Month: October 2021

How To Make The Right IPO Choice?

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Planning

oi-Roshni Agarwal

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At a time when everyone is inclined to make quick bucks, IPO is also a good way to look at such income stream in a short span. But other than the market momentum, your choice of an IPO amid high euphoria in the primary market space shall be highly crucial.

How To Make The Right IPO Choice?

How To Make The Right IPO Choice?

Now there is a case in point particularly for long term investors in IPO as huge number of IPOs in a bull run may always not be indicative of their long run success. But this case has been made considering past trend and in a growth story like India we cannot completely ignore the debut of some of the promising companies’.

Few key points to make a good IPO choice:

1. Going through the DRHP and how the proceeds are being planned to be mobilized will likely hint at the company’s prospects:

Say if the DRHP provides that the company solely intends to repay debt using the proceeds then it shall not be a lucrative bet for investors in the long run unless and until the fundamentals are in favour.

Other pointers can be the company’s track record, financials, management that shall offer a deep insight into the company. Most of such information can be gathered from the DRHP itself.

2. Determining growth potential of the industry and the company coming up with the IPO shall be crucial:

The growth potential of the industry in which the company deals in and its likely capacity to tap the possible future opportunities shall be critical in the investor’s success. Nonetheless, if you are not able to determine the company’s business that better not invest in such an enterprise even for likely listing gains.

3. Promoters and management role cannot be neglected:

Many a times through the primary market issuance, promoters look to divest their stake and as per law even after the stake sale, promoters need to mandatorily hold 20 percent stake, so factor in all such criterions.

4. Pricing:

This is an important consideration and for it the two variable that can be looked upon are price to sales and price to earnings. Do not just in the sake of a good reputed company go for an overly priced IPO. Here in the comparison of these variables is made with the peer companies.

5. On the basis of your risk and investment strategy, churn out whether you wish to invest for short term or long term:

All the assessments need to be made when your putting your hard earned money into an IPO and you need to note that fundamentals of the business should form your long term investment decision into the IPO and likewise market momentum can make you to decide on for betting for just the listing gains. All in all be mindful and skeptical for a better investment decision to just go right in your IPO choice.

GoodReturns.in



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Bitcoin investing could get boost from exchange-traded fund

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ProShares said Monday it plans to launch the country’s first exchange-traded fund linked to Bitcoin. The ETF with the ticker symbol “BITO” is expected to begin trading Tuesday, barring any opposition from regulators.

In a statement, ProShares CEO Michael Sapir compared the launch of a crypto-linked ETF to the 1993 launch of the first stocks ETF and the 2002 roll-out of the initial bond ETF. The US market for ETFs has grown to more than $5.4 trillion and they’re owned by roughly 9 per cent of all the nation’s households, according to the Investment Company Institute.

Cryptocurrencies, meanwhile, have exploded into a nearly $2.5 trillion industry after the creation of thousands of digital currencies. Bitcoin is the biggest of them all, with a total value of nearly $1.2 trillion. But like much in the crypto world, the Bitcoin-linked ETF is complicated.

The fund won’t invest directly in Bitcoin itself. Instead, it will focus on futures related to Bitcoin, a market that’s overseen by US regulators. Investors need to be particularly aware of what they’re buying and how it’s likely to perform.

Why is this a big deal?

A Bitcoin-related ETF would give investors a new way to get involved in the fast-growing field of cryptocurrency. Bitcoin’s price has more than doubled this year, and a growing number of investors see it as a way to offer their portfolios some protection.

Also see: Bitcoin hovers near 6-month high on ETF hopes, inflation worries

The hope is that Bitcoin’s price will move in a way that’s not as tied to expectations for the economy as stocks and other investments are. If it does, it could help support portfolios when everything else is falling or when inflation is high. But it doesn’t have a perfect track record. When the US stock market fell nearly 34 per cent at the start of the pandemic in 2020, Bitcoin lost roughly as much.

Some investors may not want to open a new trading account for cryptocurrencies. Instead, they can buy the ETF through old-school brokerage accounts they may already be using for their stocks or their IRA.

What is an ETF?

An exchange-traded fund allows investors to easily buy a whole basket of investments. Some of the most popular ETFs track things like the S&P 500 index of big US stocks, the price of gold or high-yield bond indexes.

Unlike with a traditional mutual fund, which prices just once a day, investors can buy or sell an ETF throughout the trading day. That’s particularly important for cryptocurrencies, whose prices can swing sharply from minute to minute, let alone day to day.

