In this edition, we talk about a slew of blockbuster IPOs hitting the stock markets. We also talk about the dwindling fortunes of the Indian rupee, the funding winter impacting startups and the surge in NVIDIA’s valuations.
Welcome to Kuvera’s weekly digest on the most critical developments related to business, finance, and the markets.
tl;dr Hear the article in brief instead?
Everything about India’s stock markets appears to be on a high these days. For one, the two benchmark indices—Sensex and Nifty—seem to have made it a habit of hitting all-time highs week after week. This week was no exception, with the 30-share Sensex firmly perched above the 77,000 mark and the Nifty 50 breaching 23,500.
But the indices scaling new heights is not the only reason why traders and investors on Dalal Street are euphoric. As markets scale new peaks, companies both small and big are looking to revel in the frenzy.
Several big and small companies are set to list on India’s two stock exchanges. While we cannot list each of them out here, two behemoths deserve special mention.
The Indian subsidiary of South Korean carmaker Hyundai Motor Company is set to come up with what is being touted as the “mother of all IPOs (initial public offerings)” on the Indian market till date. Reports suggest that the IPO could raise as much as $3 billion and that Hyundai Motor India could be valued around $18-20 billion. For comparison, Maruti Suzuki, the local unit of Japan’s Suzuki Motor, has a market capitalisation of around $46 billion. Tata Motors is valued around $38 billion while Mahindra & Mahindra is worth almost $43 billion.
The Korean auto giant’s Indian arm is commanding such a high valuation for good reason. The company reported a net profit of Rs 4,383 crore for the first nine months of FY24; for the full year FY23, profit was Rs 4,709 crore. If its profit continues to grow at a compound annual rate of 10%, it could hit Rs 7,000 crore by the end of FY26.
And such a high valuation may not mean that Hyundai India would be overvalued as compared to its competitors and peers. In fact, a valuation of $18-20 billion implies a FY26 price-to-earnings (PE) ratio of 21.3-23.7 times, which is more affordable than Maruti and Mahindra & Mahindra, a brokerage report noted.
The other big IPO that the Indian stock markets are set to see soon will be from another auto company, albeit a homegrown one. This week, electric scooter maker Ola Electric received approval from the market regulator Securities Exchange Board of India (SEBI) for its IPO. The IPO comprises a fresh issue of Rs 5,500 crore and an offer for sale of Rs 1,750 crore by founder Bhavish Aggarwal and investors such as AlphaWave and Matrix Partners.
In all, the Indian IPO market looks set to remain buoyed, with as many as 55 companies planning to raise upwards of Rs 68,000 crore in the coming months. In the current financial year, thus far, seven issues have mopped up Rs 19,455 crore, while another five are set to debut this month itself. In 2023-24, as many as 76 companies had gone public raising R. 61,922 crore. These figures, however, are still no match for the Rs 1.1 trillion that was raised in FY22.
So, what do you make of this euphoria? Are you investing in any of these IPOs?
Currency Concerns
While the stock markets have been on a high, the Indian rupee has not been as lucky. This week, the rupee fell to an all-time low of Rs 83.62 to the US dollar, a development that will hurt importers of everything from crude oil to capital goods and feed into inflation but help exporters such as IT services companies.
The rupee was weighed down by broader strength in the greenback amid demand from local importers. In fact, the dollar strengthened against most Asian currencies with the Chinese yuan also falling to its lowest level since November 2023.
Strength in US dollar came after the Swiss National Bank cut interest rates, underscoring the divergence in monetary policies among global central banks as the Federal Reserve has delayed easing policy, Bloomberg reported.
Outflows of foreign capital from Indian equities and dollar demand from companies have been pressuring the local currency to trade near record lows for weeks despite strong growth in the Indian economy.
Foreigners have sold a net of $2.6 billion of local equities so far this calendar year. However, inflows into the debt markets have been strong at $7.5 billion ahead of India’s inclusion in the JPMorgan Emerging Market bond index.
Having said all this, the rupee remains the best performing currency in Asia this year after the Hong Kong dollar.
Unicorns, Gazelles and Cheetahs
The rupee is not the only thing that seems to be on a low. The country’s startup ecosystem, too, is feeling the singe of a dry funding spell. In fact, the startup race can be a gruelling marathon. Many a potential unicorn has dropped out of the $1 billion valuation race. Blame it on the funding winter or tightening of regulatory framework, 25 startups are out of the Ask Private Wealth Hurun India Future Unicorn Index 2024.
Only three startups—quick commerce Zepto, logistics startup Porter and InCred Finance—got promoted to the unicorn list with a valuation of at least $1 billion this year. In fact, Zepto raised $665 million this week at a valuation of $3.6 billion. Meanwhile, at least five gazelles (startups that can become a unicorn in three years) and 20 cheetahs (potential unicorn in five years) have dropped out of the list this year.
