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India: Infrastructure Set to Outpace IT as the Growth Engine
Business, Equities, Markets - January 17, 2025

Market Volatility Surges Amid Global Yield Spikes and Policy Shifts

Market Volatility Surges Amid Global Yield Spikes and Policy Shifts

Overview
The easy-money period following the epidemic gave stock markets a boost that persisted for years. The complacency brought on by the upward trend remained unaffected. The much-anticipated “soft landing” kept investor spirits high despite the world’s extreme inflation and central banks’ aggressive monetary tightening policies.

However, the market decline has jolted investors after years of complacency, and since the end of September last year, sentiment has shifted sharply to the negative. This is especially valid for developing markets like India. Since its high, the broad Nifty 50 index has experienced a correction of over 10%.

Factors affecting the volatility of Indian markets
China, the world’s greatest producer and consumer of commodities, raised expectations for an economic revival in September 2024 when it unveiled stimulus measures. The emergence of rising commodity prices was the backdrop for inflation to reappear. Trump won the US presidential election within a month of this, and inflation expectations skyrocketed in anticipation of more tariffs, tax breaks, and immigration restrictions. More recently, Brent crude prices have risen above $80/barrel due to the extensive restrictions placed on Russian crude. Despite high interest rates, inflation has increased globally due to several causes. The G7 countries’ average inflation rate has increased from 2.2% in September to 2.6% in November and has continued to rise ever since.

Central banks’ response globally
Paradoxically, at this time, central banks all over the world have been relaxing their monetary policy restrictions. However, markets have continued to brace for monetary tightening due to growing inflation and, more significantly, the uncertainty around future inflation. Furthermore, US rates have increased further due to expectations of a fiscal explosion under the next US president. Thus, yields have increased in the majority of large economies in spite of rate reduction. Despite the policy rate being between 4.25 and 4.5%, 10-year US Treasury yields are approaching 5%, German yields have increased to 2.6% despite their faltering economy, and British yields are at their highest levels since 2008.

Rising yields in the U.S.
At the time this piece was written, US yields were 4.3%, up from 3.6% in September. Strangely, this increase is similar to the “higher for longer” era, when US rates increased from 3.5% to 4.3% in a single month in September 2022 before reaching a peak of about 5% in October 2023. Emerging market assets typically lose appeal to foreign investors as a result of tighter gaps against emerging market yields caused by rising US yields. FIIs promptly sold off around Rs 40,000 crore worth of Indian stocks between August 2022 and October 2023. However, Indian stock markets managed to hold their ground with the help of domestic institutions and individual investors; during this time, the Nifty 50 index increased by 13%.

This time, the increase in yields has caused FIIs to lose interest in Indian stocks. However, the quantum has never been seen before. The broad market index has corrected by about 11% in less than 4 months, and FIIs have sold off Indian stocks valued at an astounding Rs 2.2 lakh crore.

Yield Spikes witnessed in 2022-23
The wave of yield spikes this time around appears to be unique eyeing the state of the Indian economy. Due to strong government capital expenditures, the Indian economy was the major economy with the quickest rate of growth in 2022–2023. However, this time around, India’s halo is somewhat vanishing due to decreasing government capital expenditures and declining consumer demand. In light of this, the RBI must lower interest rates quickly in order to boost the economy and further reduce yield spreads.

Furthermore, the USD has been strengthening in the wake of US policy uncertainties. The dollar returns received by US investors in India have been further squeezed by the ensuing more than 3% depreciation of the Indian rupee, which has reached all-time lows of 86+. In actuality, the INR is expected to weaken even further as India’s imports of crude oil increase in response to Russian sanctions and the RBI progressively reduces its involvement in the currency markets. The real effective exchange rate of INR shows an 8% overvaluation, suggesting that the returns received by US investors in Indian stocks will continue to decline. Therefore, in contrast to 2022–2023, the bubbly Indian stock markets have fallen victim to the most recent round of yield rises.