So this new ETF will track the price of bitcoin?

No, and this is one of the most important distinctions. The fund will invest in Bitcoin futures, which are essentially bets on where Bitcoin’s price will go in each of the months ahead.

The Bitcoin futures market is overseen by the Commodity Futures Trading Commission, which may offer investors more protection. But it also doesn’t perfectly track the price of Bitcoin.

“This is not a replacement for owning bitcoin directly,” said Todd Rosenbluth, Head of ETF and Mutual Fund Research at CFRA.

Who is this best suited for?

Because it will be invested in futures instead of actual Bitcoins, the ETF is less than ideal for a Bitcoin believer who wants to invest in it for the long term, Rosenbluth said.

Instead of a buy-and-hold investor, he said it’s more likely to be popular with shorter-term traders who want to make money off its volatility, at least initially. There’s certainly plenty of opportunity for that.

In the span of roughly three months earlier this year, Bitcoin more than halved from nearly $64,900 to less than $30,000. Since that low point in July, it’s surged back to nearly $61,800.

How much will it cost?

BITO will have an expense ratio of 0.95 per cent. That means $95 of every $10,000 invested in the fund will go toward paying its annual operating expenses.

Such fees could be a hard sell for Bitcoin fans, many of whom see cryptocurrencies as a way to erase middlemen from industries.

Is this the first and last such ETF?

No, several other fund companies have their own applications for ETFs linked to Bitcoin futures. Some may try to separate themselves by charging lower fees.

Also see: Millennials pull crypto out of the shadows

Beyond just extending the reach of Bitcoin, the ETFs will help create a bigger ecosystem in the financial world around it, said Ben Johnson, Director of Global ETF Research at Morningstar.

With a Bitcoin-linked ETF, sceptical investors will have something that they can sell short. In such a trade, they can bet on the ETF’s price to fall by borrowing a share and selling it, hoping to buy it back later at a lower price. The ETFs could also allow for trading of options around them.

“The money made on all that trading activity is going to dwarf the money made just on collecting fees for those products,” Johnson said.

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2 Stocks To Buy As Suggested By Motilal Oswal For Long-term Investors

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Good financial performance of Mahindra CIE

Mahindra CIE’s consolidated revenue grew 23% YoY (2% QoQ) to Rs 20.9 billion (estimated Rs 19.5 billion) in 3QCY21, led by a beat in India operations.

According to Motilal Oswal, revenue from the India business grew 33% YoY (22% QoQ) to Rs 11.4 billion (estimated Rs 10.3 billion). EBITDA margin improved by 100 basis points YoY (140 basis points QoQ) to 13.6% (estimated 13.4%).

“It is expecting lower than expected sales in 4QCY21 (v/s earlier estimates) due to ongoing semiconductor shortage. However, it is optimistic about growth in both India and the European region during CY22 and CY23, subject to semiconductor availability,” the brokerage has said.

Buy the stock of Mahindra CIE

Buy the stock of Mahindra CIE

According to Motilal Oswal, Mahindra CIE’s growth story is on track, driven by its organic initiatives (new products/customers).

“This, coupled with cost-cutting initiatives in both India and the EU, would drive margin expansion. Any significant order win or growth in the EV portfolio can act as a re-rating factor. The stock trades at valuations of 16.9x/13.9x CY21E/CY22E consolidated EPS. We maintain our Buy rating with a target price of Rs 300 per share (15x Sep’23E consolidated EPS),” the brokerage has said.

Buy the stock of Cyient

Buy the stock of Cyient

Cyient’s 2QFY22 revenue grew 4.6% QoQ in USD terms (moderately higher than our estimate of 4% QoQ growth). This was led by broad-based growth in Services (+4.4%) and DLM (+5.4%).

According to Motilal Oswal, the recent acquisition of Workforce Delta contributed 0.7% to Services revenue in 2QFY22. The management retained its double-digit growth guidance in FY22 in the Services business, while DLM growth is expected to be 15-20% (v/s the 20% growth guidance earlier).

“We increase our EPS estimate for FY23 on a potentially better margin performance, led by the management’s medium-term outlook. We maintain our Buy rating on attractive valuations. Our target multiple of 24x FY23E EPS takes our target price to Rs 1380 per share, implying an upside of 19%,” the brokerage has said.

Disclaimer

Disclaimer

The above stocks are picked from the brokerage report of Motilal Oswal. Investing in equities poses a risk of financial losses. Investors must therefore exercise due caution. Greynium Information Technologies, the author, and the brokerage house are not liable for any losses caused as a result of decisions based on the article.



