New age investors
Breaking world records and setting new Olympic ones across sports had become the norm last fortnight. Our very own capital markets also had their own solo race. In the first five days of the month the Sensex raced from 52,587, traversing nearly 2,000 points, to a level little short of 54,500 on 5 August – an all-time high, with many still believing that new records will continue to break in the run-up to the finals, the next Olympics, still a long way away.
One of the major factors contributing to this rise was the return of the FIIs. After continuously selling over the last four months since April-July (cumulative sales over Rs41,000 crore), they returned in August with a bang. Till 5 August, the FIIs were net buyers of securities to the tune of nearly Rs2,700 crore. From the beginning of the year to date, they were net buyers to the tune of nearly Rs14,000 crore.
One of the reasons for their donning the hats of purchasers after staying sellers for four months in a row could be the continuous buying by domestic financial institutions, which pumped in Rs46,000 crore from March onwards. Year till date, they were net buyers of more than Rs17,000 crore. DIIs were also supported by the new age retail investors, who continued their aggressive buying in midcaps and small caps.
‘Have money, will buy’ was a phrase often used in the 1990s soon after liberalisation to denote the sharp spurt in consumption of imported goods, fuelled by the growing demand among youngsters. The influx of foreign goods had started soon after import norms were liberalised. With limited supplies, largely through unofficial channels, aspirations ran high for getting imported goods – be they watches, electronic goods, beauty products, cycles, two-wheelers or automobiles.
Now, 25 years later, this phrase can well be used to describe the new millennials’ seemingly insatiable aspirations to buy shares in the capital markets. This time around, the youngsters have wisely decided to build wealth for the future. Of course, along with the millennials are the numerous other first-timers with more time on their hands, ready to join the growing investors’ club. At the last count, nearly 7.2 million investors had joined the NSE in the quarter ended June 2021. And their numbers are swelling by the month.
We do not have the age profile of investors, but the popular perception is that they are under 30, smart, tech-savvy and with a zest for learning the ropes in making money from anyone and everyone who has the patience to answer their questions! They are fast learners and, after having made money in the current bull-run, their thirst is indeed unquenchable. The fact that they are also digitally savvy is demonstrated by the huge influx of members on popular internet broking sites like discount broker Zerodha, which has more than 6 million investors placing orders daily through its site.
Upstox, a site which has backers like Ratan Tata and Tiger Global, also boast of four million investors – all under 36. These sites have outpaced traditional ones like ICICIdirect.com, HDFC Securities and even broker sites like Motilal Oswal, and Edelweiss. Angel Broking, which recently completed 25 years of its existence, is also fast catching up.
At the end of July, the number of active demat account holders at Central Depositary, promoted by BSE, stood at 42 million – nearly twice the tally of March 2020. At National Depository, the number was 23 million at the end of July 2021. Adding these to the other investors – such as those investing in mutual funds, pension funds and insurance companies – may easily place the investors’ population in shares at 100 million – “more than the population of some European countries,” pointed out Ashish Chauhan, CEO, BSE, in an earlier interview with Business India.
The growth in new investors, along with the existing investors, is also reflected in the higher share of retail investors in companies. Prime Data Base has observed that the total share of retail investors in NSE-listed companies has risen to 7.18 per cent by the end of June 2021, as against 6.74 per cent in June 2020. The retail investors’ holdings in NSE-listed companies compare well with the holdings of mutual fund investments, which stood at 7.25 per cent during the same period.
The reasons for the growth of the investor population over the last one year are too well-known to be repeated here. The lockdown imposed in the wake of Covid, the ‘work from home’ concept becoming the norm, along with the fact that several small businessmen, among others, had more time to spare, following the negligible amount of travel undertaken during the last one year – all these have led to a virtual explosion in the investor population.
