Think big, act smart

The capital markets in India, like most markets globally, seem to have recovered faster than other sectors. It has not only overcome the fears of Covid-19 but also recovered sufficiently to move ahead to all-time highs.

One may say that this is indeed baffling as the markets normally tend to mirror the health of the economy which, by no stretch of imagination, is healthy. Apart from China, besides India, all global economies, including the US, UK and Germany, are nowhere close to normal. In a bid to ease the pains of the pandemic, global governments have injected huge amounts of liquidity into the system and with interest rates near zero per cent in developed economies, a fair amount of liquidity is chasing growth in the emerging markets. 

In India, foreign investors have, till date, pumped in Rs77,000 crore since January. This is on top of the Rs1 lakh crore in the previous year (January-December 2019). Unlike the popular perception that the rally is polarised, with only a few shares contributing to the rise, this time it is more broad-based. The BSE midcap, small-cap and even the BSE 500 indices are also making new highs along with the Sensex. This is probably one of the few times that all major indices are making record highs. 

Given that the FII inflows are likely to continue for some time, it is in the interest of both the government and the corporate sector to take advantage of this opportunity to look at raising capital by way of debt or equity. Given that the global markets are awash with liquidity and interest rates are low, companies should raise capital when it is available. Earlier in the year, many farsighted banks had availed of the opportunity and gone on an investment raising spree.  Reliance Industries has shown the way to go around raising capital. Global risk appetite and low interest rates have paved the way for companies to look ahead. However, not many corporates have followed in its footsteps.

Corporates with good brands ought to take advantage of the current situation and raise billions of dollars. Promoters, unlike investors, do not have a short-term vision and can afford to take risks and embark on new projects to spread their wings. There is enough wealth with domestic investors to provide capital. If required, a separate exchange along these lines could be created for innovative companies based on tech.

The near $3 trillion response to ANT’s IPO which planned to raise $35 billion is but an example of how innovation and tech are rewarded. India is known as an IT and start-up capital. It has to think big. China has been investing heavily in technology, pharma and new age technologies. A Nasdaq like Shanghai STAR market of China, an exchange focussing on science and technology companies, is currently valued at $400 billion. The exchange was launched in July 2019.

The market created to allow technology companies to list on domestic markets, rather than seek listing elsewhere, has proved highly beneficial. More than $5.5 billion has been raised till January and in July the exchange raised $7 billion.  Compare this to the endless debate on listing new tech companies SEBI has indulged in. China is effectively trying to reverse the export of capital markets back to its shores.

India needs to take a cue from this and try to reverse the exports of its capital markets. Indian start-ups prefer to incorporate in offshore centres like Singapore, without the burden of peculiar tax rules on pricing and requirements of showing profits, etc, before listing. There is absolutely no justification for gold prices to be determined in the overseas market when India is the biggest consumer. One needs to shed a diffident and suspicious attitude and don the cap of a confident winner. India is amongst the largest producers of sugar, tea, wheat, milk and rice. It has to become a price maker rather than a price follower.

Also, it is forgotten that globally, bond markets are several times larger than equity markets. Yet in spite of pious declarations repeatedly by every finance minister and RBI governor, we just don’t have a corporate bond market. Regulatory relaxations are required to make it easier for start-ups to raise capital in the domestic markets rather than being forced to seek incorporation overseas. 

With the huge wealth tied up in the PSUs, the government also needs to step up the pace of its disinvestment in a bid to take full advantage of the buoyancy in the capital markets. Instead of trying to sell shares to a strategic investor in a bid to get a better price it is advisable to effect piecemeal shares. Once it makes its intention known to divest control in selected PSUs, the markets will take a favourable view. There are quite a few unlisted PSUs, apart from LIC, which require to be listed and then fully divested.