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Balasubramanian elected as Chairman of Association of Mutual Funds

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Balasubramanian has been elected Chairman of Association of Mutual Funds in India, at the recently concluded board meeting of AMFI.

Balasubramanian is Chief Executive Officer of Aditya Birla Sun Life Asset Management. He would take over from Nilesh Shah, Managing Director, Kotak Mutual Fund.

Balasubramanian earlier served as AMFI Chairman between 2017 and 2019 and now would continue to hold the office till the conclusion of the next AGM.

Radhika Gupta, Chief Executive Officer, Edelweiss Asset Management has been elected as the Vice-Chairperson of AMFI.

A Balasubramanian was also appointed as the ex-officio Chairman of AMFI Financial Literacy Committee, being the Chairman of AMFI.

Shah was elected to be the Chairman of AMFI Valuation Committee.

Radhika Gupta has been re-elected as Chairperson of AMFI ETF Committee.

Sanjay Sapre, President, Franklin Templeton Asset Management (India) was re-elected as the Chairman of AMFI Operations and Compliance Committee.

Vishal Kapoor, Chief Executive Officer, IDFC Asset Management has been elected as the Chairman of AMFI Standing Committee of Certified Distributors (ARN Committee).

These decisions were taken by AMFI, the industry body of SEBI-registered mutual funds at its Board Meeting on Monday.

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Wall Street banks set to profit again when Fed withdraws pandemic stimulus, BFSI News, ET BFSI

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NEW YORK -Wall Street banks have been among the biggest beneficiaries of the pandemic-era trading boom, fueled by the Federal Reserve‘s massive injection of cash into financial markets.

With the central bank nearing the time when it will start winding down its asset purchases, banks are set to profit again as increased volatility encourages clients to buy and sell more stocks and bonds, analysts, investors and executives say.

The Fed has been buying up government-backed bonds since March 2020, adding $4 trillion to its balance sheet, as part of an emergency response to the COVID-19 pandemic.

The strategy was designed to stabilize financial markets and ensure companies and other borrowers had sufficient access to capital. It succeeded but also resulted in unprecedented levels of liquidity, helping equity and bond traders enjoy their most profitable period since the 2007-09 financial crisis.

The top five Wall Street investment banks – JP Morgan Chase & Co, Goldman Sachs, Bank of America, Morgan Stanley and Citigroup – made an additional $51 billion in trading revenues last year and in the first three quarters of 2021, compared with the comparative quarters in the year prior to COVID, according to company earnings statements.

The trading bonanza, along with a boom in global deal-making, has helped bank stocks outperform the broader market. The KBW Bank index has risen by 40% in the year-to-date compared with a 19% advance in the S&P 500.

Now, banks with large trading businesses are expected to profit a second time as the Fed starts to withdraw the stimulus, prompting investors to rejig their portfolios again.

“As investors look to position based on that volatility, that creates an opportunity for us to make markets for them. And obviously that would lend itself to improved performance,” Citigroup Chief Financial Officer Mark Mason told reporters this week.

Fed Chair Jerome Powell signaled in late September that tapering was imminent. An official announcement is expected in November and the central bank has signaled it will look to halt asset purchases completely by mid-2022 – a timetable seen by some investors as aggressive.

Banks have already benefited from enhanced volatility since Powell’s comments in late September, which led to a spike in Treasury yields and a decline in equity markets. That led to a pick-up in trading volumes at the end of the third quarter and the start of the fourth quarter, executives say.

“It is possible we will see bouts of volatility associated with the tapering,” Morgan Stanley Chief Financial Officer Sharon Yeshaya said in an interview Thursday, adding that she doesn’t expect a repeat of 2013’s ‘taper tantrum.’

At that time, the Fed’s decision to put the brakes on a quantitative easing program sent markets into a frenzy as investors dumped riskier assets in favor of ‘safe havens,’ leading to a spike in government bond yields and sharp falls in equity markets.

Fed officials are confident of avoiding that scenario this time around by giving markets enough advance warning of their intentions.

“The sweet spot is where you have some volatility but not enough to disrupt the broader capital markets which have been an important contributor to healthy trading results over the past year,” said JMP Securities analyst Devin Ryan.

Third-quarter results from the biggest U.S. banks this week showed strong performances in equities trading, boosted by stocks hitting record highs, but a more subdued showing in bond trading reflecting calm in those markets.