“The new millennials are tech-savvy and prone to investing directly in the market, rather than going only through the mutual fund routes,” points out Deven Choksey, MD, KR Choksey Investment Managers. “These investors buy smartly in good quality companies and are not overly influenced by tipsters, as was witnessed in earlier years. The millennials are also well-read and are the ones who are investing in the new generation of companies.” Besides having money to invest, they also seem to have the stomach to take more risks than the traditional investors. Fortunately for them, new age companies’ IPOs have also started coming in and they are taking risks in both secondary markets as well as primary markets.
Zomato, the food delivery chain and a technology-driven company was easily able to raise Rs9,375 crore. Even as sceptics were debating how a Rs2,000 crore company can have a market cap of Rs1,00,000 crore, the huge listing gains proved many naysayers wrong. As against the offer price of Rs76, the shares saw oversubscription to the tune of 40 times. They opened at Rs105, soon hit the 20 per cent circuit of Rs138, and closed around the same price. Retail investors are willing to play the waiting game and are not mindful of short-term losses. The successful response to Zomato has heightened the appetite of investors for other tech companies, which are waiting in the pipeline. Paytm, PhonePe and Nykaa are some of the issues that are expected to come out with IPOs shortly (see box).
Earlier, the trend in the market was largely influenced by FIIs and DIIs. One acted as a counterforce to the other. The retail investor clan has collectively become a force to reckon with now – albeit a smaller one.
“The new investors have been putting money largely in mid-cap and small caps over the last one year,” says Aniruddha Sarkar, CIO & portfolio manager, Quest Investment Advisors, a Mumbai-based advisory & PMS service provider, managing more than Rs2,200 crore of funds. Sarkar is of the opinion that the China factor has also aided the decision of FIIs to have a relook at India. The recent spate of action by China against tech companies has seen investors becoming wary of pumping more investments and they are now having a look at India again. Most of the funds this time around, says Sarkar, have come through index funds – and these funds typically invest in large cap companies.
Good results
This was one of the reasons Sensex-based companies saw a smart spurt on 3 August, when the Index notched up gains of 872 points to close at 53,823. Good corporate results for the first quarter of 2021-22 also contributed to the spurt.
HDFC, which had come out with better-than-expected results, was the biggest contributor to the rally and, towards the close, contributed to nearly 150 points. Despite the adverse impact of the second wave of Covid, which had led to a lockdown in several parts of the country, the lender was able to minimise the impact in the quarter ending June. The company reported an EPS of Rs16.55, as against Rs17.55 in the first quarter of 2020. While this was, to some extent, boosted by the sales of its subsidiary HDFC Ergo, investors still found reason to cheer. The share ended selling at Rs2,554, gaining more than Rs90.
In the third quarter, finance sector companies, which together contribute more than one-third to the Index, were all up. The top banks forming part of the Sensex – HDFC Bank, SBI, ICICI, Kotak Mahindra, etc – all contributed more than 200 points to the Sensex gains on 3 August. The share price of SBI rose to an intraday 52-week-high of Rs467 soon after the announcement of the results. Analysts expect that NPAs will soon be left behind in the wake of Covid, in the case of banks and the strong recovery of delinquent accounts will also provide a fillip to the lending.
While lending may not pick up, many believe that the Indian economy is at the beginning of a new capex cycle and some funds will be diverted to the infrastructure sector. Globally also, with governments committed to spending huge amounts on infrastructure, demand for commodities like steel, aluminium and cement are expected to remain at elevated levels for the next few years.
The US has unveiled a $2 trillion package to overhaul US infrastructure which, experts feel, is lagging behind some of its competitors, particularly China. Likewise, EU countries are finalising plans under the €750 billion worth of Next Gen deals. Four of its large member-countries – France, Germany, Italy and Spain – account for half of this.
The government of India is likewise spending heavily on infrastructure. While, for 2021-22, the amount earmarked is Rs1.77 lakh crore, public-partnerships in roads, ports and civil aviation are fast taking off in the country. While China, one of the largest producers of steel, produced over 1.05 billion tonnes of steel, accounting for nearly 56 per cent of the world’s output, it may not benefit from the boom, given its ongoing tussle with the US. Other multi-locational companies like Tata Steel, JSW and others in the emerging markets are likely to see a sharp surge in exports even at elevated rates.
