackstone has signed a deal to acquire Piramal Glass for $1 billion (~Rs 7,376 crore). The private equity major will make an upfront payment of $850 million and take over the ownership and management of Piramal Glass. The remaining $150 million will be paid after Piramal Glass achieves specific business milestones. Piramal Glass Ltd is a manufacturer of specialised glass packaging solutions for cosmetics, perfumery, speciality food, beverages, and pharma industries.
Indian Hume Pipe receives LoA for water supply schemes in Uttar Pradesh
Indian Hume Pipe Company Ltd has received a Letter of Acceptance (LoA) for providing water supply schemes in 550 villages of Kanpur Division in Uttar Pradesh. The value of the order has been estimated at Rs 550 crore. The project will be completed in 21 months from the date of signing the final agreements.
Alambic Pharma gets USFDA nod for bipolar disorder treatment drug
Alembic Pharmaceuticals Ltd has received approval from the US Food and Drug Administration for its Abbreviated New Drug Application (ANDA) for Asenapine Sublingual tablets. The tablets are indicated for the treatment of bipolar disorder. The pharma company stated that the tablets have an estimated market size of $217 million (~Rs 1,600 crore).
All companies need to raise funds to invest in new projects and grow. Firms can raise capital through equity, debt, or invest their retained earnings back into the business. An Initial Public Offering (IPO) is a way for established companies to raise equity capital. In this article, we will understand what an IPO is, how it works, and its benefits & drawbacks to a company.
What is an IPO?
An Initial Public Offering (IPO) is the process by which a privately owned company issues its shares to the public for the first time. It transforms the company from being a privately owned entity to a publicly traded one. An IPO is one of the methods through which companies can raise required capital by issuing shares.
An IPO can have two parts: a fresh issue and an offer for sale (OFS).
A Fresh Issue refers to when a company sells new shares to the public for the first time. These shares have never been traded publicly before.
Through an Offer for Sale (OFS), existing shareholders like founders, early investors, or employees of a company sell their shares to the public. These shares were previously held by insiders and are now being sold to external investors during the IPO.
Thus, an IPO is also a method for early investors and founders to exit their investments.
Why Do Companies Go Public?
Companies decide to go public for various reasons:
Capital Generation: One of the primary reasons for an IPO is to raise capital. Going public allows a company to access a more extensive pool of investors and generate funds for various purposes, such as expansion, research and development, debt reduction, or acquisitions.
Liquidity for Existing Shareholders: An IPO provides an opportunity for existing shareholders, including founders and early investors, to sell their shares and realize the value of their investments.
Enhanced Visibility: Being a publicly traded company increases visibility and credibility, which can attract customers, partners, and additional investment opportunities.
How Does an IPO Work?
An IPO is a complex and time-intensive process. Here’s a basic outline of how an IPO works:
1. Deciding the Mode of Raising Capital
The primary step in an IPO process is to decide how a company (say, XYZ Private Ltd) wants to raise capital. It can raise funds through equity or debt. XYZ can borrow money from banks, venture capitalists, private equity firms, and other financial institutions to meet its financial needs. However, borrowing may be unfavourable for companies at times, especially when it’s in the initial stages and needs more cash flow to service the debt.
Once the company decides to raise capital through equity, it must decide whether to raise it privately or publicly. IPO is an option for raising capital publicly.
2. Appointment of Investment Bankers
Before a company files for an IPO, it needs to prepare its financial statements, undergo audits, ensure regulatory compliance and satisfy requirements. It will appoint investment banks and underwriters that perform various functions on behalf of the company. These entities act as intermediaries between the company and its investors. They also prepare the prospectus, decide how much money to raise and when, and help the company price its issues.
What is a Prospectus?
A company going public in an IPO issues a formal document known as a prospectus to the Securities & Exchange Board of India (SEBI). This document offers detailed information about the company, including its financials, operations, risks, and the number of shares it plans to offer. This data helps potential investors make informed decisions. It also explains how the company plans to use the proceeds of the issue.
SEBI regulates the entire IPO market in India. It ensures transparency and compliance in the IPO process. There are multiple types of prospectus such as Draft Red Herring Prospectus (DHRP), shelf registration prospectus, etc.
3. Registration for IPO
The company and an investment bank prepare a registration statement and a Red Herring Prospectus (RHP). It is the most important document that a retail investor has access to. You can use the RHP to evaluate the offer. The document contains all the information about the company and its IPO, except the price or quantity of shares that will be offered.
4. Cooling-Off Period
This is the time when SEBI verifies the facts disclosed by the company. It looks for errors, omissions, and discrepancies. The company can set a date for the IPO only after SEBI approves the application.
4. Application to Stock Exchanges
The company submits an application to the stock exchange where it plans to list its shares. In India, a company can list its shares on the National Stock Exchange (NSE), Bombay Stock Exchange (BSE), or both.
5. Pricing
Two types of IPO pricing mechanisms exist – fixed price issues and book build issues. In a fixed price issue, the price at which shares will be sold and allocated is made known to the public in advance. Meanwhile, in a book-building issue, the issuer only reveals a range of prices (known as a price band). We will discuss more about both of these mechanisms.
6. Public Subscription
Once the company announces the IPO date, you can apply for it. Most brokers (like Zerodha, Groww, Fyers, etc.) offer the option to apply for IPOs from their terminals.
Additionally, you can apply for an IPO through the Application Supported by Blocked Amount (ASBA) option offered by banks. You can obtain IPO application forms from designated banks or brokers. Interested investors fill in the details in the form and submit it along with a cheque. SEBI has set five working days for the availability of IPO forms to the public.
