Thinkpad: Sunshine And Rain

The equity markets are back to their sunny ways—the Sensex and the Nifty both hit record highs during the course of this week—and the primary markets are starting to feel the sun on their face, too.

In a recent note, Jefferies said they expect $30-40 billion or Rs 2-3 lakh crore in equity supply this year. Of which, initial public offerings would comprise about 40%.

Companies looking to go public span the spectrum—on the one hand is the 1956-founded LIC. Nothing new or shiny about this one. We’d be lucky if no creepy crawlies emerge from the depths of one of the most opaque corporations around. Still some way to go before we find out. Bloomberg reported this week that the process of appointing bankers is likely to start only next month.

At the other end of the spectrum of possible IPOs are the tech stars—from Zomato to Nykaa, Policybazaar to Paytm. Some of these have all the swag in the world but public market investors may channel their inner Shania Twain and say, “that don’t impress me much”. Yes, you can judge us for quoting Shania Twain.

Paytm, in particular, is actively discussing an IPO, Bloomberg reported last week. In FY20, the company reported a loss of Rs 2,597 crore. The loss came down to Rs 1,701 crore in FY21 but it is still a large loss. So are they IPO-ready? If you are interested in the many facets of Paytm’s business, watch/read this conversation with Gautam Chhugani of Bernstein here.

In the world outside equity markets, there is good news and bad. Fresh Covid-19 infections are falling and some states are starting to partially unlock.

If May proves to be the worst month and activity begins to pick-up from June, then the original prognosis that this may be a one-quarter hit to the economy may come close to being correct.

The problem is the uncertainty on the rural front. Nearly half of the 50 worst-hit districts in the second wave had a rural population of more than 50%. Their share in GDP is obviously lower than that of urban districts but there is justifiable concern regarding weakness in the rural economy.

Micro-lenders, for instance, are living that pain and speak of customers who have lost income and are starting to get over-indebted.

There is also the question of how strong consumption will be. The fourth-quarter GDP data that came this week, showed 2.7% year-on-year growth in private consumption in the fourth quarter while government spending and investment-led growth. That, as JPMorgan’s Sajjid Chinoy wrote, shows that pandemic-induced scarring was already weighing on consumption even before the second wave.

Taking all this into account, the RBI cut its FY22 growth forecast to 9.5% from 10.5% this week as it kept rates on hold and continued to flood the system with liquidity.

That brings us back to the debate over central banks’ policies fueling inequality. Asset markets are “walking on sunshine”, while income earners are stuck under “buckets of rain”. Hope we redeemed ourselves with the Bob Dylan reference if not the Katrina and The Waves reference.

Sanjeev Prasad of Kotak Institutional Equities wrote this week that “Global market capitalization has increased around 30% since the start of the pandemic while global GDP (and hence household income) is down.” “The growing divide between ‘income’ and ‘wealth’ raises a controversial point about the role of central banks in exacerbating the ‘divide,” Prasad wrote adding to the ongoing debate.

There is a lighter way to look at this story. Reuters reported this week that Jeff Skilling (yes, of Enron fame) has launched an energy investment venture. As FT’s Robin Wigglesworth asked: “What do you call the point of the cycle where Jeff Skilling can raise money after 12 years in jail for fraud?”

What would you call it?

Till next week.