The latest retail inflation data, while highlighting the challenge in achieving durable price stability, poses a political challenge to Narendra Modi and the ruling Bharatiya Janata Party. While retail inflation stayed under the Reserve Bank of India’s median target of 4 per cent for the second successive month in August, it inched up to 3.65 per cent from an upwardly revised 3.6 per cent in July. A sharp rebound in vegetable inflation led to a wider acceleration in overall food price gains. Price gains in vegetables – the third-largest constituent of the Consumer Food Price Index – surged by more than 380 basis points to 10.7 per cent, spurring food price inflation to 5.66 per cent. Among vegetables, year-on-year inflation in the most widely consumed potato and onion still remained in the high double digits for a sixth and 13th month at 64 per cent and 54 per cent respectively. Other vegetables also experienced a surge in price gains with some posting double-digit inflation. Also, disinflation in the prices of pulses and cereals remained slow, with year-on-year price gains in the former still in the double digits for a 15th straight month at 13.6 per cent, while the latter logged an inflation reading of 7.3 per cent.
Disconcertingly for the ruling dispensation, food inflation in the rural areas rebounded to exceed 6 per cent. Overall, rural inflation stayed elevated compared to that faced by urban consumers, rising marginally from 4.1 per cent in July to 4.16 per cent, while urban inflation stood at 3.14 per cent in August. In poll-bound Haryana and Maharashtra, this could fuel some anti-incumbency against the ruling party.
Economists reckon the pace of price rise would resurge from this month, as the beneficial base effects would dissipate – the Consumer Price Index (CPI) was up 5 per cent last September. The central bank had estimated an average inflation of 4.4 per cent in the July to September quarter, but with the first two months averaging just 3.6 per cent, that could mean an inflation pace of 6 per cent in the ongoing month. Even if that does not happen, a sharp pickup in CPI inflation to around 4.8 per cent in the second half of 2024-25 is inevitable. On top of that is the possible impact of above normal rainfall and the development of La Nina conditions which could pose upside risks to the food inflation trajectory in the near term.
Besides, a durable disinflation to the RBI’s medium-term monetary policy goal of 4 per cent headline retail inflation faces the challenge of a resurgence in core inflation. The price gains measure, which strips out the more volatile food and fuel components, inched up to 3.38 per cent after having snapped a 17-month decelerating streak in July. Based on responses from goods manufacturers polled for the monthly HSBC India Manufacturing PMI survey, HSBC recently observed that there was a “marked increase in prices charged for goods in August” with the rate of output-charge inflation the second-fastest in close to 11 years.
The RBI is naturally worried with Governor Shaktikanta Das admitting that the last mile of disinflation was proving to be “challenging” and the authorities “cannot afford to look the other way”. This is happening at a time when stuttering private consumption is trying to regain momentum in the economically crucial agrarian hinterland. High food inflation would therefore hit growth adversely as it affects consumption.
With India’s GDP growth undershooting the RBI’s estimate of 7.1 per cent in the first quarter, one had expected a change in the monetary policy stance in October. The new data could change that. The earliest point for a policy shift may not arise before December, as the central bank will now look for inflation to stay low on a durable basis.
What can the government do? Export bans, stockpiling limits and weekly food stock reporting have all gone against the farm law logic, yet have been used to keep crop produce within the country to stabilise the food market. NAFED and other government agencies have also been used to release additional food stocks, yet prices refuse to stabilise or come down. The government needs to shift gears, beginning by taking a step away from industrial agriculture towards regenerative agriculture. One or two states can’t take the burden of food production anymore. Erratic weather is tearing into our usual growing seasons and hence we need to create regional food production hubs using sustainable agricultural methods so that sub-regions can take care of themselves. Farmers and consumers need to be linked through direct marketing and supported by transport and storage subsidies, then the government can kill three birds with one policy stone. But will it?