This is one reason the share price of Tata Steel has soared from about Rs400 a year ago to a 52-week-high of Rs1,478 (on 29 July 2021). Similarly, JSW has gone up by more than three times in the last one year and is currently around Rs757. SAIL, still the country’s largest producer of steel, has also given 3x plus returns. The huge amount of cash flows, which will be generated during this favourable time, can be seen from the first quarter’s results of SAIL. The company, which announced its results on 6 August, earned as much profit in the quarter, as it did in the entire year of March 2021.
Aluminium, copper and other metals are also having a good run. Hindalco-Novelis, which closed the deal to take over Aleris (the enterprise value of which is $2.8 billion), will benefit from the demand for aluminium. As will National Aluminium, a PSU navratna. Hindalco has seen its share price rise from Rs177 to touch a new 52-week high of Rs471 on 29 July.
Nalco has, likewise, given 3x returns and is now trading at about Rs100. While companies like Vedanta and Hindustan Zinc are well-tracked and seen moving up in the commodity cycle, Hindustan Copper, another PSU, saw its share price also giving 3x returns. The new age retail investors are quick at spotting trends and look at returns on their capital.
One of the reasons for this is that these new age retail investors, unlike the traditional ones, do not come with any baggage. Traditional investors coming from investor families often get lured by big corporate names. The new ones are mostly looking at immediate past earnings and, more often than not, are guided by the future prognosis of the promoters, rather than mere brands.
It is evident that, over the last one year, notwithstanding the spurt in large caps, it is small caps and midcap companies that have performed better than the large cap index and non-index companies. BSE Small-cap Index has given the highest returns of 209 per cent, compared to 76 per cent returns given by the Midcap Index and the nearly 50 per cent return given by BSE Sensex.
“A majority of investors putting money in IPOs sell their shares too in IPOs,” observes Nilesh Shah, chairman, AMFI & MD, Kotak Mutual Fund. “Flipping is not restricted to old investors or new investors.” He believes that the quality of investors coming in is good. There is not much leverage buying in secondary markets, nor in retail investors’ participation in IPOs.
Leverage is mostly seen in HNI and this is not a new phenomenon, he says. While there has been a healthy flow of investors in mutual funds, many investors are coming directly into the markets, in pursuit of instant gratification. Shah is of the opinion that these investors are well below 40 and digitally extremely savvy.
“The overall market has the attributes of a triveni sangam (a confluence of three rivers),” adds Shah, comparing the trends in the secondary markets. “On the one hand, there is a strong flow of funds coming in, whether from FIIs or DIIs or retail investors. Global investors’ belief in the Indian law system is still intact, as exemplified by the favourable verdict given in Amazon-Future Group’s ongoing tussle. In other markets, the matter would not have even reached the Supreme Court. Secondly, the sentiment of investors is at an all-time high and, if the third wave of the pandemic is weak and restrictions are not too many, sentiments will soar.”
The third contributory factor, according to Shah, is corporate earnings, which have been improving quarter by quarter. He does not feel that the market is running two-three years ahead. At a forward P/E ranging at 18-22, “the markets do not seem to be exorbitantly priced. I would say they are moving maybe two to three quarters ahead of fundamentals”.
A Balasubramanian, MD & CEO, Aditya Birla Sunlife Mutual Fund, provides a different perspective relating to investors’ growing fancy for tech companies. He says: “These technology companies are perceived to be relevant to investors over a longer term. They feel that, like in the US, these companies would also become large, like FANG (Facebook, Amazon, Netflix, Google), which have now become leaders in the US market, accounting for more than 30 per cent of the market share.
The new investors feel Indian tech companies also have the potential to grow to this size. Amazon also did not make a profit for several years in a row in the pursuit of growth. “OTT companies will also continue to thrive in the absence of regulations,” explains Balasubramanian. “And the market is willing to pay the price.” He feels that, unlike the dotcom frenzy, OTTs have sound business models. Dot.com companies only believed in pursuing growth through seeking higher and higher valuations. This could not be sustained.