Investors are anticipating activity will ramp up again in the run-up to tapering, when it eventually begins.

“It will certainly be a positive,” said Patrick Kaser at Brandywine Global Investment Management. “Volatility is a friend to trading businesses.”

(Additional reporting by David Henry; Editing by Andrea Ricci)



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Cash going to co-exist with central bank digital currency, says former RBI governor Subbarao, BFSI News, ET BFSI

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Former RBI governor D Subbarao on Monday said there is a strong motivation for the central bank to launch a digital currency and cash is going to coexist with the new-age currency. Addressing an event virtually organised by economic think tank NCAER, Subbarao further said cybersecurity is also one of the downside risks of the Central Bank Digital Currency (CBDC).

“There is a strong motivation for the RBI to launch CBDC… Cash is going to coexist with CBDC,” he said.

The former RBI governor also noted that privacy is also going to be a big issue when the RBI launches the digital currency.

Recently, RBI Deputy Governor T Rabi Sankar had said the central bank is working on a phased implementation strategy for its own digital currency and was in the process of launching it in wholesale and retail segments in the near future.

He had also said the idea of Central Bank Digital Currency (CBDC) is ripe, and many central banks in the world are working towards it.

While observing that if the RBI launches CBDC, the control of the central bank on money supply will be weakened, Subbarao said there is also issue of financial instability.

Replying to a question on cryptocurrencies, Subbarao warned that cryptocurrencies could become a vehicle for taking money out from countries like India and China.

“There is a certainly case for regulating cryptocurrencies..These cryptocurrency assets can be used for money laundering,” he said.

Subbarao, however, noted that cryptocurrencies are here to stay as speculative assets.

In India, a high-level inter-ministerial committee constituted by the Ministry of Finance has examined the policy and legal frameworks, and has recommended the introduction of CBDC as a digital form of fiat money in the country.

Cryptocurrencies are digital or virtual currencies in which encryption techniques are used to regulate the generation of their units and verify the transfer of funds, operating independently of a central bank.



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RBI remains net purchaser of US dollar in August, BFSI News, ET BFSI

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Mumbai, Reserve Bank of India (RBI) remained a net buyer of the US currency in August after it net purchased USD 3.747 billion from the spot market. In the reporting month, RBI had purchased USD 10.887 billion and sold USD 7.14 billion in the spot market, according to the monthly RBI bulletin for October 2021 released on Monday.

In July, RBI net purchased USD 7.205 billion. It had bought USD 16.16 billion and sold USD 8.955 billion during the month. In August 2020, the central bank had net bought USD 5.307 billion from the spot market, the data showed.

During FY 2020-21, RBI had net purchased USD 68.315 billion from the spot market. It had bought USD 162.479 billion from the spot market and sold USD 94.164 billion during 2020-21, the data showed.

In the forward dollar market, the outstanding net purchase at the end of August was USD 49.606 billion compared with a net purchase of USD 49.01 billion in July. PTI HV RAM

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European Union’s digital banknotes are getting ready, BFSI News, ET BFSI

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-By Ishwari Chavan

The currency aims to reach a population of 340 million, if adopted by all of the nations part of the Eurozone.

The European Central Bank, in July 2021 launched a digital euro project. The investigation phase that will start this month and last for about two years will aim to address key issues regarding design and distribution.

Central banks around the world, including the Reserve Bank of India, have been contemplating the launch of their very own CBDC. A total of 81 countries, representing 90% of global GDP, are exploring CBDC as of May 2021, compared with 35 countries in May 2020, according to Atlantic Council, a US think tank.

“Some of the other countries, like the UK and Sweden, also have their own projects, which are more or less in a similar stage in terms of progress, following their own path in terms of policy and design,” Aleksi Grym, head of digitalisation at Bank of Finland said.

The currency aims to reach a population of 340 million, if adopted by all of the nations part of the Eurozone.

What is Digital Euro?

The Digital Euro would be a form of central bank money issued by the European Central Bank, and will remain its liability at all times.

According to the ECB, the Digital Euro would still be a euro, like banknotes but digital. It would be an electronic form of money issued by the Eurosystem (the ECB and national central banks) and accessible to all citizens and firms. It will not be a parallel currency.

“The broad consensus is that CBDC would complement rather than substitute any existing part of the financial industry,” said Grym.

The operational and legislative framework to introduce the CBDC will be discussed with the European Parliament and other European institutions, and the access to the digital euro will be intermediated by the private sector.

