In this edition, we talk about the ongoing craze for IPOs in India. We also talk about the latest data pertaining to the mutual fund industry as well as some key decisions made this week by the Union Cabinet and the GST Council.
Welcome to Kuvera’s weekly digest on the most critical developments related to business, finance, and the markets.
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In the 1630s, the Netherlands was hit by a phenomenon now known as the ‘tulip mania.’ This was the period of the Dutch Golden Age, when prices of some bulbs of the then recently introduced and fashionable tulip reached sky-high levels. A frenzied craze for tulip bulbs began sometime in 1634 and turned into the first major speculative asset bubble in recorded history. By the beginning of 1637, however, the bubble had burst and tulip prices had collapsed.
Why are we taking you centuries back in time?
The Indian market, you see, has been scaling new heights almost every week now for the last couple of years, leading many an expert to wonder if this is a speculative bubble. For now, not only are investors riding the bull run, even companies, small and big alike, are looking to cash in on the euphoria by choosing to go public.
To say that India is in the midst of an IPO boom would be an understatement. In fact, between the Covid-induced national lockdown of March 2020 and July 2024, as many as 215 IPOs have hit the Indian market.
The frenzy seemed to have reached its pinnacle this week when the Rs 6,560 crore IPO for home loan lender Bajaj Housing Finance Ltd became the most subscribed ever in India’s history, with the total bid amount for a public issue reaching an astonishing Rs 3.24 trillion, topping 1% of the size of India’s economy.
And this wasn’t even the most bizarre case. As we pointed out in an earlier newsletter, that distinction goes to IPOs of small and medium enterprises such as the tiny bike dealership company Resourceful Automobile, which was looking to raise just Rs 12 crore but received bids worth more than Rs 4,800 crore!
Investors have to be careful when such euphoria builds up. Otherwise, companies with patchy governance standards, weak financials or even poor growth prospects may take advantage of the exuberance to raise money from the public. In fact, even the Securities and Exchange Board of India (SEBI) is getting increasingly concerned about this.
So, what should you do as an investor? As a first step, you need to know the company whose IPO you are applying for, inside out. You need to evaluate its fundamentals, finances, and business prospects. You must assess the prospects of the industry in which it operates, read its draft red herring prospectus and look at its shareholding pattern.
Is all this too much for you to handle? Then might we suggest an alternative: stick to mutual funds, keep calm and grow your wealth.
Fund Flows
Talking about mutual funds, the industry is growing as fast as the IPO markets and broader stock markets.
Data disclosed by the Association for Mutual Funds in India this week showed that the MF industry’s total assets under management jumped to an all-time high of Rs 66.7 trillion, or almost $795 billion, at the end of August. The industry has added about Rs 16 trillion in AUM so far this year as inflows from investors continue unabated thanks to bullish markets.
In August alone, inflows into equity mutual funds touched Rs 38,239 crore, up 3% from July and just below the record high of Rs 40,608 crore in June.
Total inflows into equity MFs during the January-August period have almost tripled from a year earlier to Rs 2.41 trillion, with thematic and sectoral funds contributing 45% of the aggregate.
Inflows coming via systematic investment plans (SIPs) touched a record high for the 14th month in a row, hitting Rs 23,547 crore in August. Monthly SIP inflows have nearly tripled since 2021.
AMFI data also showed a shift in the pattern among various MF categories. With stock markets at record highs raising valuation concerns, investors showed greater interest in large-cap funds during August. Inflows into large-cap funds jumped nearly fourfold in August from the previous month to Rs 2,687 crore. This is the highest level since March 2022.
However, inflows into small-cap funds showed no signs of slowing down and surged 52% in August while money coming into mid-caps funds almost doubled despite concerns over stretched valuations.
So, which category of funds should you opt for at the moment? We can’t tell you that, of course, but do remember the basics when selecting a fund—stick to your asset allocation and be aware of the risks.
Cabinet Calls
Moving on to some macroeconomic news, the Union Cabinet this week approved a number of schemes related to the healthcare, electric mobility, power and rural infrastructure sectors.
Perhaps the most important of these decisions was the expansion of the Ayushman Bharat Pradhan Mantri Jan Arogya Yojana (AB PM-JAY). The health insurance scheme will now cover all senior citizens aged 70 and above irrespective of their income, the government said.
Launched in 2018, Ayushman Bharat aims to provide universal health coverage, especially for rural and vulnerable populations. The government says it is the world’s largest publicly funded health assurance scheme.