All experts agree that these technology-driven companies will soon be a force to reckon with and contribute to at least 20 per cent of the market cap over the next 5-7 years. Choksey and Shah, however, caution that, for every successful company, there will be a few which will not take off. The worry is that these should not dishearten new investors, who till now have only seen one-sided growth – upwards. However, investing is not a ‘one way street’ and investors have to realise that sometimes markets also go down. And remain there for quite a few months at a stretch.
Riding a crisis is not everyone’s cup of tea. However, given the huge amounts of profit generated by the markets over the last 18 months, it would be safe to assume that a part of the profits would have been taken off the table. Sensible investing after all does not mean putting one’s entire capital at risk. Corrections may and should happen. What is required is to have a strong belief in one’s convictions.
While some IPOs may not deliver expected returns, one need not lose hope and ought to keep on applying for quality issues. Index funds are also a good option for investors with lower risk appetite or those not having the wherewithal to go stock picking. While small caps have better abilities to generate returns, it is the large caps that have the ability to face adversities.
One may assume that the new age investors will also learn quickly and, being fast adapters, will not lose hope and continue to invest over a longer period of time.
Vibrancy to spill over
The deluge of offerings of good quality issues is expected to buoy up investors’ sentiments – and there is enough for all
A vibrant secondary market often acts as a catalyst for raising funds in the primary market. With easy money sloshing around in the market, there is not much of a chance of the stock markets being given a let-go by investors trying their luck in the IPO market. SEBI has also allowed investors to put money through their stock-invest, which only blocks funds to the tune of the application made in the bank account for a few days. They do not tend to lose even interest. This has levelled the IPO ground across FIIs and other large investors, including HNIs, who invest over Rs 2 lakh per issue.
In Business India, July 12-25, on ‘Raining IPOs’, it was stated there would be a virtual deluge of issues between July and November. The majority of the big ones would try to come ahead of LIC’s mega issue scheduled later in this year. Whether it divests 5 per cent or 10 per cent is a decision which is best left to the government. Either way, it will be the mother of all issues.
As on 31 July, there were many more issues firming up plans. Several of them are fintech companies. MobiKwik is coming out with a Rs1,900 crore issue, of which Rs1,500 crore comprises a fresh issue of shares and Rs400 crore relates to offer for sale. Among the other big, tech-enabled ones is Paytm.
Finance is the flavour of the season. Other IPOs in the finance sector include EASF Finance, Fino Payment Bank, Northern Arc Capital, Anand Rathi Wealth, Fincare Small Finance bank, KLM Axiva Finvest, et al. In the housing finance sector, Piramal Capital & Housing, IIFL Home Finance and Aptus Value figure prominently.
Aditya Birla Sunlife AMC was the latest to have got the go-ahead from SEBI. While this issue will come out in September, the only two big mutual funds remaining unlisted will be SBI MF and ICICI MF. Star Insurance, amongst the youngest to have entered the industry, will also be listing shortly.
Many companies which had been backed by private equity will also use the vibrant capital market to make exits and this is one of the reasons that capital issues seem quite large.
One other big IPO to catch investors’ attention is Ruchi Soya, a company promoted by Patanjali and its founder Ramdev. Speculation is rife whether a successful listing will see Patanjali doing a reverse merger with Ruchi Soya and, thereafter, changing the name of the merged entity to Patanjali – in which case, it will become a big force to reckon with in the FMCG space.
Analysts feel that, while cement, power and chemicals IPOs will see good traction with investors, it will really be the tech-enabled apps companies which should be watched. The tech companies’ valuation could, according to a few market watchers, easily garner a fifth of the total market cap of all the listed companies. All the more when the market cap reaches Rs5 trillion! It has happened in the US and there is no reason it can’t happen in India.
Good times are expected to continue for some time with heightened investors’ interest continuing to remain buoyed by the tech companies.