What are the reasons to issue a digital Euro?

The Digital Euro will be a viable option for the Eurosystem, in order to support digitisation in payments. It could act as a new monetary policy transmission channel and mitigate risks to the normal provision of payment services, the ECB said.

The bank further mentioned that it could serve as a response to a significant decline in the role of cash as a means of payment.

Furthermore, the bank said that it could reduce the significant potential for foreign CBDCs or private digital payments to become widely used in the euro area while fostering the international role of the euro.

What will it look like?

The ECB has not yet specified a particular design of a Digital Euro. It wants to fulfil a number of principles and requirements including accessibility, robustness, safety, efficiency and privacy.

Although, based on the possible features of a Digital Euro, two broad types have been identified that would satisfy the desired characteristics – offline and online.

“The design of the CBDC has to be compatible with the objective of monetary and financial stability,” Grym said.

“For the Eurozone, we primarily look at retail CBDC, and the reason for that is that we already have quite a sort of advanced infrastructure for the wholesale cases,” he added.

When will the Eurozone have its CBDC?

The CBDC project was launched in July this year. However, the ECB has said that the end of this project will not necessarily result in the issuance of this currency, and that the central bank is merely preparing for the possibility of its issuance in the future.

“From the European perspective, we kind of envision what the world will look like not today but in 10, 20 or 30 years. The idea is that we’re looking at moving towards a much more digitized world, which is moving faster.That’s where cbdc will be designed for not necessarily the work we see today,” Grym said.

The investigation phase will examine the advantages and weaknesses of specific types of digital euro and how they would meet the needs and expectations of European citizens, businesses and financial intermediaries.



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As India’s bad bank knocks, ARCs seek relaxations from RBI, BFSI News, ET BFSI

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With the bad bank on the anvil, asset reconstruction companies have sought relaxation of the pricing structure for the purchase of bad loans, funding from banks, and clarity on participating in insolvency cases as a resolution applicant. These are among the suggestions made by ARCs to the committee formed by the Reserve Bank of India in April.

Usually, sales take place either on a full-cash basis or under the 15:85 structure, where 15% is paid as upfront cash and the remaining in the form of security receipts.

ARCs have sought a reduction in the minimum investment requirement to 2.5% from 15% in cases where cash is fully paid upfront.

The cash proportion of 15% has pushed the ARCs to raise their returns through securitisation and asset reconstruction.

Unless the ARC recovers 130% of the acquisition value, it will not make its return. Even at 100%, an ARC will make a loss because the management fee of 1-2% doesn’t make any ARR for ARC. Recovery should be over 130% so that 100% of security rights will be redeemed.

Also read: What are NARCL and IDRCL? How do they work and what is the plan?

Also, in September 2016, the Reserve Bank of India introduced new regulatory guidelines regarding provisioning. From April 2018 banks have to sell at 90% cash and 10% SRs. If a bank holds more than 10% SR, it had to continue provisioning for the loan which is not even on their books. So there is no incentive for them to transfer to ARCs. Now no banks transfer on 15:85 and all deals are in cash.

Bank funding

Asset reconstruction companies have asked RBI to allow bank funding for them on the lines of provided to non-banking finance companies. They have also sought doing away with dual-provisioning norms, a move which will benefit banks the most.

ARCs have suggested that bank provisioning needs to be solely based on the rating agency-determined net asset value of the security receipts.

From April 2018, banks have had to make provisions for stressed assets that are sold, assuming they remain on the books. This is applicable in cases where security receipts make up for more than 10% in the sale of non-performing assets.

Banks also have to make mark-to-market provisions in cases where the rating of security receipts is downgraded. Security receipts are valued on net asset values, linked to recovery ratings, which is an assessment of probable recovery from an underlying non-performing asset by rating agencies.

With banks not having to go for dual provisioning, they sell NPAs on a 15:85 structure, making more NPAs available for ARCs.

Currently, outstanding security receipts are estimated to be around Rs 1.1 lakh crore.

The RBI committee

In April this year, the RBI has formed a six-member panel under the chairmanship of Sudarshan Sen, former RBI executive director, to examine the role of asset reconstruction companies (ARCs) in stressed debt resolution, including under the Insolvency & Bankruptcy Code (IBC), 2016 and review their business model.

The committee is reviewing the legal and regulatory framework of ARCs and recommend measures to improve their efficacy. It will submit its report within three months from the date of its first meeting. As of January, the number of ARCs registered with the RBI stood at 28.



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