The scheme provides health coverage of up to Rs 5 lakh per family per year for secondary and tertiary care hospitalisation. The Cabinet’s decision this week will benefit around 4.5 crore families, including 6 crore senior citizens.
In another decision, the Cabinet approved the ‘PM Electric Drive Revolution in Innovative Vehicle Enhancement (PM E-DRIVE) Scheme to promote electric mobility. The scheme has an outlay of Rs 10,900 crore over two-year period. It allocates Rs 500 crore each for the deployment of e-ambulances and e-trucks, Rs 4,391 crore to procure 14,028 e-buses by public transport agencies, and Rs 2,000 crore for the installation of electric vehicle public charging stations.
In other decisions, the Cabinet approved an outlay of Rs 70,125 crore for the fourth phase of the Pradhan Mantri Gram Sadak Yojana to be implemented during 2024-25 to 2028-29 to improve road connectivity in rural areas and an outlay of Rs 12,461 crore for hydroelectric projects to increase cumulative generation capacity by about 31,350 MW by 2031-32.
Tax Tweaks
Along with the Union Cabinet, the GST Council also made some key decisions this week.
The council, in a meeting chaired by Finance Minister Nirmala Sitharaman, decided to set up a Group of Ministers to consider reducing the tax rate on life and health insurance. The panel will submit its report by the end of next month and the council will discuss the issue again in November, Sitharaman said.
Demand for a tax cut on insurance premiums has gained momentum in recent months, especially on social media by many taxpayers with some opposition parties also joining in the chorus.
The council also decided to cut the goods and services tax on certain cancer drugs to 5% from 12% and on snacks items such as namkeens to 12% from 18%. In addition, it exempted research and development services by government entities, universities, and colleges from GST, and reduced the rate to 5% on passenger transport by helicopters. On the flip side, the council increased the GST rate on car seats from 18% to 28%, aligning it with the tax on motorcycle seats.
Market Wrap
Indian stock markets hit new record highs this week, taking cues from the global markets amid expectations of a rate cut by the US Federal Reserve.
The 30-stock Sensex touched an all-time high of 83,116.19 while the 50-stock Nifty hit 25,433.35. For the week, the Sensex and the Nifty climbed almost 2.1% each.
Tata Motors was the sole Sensex stock to fall this week. The automaker’s shares slipped after UBS reaffirmed a “sell” rating on the stock citing margin pressures at its Jaguar Land Rover unit and within India’s passenger vehicle segment.
In the list of Nifty losers, Tata Motors was joined by state-run companies ONGC and BPCL. Two insurers, SBI Life Insurance and HDFC Life Insurance, also ended in the red.
Bajaj Auto topped the list of Nifty stocks that gained during the week. It was followed by Divi’s Lab and Bharti Airtel. Tech companies Wipro, LTI Mindtree and HCL Tech were also among the major gainers, as were a bunch of lenders such as Axis Bank, Shriram Finance, IndusInd Bank, Bajaj Finance, Kotak Mahindra Bank and ICICI Bank. FMCG companies Britannia, Hindustan Unilever and Tata Consumer also ended in the green.
Other headlines
- Retail inflation for August inches up to 3.65% from 3.6% in July.
- E-scooter maker Ather Energy files DRHP for Rs 4,500-crore IPO.
- Congress party makes fresh allegations against SEBI chief Madhabi Puri Buch.
- Enforcement Directorate conducts searches in Axis Mutual Fund front-running case.
- Vedanta plans to expand nickel sulphate production, to tap overseas demand.
- India’s global capability centre market to grow to $105 billion by 2030: Nasscom-Zinnov report.
- Indian Oil-BPCL joint venture gets onshore block production license from Abu Dhabi.
- Dutch firm NXP Semiconductors to invest over $1 billion in India to grow R&D work.
- Ford says in talks to restart car production in Tamil Nadu.
- Apple supplier Jabil to set up plant in Tamil Nadu with Rs 2,000 crore investment.
- Reliance Retail ties up with Israeli innerwear maker Delta Galil.
- Carrefour ties up with Dubai-based Apparel Group to expand into India.
- Skoda Auto CEO says there is an opportunity to launch hybrid cars in India.
- Carlyle Aviation to write off $40 million of SpiceJet’s lease arrears, convert dues into equity.
- Byju’s auditor BDO resigns after insolvency proceedings start.
That’s all for this week. Until next week, happy investing!
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