What lies in the future?
Trump is scheduled to take office early next week, which is expected to open the door for erratic and possibly extreme immigration, business, and trade policies. In light of Trump’s potentially inflationary intentions, the US Fed’s policy decision at the end of this month will be widely scrutinized for indications of incremental hawkishness.

At home, we have three major events in the first few days of February: the Union Budget, which faces the challenge of boosting India’s slowing economy; the RBI’s monetary policy review, which is anticipated to result in the first rate cut after a year of holding rates higher for longer; and the results of the Delhi assembly election.

With so many important events planned for the next weeks, investors shouldn’t expect any respite from the stock market’s volatility.

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Business, Equities, Market News, Markets - August 26, 2024

New Ipo’s & Trend in Indian Stock Markets

New Ipo’s & Trend in Indian Stock Markets

The Indian stock market is set for further volatility as we begin a new workweek, with a combination of local and international influences. Future initial public offerings (IPOs) and global cues, especially from the United States and China, are two of the major factors anticipated to impact the market. As they attempt to understand the intricacies of the market, investors are closely monitoring these events.

The number of businesses choosing to go public has significantly increased over the last year, especially in industries like consumer goods, healthcare, and technology. Institutional and individual investors have shown a great deal of interest in these IPOs, frequently resulting in oversubscription. Due to the positive market attitude created by the recent IPOs’ impressive performance, more businesses are choosing to access the capital markets. Furthermore, because to the ease of access offered by digital trading platforms and the possibility of listing profits, retail involvement in the IPO market has increased dramatically. The increased activity is a reflection of people’s hope and faith in the corporate sector and economic prosperity of India.

The IPO market in India is extremely active this week, with several businesses preparing to go public, offering investors an opportunity to diversify their portfolios. These companies include Jay Bee Laminations, Indian Phosphate, Vdeal System, Paramatrix Technology, Aeron Composite, Archit Nuwood Industries, Premier Energies, ECO Mobility (ECOS (INDIA) Mobility & Hospitality Ltd.), and Bazar Style Retail. Given the strong interest investors have shown in new and exciting ventures, these offerings are likely to attract significant attention.

The pricing of these initial public offerings (IPOs) is a crucial factor that investors will assess. Institutional and individual investors alike find an appealing initial public offering (IPO) that is priced correctly to generate significant listing gains. Consequently, a key element in deciding the success of these IPOs will be the price approach that businesses and their investment bankers choose.

The overall market sentiment could influence the performance of upcoming IPOs. An optimistic state of the market often inspires confidence in investors, which raises IPO subscription rates. On the other hand, investors can become more cautious if the market is volatile or trending lower, which would affect the demand for new issues.

This week’s developments in the Indian stock market will be greatly influenced by global signals, even though domestic variables like IPOs and corporate results are still crucial. The monetary policy of the US Federal Reserve continues to be a major concern for investors throughout the globe. The global financial markets, including those in India, may be impacted by whatever indications the Fed sends out regarding potential future interest rate moves.

Another important international element that can have an impact on Indian markets is China’s economic outlook. Global markets have already been affected by worries about a downturn in China, which are being caused by less positive economic statistics than anticipated and difficulties in the real estate industry. Since China is a significant trade partner for many nations, including India, any further decline in its economic standing may cause investors to become less risk-tolerant.

Investors will also be monitoring important economic indicators, such reports on industrial production and inflation. These numbers may have an impact on future policy decisions made by the Reserve Bank of India and will give an overview of the country’s overall economic climate.

This week’s investor mood is probably going to be a careful mix of caution due to global worries and excitement around potential initial public offerings. Although the possibility of fresh investment possibilities is alluring, changes on a global scale will affect the industry as a whole. It is recommended that investors exercise caution and exercise judicious judgement while making investing selections.

Finally, a mix of impending initial public offerings (IPOs) and international cues, especially from the U.S. Federal Reserve and China’s economic statistics, will shape this week’s movements in the Indian stock market. As they concentrate on making wise, calculated decisions to take advantage of opportunities and minimise risks, investors should be ready for any volatility. There are plenty of chances to prosper in the changing market environment with thorough research and a well-rounded strategy.

