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Sensex Opens in Red; Reliance Nippon AMC Makes a Weak Debut
Mon, 6 Nov 09:30 am | Rini Mehta, TM Team

Asian stock markets are lower today as Chinese and Hong Kong shares fall. The Shanghai Composite is off 0.30% while the Hang Seng is down 1.37%. The Nikkei 225 is trading slightly up by 0.01%. Meanwhile, a surge in shares of heavyweight Apple helped push up major Wall Street indices on Friday, as investors also assessed a mixed US labor market report.

Back home, India share markets have opened the day on a negative note. The BSE Sensex is trading lower by 47 points while the NSE Nifty is trading lower by 19 points. The BSE Mid Cap index opened down by 0.1% while BSE Small Cap index opened up by 0.2%.

All sectoral indices have opened the day on a mixed note with consumer durables sector and realty sector leading the gains. While, metal stocks and bank stocks have opened the day in red. The rupee is trading at 64.58 to the US$.

In the latest development, foreign investors turned net buyers in October to invest over Rs 30 billon in stocks, enthused by the Government's Rs 2.11 trillion bank recapitalisation plan.

The latest inflow followed a net pullout of Rs 240 billion from stock markets in the past two months (August and September). Prior to that, FPIs had invested over Rs 590 billion in equities between February, July.

According to depository data, foreign portfolio investors (FPIs) infused a net sum of Rs 30.6 billion in equities last month.

Apart from equities, overseas investors have infused a staggering Rs 160 billion in the debt segments last month due to high nominal and real yields.

Meanwhile, cumulative foreign direct investment (FDI) equity flows into India reached US$114.4 billion during the last two financial years of 2015-16 and 2016-17.

This is about 40% higher than the US$81.8 billion recorded in the preceding three years, from 2011-12 to 2013-14. United Arab Emirates (UAE) investors announced US$2.5 billion worth of investments in India in a single month-October 2017.

While valuation has reached dizzy heights, earnings are yet to catch up. Fund managers believe there are some underlying risks that the Indian market is not factoring in like sluggish earnings growth. PE multiple expansion rather than earnings growth explains nearly all of the performance this year for India.

So, should you stay away from the market? Or swim with the tide?

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Here's an excerpt of what Rahul Shah, Co-head of Research, wrote in one of the edition of The 5Minute WrapUp:

  • "Indian retail investors should not blindly follow FPIs in and out of stocks. It is far better to take advantage of the volatility caused by their selling to enter good quality stocks for the long-term."

Moving on to the news from IPO space. Reliance Nippon Life Asset Management (RNAM) has made its stock market debut today. The company which successfully concluded its Rs 15.4-billion initial public offering (IPO) recently, is the first mutual fund listing on Indian stock exchanges.

The IPO of the company was oversubscribed 81.5 times during 25-27 October, with bids for 3,493 million shares, worth Rs 880.2 billion. The company had fixed the price band at Rs 247 -252 per share.

Reliance Nippon is the country's third-largest AMC in terms of assets and has a 11.4% market share. The company managed assets worth Rs 3.84 trillion across mutual funds (Rs 2.3 trillion), managed accounts (Rs 1.53trillion) and offshore funds and advisory mandates (Rs 22.2 billion) as of August 2017.

To know more about the company, you can read our IPO note for the above company. You can access the same in our IPO section.

Also, to learn how to navigate the treacherous world of IPOs, do read our special report on finding money-spinning IPOs.

With buoyant capital markets and the mutual fund industry on a roll, asset management companies are eager to unlock value through initial public offerings. And the first mover in this race is Anil Ambani promoted Reliance Nippon Life Asset Management Company.

However, India has the lowest mutual fund penetration globally. The total Assets under Management (AUM) to GDP ratio of India stands at a mere 10%, way below the global average of 55%. Countries like Australia and the US have AUM to GDP ratios of over 100%. So, the mutual fund industry in the country provides huge scope for growth and development.

India Fares Poorly in Mutual Fund Penetration

Real estate and gold have become less attractive forms of investments post notebandi. Even the reduction in bank deposit rates in the past year has led to a shift in investment to mutual funds and the stock markets.

The mutual fund industry has grown at an annual rate of 18% in the past decade, and is expected to grow by 20% over the next five years.

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