The total number of unicorns in India on the list is 67 against 68 last year. SaaS and HR tech startup Darwinbox, which was a unicorn earlier, has been demoted to a gazelle. India’s future unicorns are currently valued at $58 billion.
Most of the dropouts from the index were due to changes in regulations, especially in the fintech space with the Reserve Bank of India restricting banks’ exposure to NBFCs with sharp focus on lending online.
The economic slowdown has posed challenges for specific companies, with 24% of last year’s gazelles and cheetahs either falling off the list or downgraded. Hurun Research believes that these companies may no longer have the potential to become unicorns in three years given how tough it has become to raise capital.
Interestingly, this year’s list features three potential unicorns from space-tech, 11 from artificial intelligence and six from the EV renewable energy sectors.
Though startups in artificial intelligence, agritech, space-tech and deep-tech are fast emerging, they are in a nascent stage and face regulatory challenges but provide a good investment opportunity for investors looking for high-risk-high-return, the report says.
Powering Up
While India’s currency and its startups may be feeling the heat, its infrastructure sector, especially power, are going steadily ahead, powering its economy, and that too, sustainably.
India is expected to add 30 gigawatt of power generation capacity this financial year, with more than 80% of it coming from renewable energy, according to credit rating and research firm ICRA. India’s total capacity addition in FY24 stood at 25 GW. ICRA said a strong project pipeline and favourable solar module pricing will help in the projected renewable energy capacity addition.
As demand for power continues to surge, especially during the ongoing brutal heatwave in north India, the country is expected to ramp up capacity addition across the sector. Moreover, the government is looking to encourage investments in new thermal power projects, with a target of adding 80 GW thermal capacity by 2032.
ICRA said high demand and improved plant load factor, which indicates efficiency, will likely boost thermal capacity addition by 5-5.5 GW in FY25, driven by state and central utilities.
The ratings firm projects the all-India thermal PLF level to rise to 70% in FY25 from 69% in FY24, led by growth in electricity demand and limited thermal capacity addition in previous years.
AI Boom
Tech giant NVIDIA seems to be in a league of its own. This week, it briefly surpassed Microsoft to become the world’s most valuable company, with its market capitalisation jumping by over $110 billion to $3.335 trillion.
The development came just days after it toppled iPhone maker Apple from the No. 2 spot. But NVIDIA’s stay at the pole position was short-lived, as its shares took a hit and Microsoft regained its No. 1 ranking.
The ranking aside, the most significant thing is the fact that NVIDIA’s market value expanded from $1 trillion to $2 trillion in just nine months in February, and then took just over three months to hit $3 trillion in June.
Last week, Nvidia split its stock 10-for-one, increasing the appeal for its highly valued stock among individual investors. The rally in NVIDIA shares and a surge in its market value over the past year have been driven by optimism about emerging Artificial Intelligence (AI) technology. So, do keep an eye on this technology and this tech giant!
Market Wrap
Although both the Sensex and the Nifty scaled their lifetime highs this week, the broader markets in general looked like they were beginning to consolidate, waiting for the next big trigger, which could be the Union Budget in July. While the Sensex ended the week up by 0.3%, the Nifty rose by just 0.06%.
Nifty stocks that performed the best during the week included Shriram Finance, Adani Ports & SEZ, and four lenders—Axis Bank, HDFC Bank, Kotak Mahindra Bank and ICICI Bank. Two auto companies—Mahindra & Mahindra and Eicher Motors—as well as three IT majors—Infosys, Wipro and LTIMindtree—were also among the gainers.
Nifty stocks that ended the week in the red included Bharat Petroleum, Maruti Suzuki, Hero MotoCorp, HUL, NTPC, Tata Consumer, Bajaj Auto, Ultratech Cement and ITC, just to name a few.
Other Headlines
- India drops to 15 in UNCTAD’s FDI rankings as FDI inflows decline 43% in 2023
- JM Financial barred from debt public issues
- Amara Raja increases stake in InoBat with €20 million investment
- SEBI asks Religare to seek approval for Burmans’ open offer
- Tata Communications raises $ 250 million sustainability loan from DBS, ANZ, EDC
- State-run Bharat Electronics Ltd appoints Manoj Jain as new chairman, MD
- Govt may overhaul PLI schemes; quarterly incentive payments on the table
- Monsoon surge along West Coast brings rain to Gujarat, Maharashtra, MP, Odisha
- Budget 2024-25: New income tax regime may offer a treat to salaried class
- Insolvency and Bankruptcy Board of India proposes amendments to insolvency rules, seeks public comments
That’s it for this week! Until next week, happy investing!
Interested in how we think about the markets?
Read more: Zen And The Art Of Investing
Watch here: Understanding Index Funds from experts
Start investing through a platform that brings goal planning and investing to your fingertips. Visit kuvera.in to discover Direct Plans and Fixed Deposits and start investing today.