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Equity Right
Editorials, Equities, Markets - July 27, 2022

Government allows Indian public companies to directly list shares overseas.

Government allows Indian public companies to directly list shares overseas.

 

Government’s vision for betterment of Indian companies:

In late January 2020 Government of India communicated to media that they are planning to allow direct listing of Indian companies in foreign markets. This will help Indian companies to not only rely on domestic markets but they can also raise capital on large scale from various foreign markets which will help companies in diversification and growth. This move can directly help Indian companies in increasing their turnover and profits.

Till now Indian companies go for the depository receipts to attract investors globally but this is bit unfamiliar amongst the investors globally and been less attractive in recent years. A minimum of 15 Indian companies currently attract foreign investors via ADR’s and GDR’s. These companies includes Reliance Industry, HDFC Bank, Infosys and many others.

 

Green signal by Indian Government:

Finance Minister Nirmala Sitharaman had announced an economic package of ₹ 20 lakh crore under government’s Atma Nirbhar Bharat Abhiyan. This is done for the revival of Indian Economy. It is an umbrella of massive ₹ 20 lakh crore economic booster package. The government ensured to provide some relaxation in all the sectors.

To improve “ease of doing business” in India, government allowed Indian public companies to list their shares in foreign markets. This provision will help Indian companies for better valuations, rapid growth and expand their businesses on a large scale. This move will help Indian companies to get funds at a cheaper rate from various foreign markets. This will directly help Indian economy to recuperate in a speedy way.

Government noted private companies that listed Non-convertible debentures (NCDs) on Indian stock exchanges not to be considered as listed companies. It is also expected that this provision is to prevent Indian companies to register themselves in foreign markets like Singapore and London for raising a fund and going global.

 

Existing vs proposed rule:

The existing rule states that companies which are listed on Indian stock markets can only list their company in foreign markets. Whereas, new proposed rule states that there is no compulsion for it. Indian companies can list themselves directly in various foreign markets to raise capital.

Until now, only American Depository Receipt (ADR’s) and Global Depository Receipt (GDR’s) can collect capital from foreign market sources. At least 15 Indian companies follow this mechanism to raise capital from foreign markets. However, this is not much familiar amongst the global investors. To eradicate this the new provision will allow Indian companies to a fresh new issue of shares or sale of existing holdings.

 

Rules and regulation:

All the required rules and regulation for listing an Indian company at abroad will be notified soon by the government. Once the provisions to the Foreign Exchange Management Act (FEMA) and Company Law Regulations are passed. Media noted Indian foreign exchange control laws do not require free capital convertibility, and there are other regulatory limits on capital account transactions.

Nevertheless, this proposal has been under discussion for a couple of years between stakeholders and regulators, especially regarding the selection of foreign jurisdiction. SEBI had indicated in 2018 that this route would be open only to the financially sound companies, so that the mechanism could not be used for exploitation. Sources indicated that final rules in this respect would probably be based on the Financial Action Task Force’s recommendations.

Finance Minister Nirmala Sitharaman noted, this provision of direct listing. If Indian public companies are not available over the globe but will be allowed in permissible jurisdictions.

 

Precautionary measures:

However, the approval will not come without any protections. The Indian government is likely to go along with the recommendations raised by SEBI in 2018. This requires a direct listing of Indian companies in abroad. It had suggested 10 overseas jurisdictions, including the US, UK, Japan, China, Hong Kong and South Korea for Indian companies to list. The selection was based on the fact that these jurisdictions are part of the Financial Action Task Force (FATF), The Anti-Money Laundering Global Task Force (GTF-AML) and IOSCO.

SEBI also suggested that this provision should be available only for financially stable . This will aid  to minimize frauds and manipulation. The firms with a  paid-up capital of 10% will be allowed to list in the foreign market.

The provision of capital raising in an overseas market can also have an impact on the Indian currency market. Since the flow of overseas capital can put pressure on the Indian currency and may lead to volatility. RBI and SEBI can be jointly involved to check this.

 

 

 

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