Another jewel in Bajaj’s crown
The mortgage housing company has already gatecrashed the top 3
Bajaj Housing's IPO will go down as one of the landmark IPOs of the past 25 years in the country. It not only evoked widespread interest from both small and large investors, but the multiple times oversubscription was also completed in record time. Just under 90 lakh investors subscribed to the issue, which saw demand worth Rs3.24 lakh crore — a record in itself. The issue, which opened on Wednesday, saw allotments completed by the weekend, with the shares all set to be listed on Monday. It does not matter what the listing price will be, or whether it lists at a 100 per cent premium or more, as is widely expected. The key point is that the second-largest housing finance company, with assets of over Rs90,000 crore, is likely to fill the vacuum created by HDFC, which was until recently the largest housing mortgage company before its merger with HDFC Bank. Moreover, the promoters ensured there was enough left on the table for investors.
Bajaj has consistently ensured that shareholders are well rewarded throughout the years. Their emphasis on good governance and fair play has seen the group’s market capitalisation grow nearly 240x since 2000. Shareholders have benefitted from Bajaj Auto stock splits, bonus shares, and even the bifurcation of the companies, with the manufacturing arm led by Rahul Bajaj’s son Sanjiv Bajaj, and the finance companies also led by Sanjiv Bajaj. From a price of Rs450 per share of Bajaj Auto in 2000, the current value exceeds Rs11,000. Its market cap was around Rs5,373 crore, but today, the combined market cap of Bajaj Finserv, Bajaj Holdings, and Bajaj Finance is close to Rs12 lakh crore, ignoring cross-holdings. Bajaj Housing Finance is expected to add at least another Rs1 lakh crore to this. Unlike analysts who strictly evaluate finances, investors are focusing on the company’s potential and long-term performance. Price-to-book value and P/E ratios are less of a concern for the majority of investors, overshadowed by the group’s legacy and track record.
Investors in Bajaj companies tend not to focus on short-term gains, and there may be less share flipping compared to other companies. As Deepak Parekh, the ex-chairman of HDFC, used to say: “One must leave enough on the table for investors to ensure they also get a share of the profit.” Parekh, one of the most respected industrialists, built one of the largest financial conglomerates, including the bank, NBFCs, insurance companies, private equity firms, and more, which collectively have a market valuation of just under Rs15 lakh crore. Of course, the Ambanis of Reliance Industries, the Tatas, and the Adanis are far ahead of the Bajaj Group. Groups that have ingrained good governance into their DNA and treat their shareholders as partners have been handsomely rewarded by the markets. The Birlas are another group with several overseas assets, so a strict comparison with the Bajaj Group may not be entirely fair.
India has seen several IPOs over the decades that have significantly shifted investor sentiment. From the FERA divestments of the 1970s to more recent IPOs like TCS, Coal India, and Zomato, which all sparked widespread investor interest. At the start of this century, it was the PSUs that were most sought after during the disinvestment drives under Finance Minister Yashwant Sinha in the early 2000s. There will undoubtedly be many more IPOs in the coming years. Swiggy, LG Electronics, Hyundai, and MobiKwik are among the consumer-facing companies planning to raise funds from the capital markets in the near future.
With the vibrant secondary markets creating a favourable environment for IPOs, many more companies, including those backed by private equity, will be looking to exit via IPOs.
Bajaj Housing has clearly shown there is more than enough investable capital for strong offerings. Achieving demand for shares valued at R3.60 lakh crore for an IPO is certainly no small feat. Companies in sectors like green energy, data storage, and semiconductors will be among the new wave of IPOs. With the government’s focus on infrastructure and the revival of capital projects, one can also expect IPOs from this sector.
The new generation of investors are young, tech-savvy, and more willing to take risks than their predecessors. While they may not have time for in-depth analysis, they rely on the track record of the promoters and how they are perceived by the market before diving into IPOs. Perhaps SEBI needs to modify rules to ensure a higher number of investors receive allotments, even if it’s just 50 shares each, in order to broaden the investor base.