7. Going Through With the IPO
After finalising the IPO, stakeholders and underwriters together determine the allocation of shares to investors. Typically, investors receive the entire requested amount of shares unless the IPO becomes oversubscribed. The allotted shares are then deposited into their Demat accounts, while refunds are issued in the event of oversubscription.
Following allocation, the company’s shares start trading in the stock market. The company must prevent insiders from trading to avoid manipulating IPO stock prices.
IPO shares are distributed to bidders within 10 days of the conclusion of the bidding period. In cases of oversubscription, shares are allocated proportionally among applicants. For instance, if the oversubscription is five times the available shares, an application for 10 lakh shares will only receive an allotment of 2 lakh shares.
Benefits & Drawbacks of IPO
The benefits and drawbacks of opting for an IPO are as follows:
Benefits
Drawbacks
IPOs offer a significant influx of capital for business expansion.
The IPO process involves huge expenses, including underwriting fees, legal costs, and compliance expenses.
Provide liquidity to early investors and employees, allowing them to cash out their shares.
Going public means giving up some control of the company as shareholders gain voting rights.
IPOs increase a company’s visibility and credibility in the market, attracting more investors and potential partners.
Public companies face rigorous reporting and compliance requirements, which can be time-consuming and expensive.
What is Oversubscription and Undersubscription?
Undersubscription occurs when the number of shares available for purchase exceeds the demand from investors. In this case, not all shares are allocated or sold, which means that the IPO may not achieve the intended capital-raising goal.
Oversubscription happens when the demand for shares surpasses the number of shares available. In such cases, shares are distributed based on predetermined criteria or proportion among applicants. Investors may receive fewer shares than they requested. Oversubscription can reflect high investor interest in the IPO and may lead to a successful capital raise for the company.
IPO Pricing Methods
There are two methods through which companies price their IPOs:
Fixed Price Issue
A Fixed Price Issue is a straightforward method for determining the initial share price in an IPO. In this approach, the company and its underwriters (entities that are responsible for assessing and assuming the risk of another party) decide a fixed price at which the IPO shares will be offered to the public. This predetermined price is typically based on various factors, including the company’s financial performance, market conditions, and valuation.
In a Fixed Price Issue, all shares are made available to the public at the same fixed price, irrespective of the level of demand from investors. This simplicity and predictability can be attractive to retail investors, as they know exactly what price they will pay for the shares in advance.
However, a drawback of this approach is that it might not effectively consider market dynamics, which could result in missed opportunities if the price is not set optimally. In cases of oversubscription, investors may receive a proportionate allotment based on their subscription amount.
Book Build Issue
A Book Build Issue offers a more flexible and demand-based approach to determining the IPO share price. Rather than fixing the price in advance, the company and its underwriters set a price range within which investors can bid for shares. This price range is known as a price band. It includes a floor (the minimum price) and a cap (the maximum price).
Institutional and retail investors then submit their bids, specifying both the number of shares and the price they are willing to pay within the defined range. The final offer price is determined by assessing the demand generated throughout the bidding process. It’s set in a way that ensures the sale of all available shares. This approach allows for real-time adjustments to the price, considering market demand and dynamics.
Investors who place bids at or above the final offer price usually receive the shares they requested, but those who bid below it may receive a partial allocation or none at all. Book Build Issues are generally seen as offering better price discovery because they take into account market feedback and adjust to investor sentiment and demand.
What is Lot Size in an IPO?
A “lot” refers to a specific quantity of shares that are offered for sale as a single unit in an IPO. The company going public and its underwriters determine the lot size. Investors who participate in the IPO can bid for and purchase shares in these predefined lots rather than selecting an arbitrary number of shares. The lot size may vary from one IPO to another. It ensures a fair distribution of the offering among investors.
Who are the Key Players in an IPO?
Various individuals and entities collaborate to ensure the successful execution of the IPO. The key players in an IPO are:
1. Company Management
The company’s top executives, including the CEO, CFO, and other key officers, are responsible for making strategic decisions regarding the IPO. They are actively involved in the planning, preparation, and execution of the offering.
2. Underwriters/Investment Banks
Investment banks serve as intermediaries between the company and the public markets. They help structure the IPO, conduct due diligence, market the shares to potential investors, and facilitate the pricing and distribution of the shares. They also underwrite the issue, which involves assuming the financial risk of purchasing the shares from the company and re-selling them to investors.
Investment banks help the company make strategic decisions related to the IPO, including the timing of the offering, the pricing of shares, and the overall financial strategy.
3. Legal Counsel
Legal advisors help the company navigate the complex regulatory and legal requirements associated with an IPO. They ensure compliance with securities laws and regulations, draft necessary legal documents, and provide guidance on disclosure obligations.
4. Accountants and Auditors
Accounting firms assist with financial reporting, auditing, and ensuring that the company’s financial statements comply with accounting standards. Independent auditors validate the company’s financial statements and ensure their accuracy. They offer confidence to potential investors regarding the company’s financial health.
5. Regulatory Agencies
In India, SEBI oversees the IPO process. SEBI reviews a company’s prospectus and other documents to ensure that the company discloses all necessary information accurately and meets regulatory requirements.
6. Investors
Institutional investors (e.g., mutual funds, pension funds) and retail investors participate in the IPO by purchasing shares. Their demand and interest in the offering play a significant role in determining the success of the IPO.
7. Stock Exchanges
The shares of a company are listed and traded on a stock exchange after the IPO. The exchange ensures that the company meets listing requirements and facilitates the trading process.
In conclusion, an IPO represents a significant milestone in a company’s journey, helping it raise capital, gain exposure, and become publicly traded. For investors, it offers opportunities to invest in exciting companies early in their public life. However, it’s essential to approach IPOs with careful consideration, conduct thorough research, and align your investment with your financial goals and risk tolerance!
