Thinkpad: Sun and rain

The stock markets have found their sunny path – the Sensex and the Nifty both hit record highs during this week – and the primary markets are also starting to feel the sun shining on their faces.

In a recent memo, Jefferies said they expected $ 30-40 billion or Rs 2-3 lakh crore in capital this year. Of which the initial public offers would represent around 40%.

Companies looking to go public run the gamut, on the one hand the LIC founded in 1956. Nothing new or shiny about this one. We would be lucky if no frightening critters emerge from the depths of one of the world’s most opaque societies. Still a long way to go before knowing it. Bloomberg reported this week that the banker appointment process is not expected to begin until next month.

On the other end of the spectrum of possible IPOs are tech stars, from Zomato to Nykaa, Policybazaar to Paytm. Some of them have all the chic in the world, but public market investors can channel their inner Shania Twain and say, “That doesn’t impress me that 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 has come down to Rs 1,701 crore in FY21, but it is still a significant loss. So are they ready for the IPO? If you’re interested in the many facets of Paytm’s business, watch / read this conversation with Bernstein’s Gautam Chhugani here.

In the world outside of the stock market, there is good news and bad news. New Covid-19 infections are on the decline and some states are starting to partially unblock.

If May turns out to be the worst month and activity starts to pick up from June, the initial prognosis that this could be a quarter-hit for the economy could be close to correct.

The problem is the uncertainty on the rural front. Almost half of the 50 most affected districts of the second wave had a rural population of more than 50%. Their share in the GDP is obviously lower than that of the urban districts, but it is legitimate to worry about the weakness of the rural economy.

Micro-lenders, for example, are going through this pain and talk about clients who have lost income and are starting to be over-indebted.

There is also the question of the strength of consumption. Fourth-quarter GDP data released this week showed 2.7% year-on-year growth in private consumption in the fourth quarter, while government spending and growth were driven by investment. This, as JPMorgan’s Sajjid Chinoy wrote, shows that pandemic-induced scars were already weighing on consumption even before the second wave.

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

This brings us back to the debate over central bank policies that fuel inequality. Asset markets “walk on the sun”, while workers are stuck under “rain buckets”. I 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 by around 30% since the start of the pandemic as global GDP (and therefore household income) is declining.” “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 of looking at this story. Reuters reported this week that Jeff Skilling (yes, of Enron fame) has started an energy investment firm. As FT’s Robin Wigglesworth asked, “What do you call the point in the cycle where Jeff Skilling can raise money after 12 years in prison for fraud? “

What would you call it?

See you next week.


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