In this edition, we talk about SEBI’s sweeping new norms for the mutual fund industry and the sluggish IPO market. We also talk about a mega startup convention scam in India and the big jolt to Google.
Welcome to Kuvera’s weekly digest on the most critical developments related to business, finance, and the markets.
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India’s mutual fund industry is set for an overhaul. Last week, the government removed the tax arbitrage between debt funds and bank fixed deposits. And this week, the capital markets regulator set in motion a series of bold reforms that will empower investors.
The Securities and Exchange Board of India (SEBI) announced a new scheme category focussed on environmental, social and governance (ESG) themes, a framework for a corporate debt market development fund and, most significantly, allowed private equity investors to set up shop and own mutual fund companies.
SEBI has also approved new proposals to strengthen investor grievance redressal mechanisms and put in place a new set of reforms for mutual funds investing overseas.
So, how does this affect you, the investor?
Investors—both retail and individual—will now have more mutual fund investment options to choose from as fund houses can launch multiple schemes based on ESG-related factors.
Moreover, the new corporate debt market development fund will now act as a backstop facility for buying investment-grade corporate debt securities in times of distress.
The jargon and all the myriad details notwithstanding, all of this means that you, the investor, can hope to breathe easier while investing in mutual funds, as the market regulator wants you to know that it has your back.
IPO slowdown
Even as the regulator ushers in new reforms, things are looking rather sluggish for the Indian stock markets.
Latest figures show that the filing of draft red herring prospectuses (DRHPs) more than halved in 2022-23 as concerns over high valuations, geopolitical tension and rising interest rates damped sentiment for equities.
According to a news report, a mere 66 companies submitted DRHPs to SEBI during the financial year. This was down more than 54% from the 144 draft papers that were filed in the last financial year.
Exchange filing data further show that 34 companies came out with Rs 51,482 crore of initial public offerings in the financial year that ended March 31, compared with 53 that listed after Rs 1.11 lakh crore of IPOs in 2021-22.
On top of this, Softbank-backed hospitality tech startup Oyo is reportedly cutting its IPO size by two-thirds, given the sluggish market conditions.
In September 2021, Oyo had filed preliminary documents with SEBI for a Rs 8,430-crore IPO. The IPO was delayed due to volatile market conditions, making the company prepare to settle for a lower valuation at around $7-8 billion instead of the $11 billion it was targeting initially. Now, it plans to sell just a third of the new shares it originally planned, Bloomberg reported this week.
This comes even as Oyo CEO Ritesh Agarwal said the company estimates its revenue in FY23 to be more than Rs 5,700 crore, up 19% from Rs 4,780 crore it had recorded in FY22.
So, to put it simply, the financial year that just ended was a damp squib as far as new listings went.
But as we enter a new financial year, here’s hoping the headwinds will pass, and we will see a smart turnaround.
The startup scam
The slowdown in IPOs is also affecting startups and their investors, especially after most new-age businesses that listed over the past couple of years–such as Paytm and Zomato–trading far below their issue prices.
If that wasn’t enough, Indian startups have also been feeling a “funding winter”. In 2021, venture capital and private equity investors poured billions of dollars into Indian startups. That capital flow began to slow last year as the era of cheap money ended with central banks worldwide increasing interest rates to multi-year high. And someone smelled an opportunity.
A bunch of alleged fraudsters reportedly pulled off a scam in the guise of organising a fundraising event, the “World Startup Convention”. The alleged scam came to light a few days back, with the Greater Noida police booking event organisers following multiple complaints from startups and delegates that paid big money to attend.
Apparently more than 2,000 startups have been scammed of monies of the order of Rs 100 crore in the garb of the ‘world’s biggest startup funding festival’, which was supposed to bring more than 9,000 angel investors on one platform.
Not only did the event organisers apparently fool people by using images of Prime Minister Narendra Modi to promote the event, they also posted a photo with a senior cabinet minister, in an apparent bid to show that they had his blessings. On top of that, several YouTube and Instagram influencers have been accused of promoting the event, which never was.
The world is clearly out to take the most gullible among us for a ride. It is, therefore, prudent to be safe, rather than sorry.
So, the next time you see an investment opportunity that sounds too good to be true, please stay away.
Google’s woes
Tech giant Google’s India unit was in for a jolt this week when the National Company Law Appellate Tribunal (NCLAT) upheld the order of the anti-trust regulator, the Competition Commission of India (CCI), imposing a penalty of Rs 1,337.76 crore on the company.
The tribunal directed Google to deposit the money in a month’s time. The penalty had been slapped on Google in October last year for anti-competitive practices in relation to Android mobile devices. The CCI also ordered the company to cease and desist from unfair business practices.
We are sure the Palo Alto-based tech major will appeal against this ruling, and so, we see a battle royale ahead! Can someone get us some popcorn please?
Market Wrap
The Indian stock markets ended the last week of the financial year firmly in the green. The Sensex jumped nearly 1.8% while the 50-stock Nifty gained over 1.6%.
Yet, if one considers the whole financial year 2022-23, the broader markets have mostly disappointed investors. The Sensex eked out a gain of 0.6% while the Nifty actually fell about 0.6% during the financial year.
Nifty stocks that ended the week in the green included IndusInd Bank, JSW Steel, Cipla, Dr. Reddy’s Lab, UltraTech and Hindalco. Other Nifty counters that gained included Reliance Industries, Infosys, and Hindustan Unilever.
Among the Nifty stocks that lost the most value during the week were Bajaj Finance and Bajaj Finserv, Adani Ports, Larsen & Toubro, Asian Paints and Bharat Petroleum. Other companies that saw their market cap fall over the past five trading sessions were Indian Oil, Vedanta, and Bajaj Auto.
Other headlines
- Mutual fund nomination deadline extended by six months
- RBI likely to raise rates once more on April 6 before hitting a pause
- S&P keeps India GDP growth forecast unchanged at 6% for FY24
- HCC completes sale of Baharampore-Farakka Highways for Rs 1,323 crore
- Vedanta acting CFO Ajay Goel resigns with effect from April 9
- Kotak’s alternative investment unit raises $1.25 billion for special situations fund
- SPC Life Science, Netweb Tech file for IPOs
- Avalon Tech fixes price range for Rs 865-crore IPO at Rs 415-436 per share
- Covid cases rising again in India; cases at highest level in 2023
That’s all 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: New vs. old tax regime
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