• MAY 14, 2008

Simplified IPOs, terrorism and more

IPO 'refunds' made simpler

What follows in this report is a mix of good and bad news, the latter for corporate India and its globalising aspirations. Let us start with the good news first. The stock market regulator, SEBI has simplified the IPO refund process by removing the 'refund' part from the entire exercise of applying to an IPO and awaiting allotment and/or refund of application money. This, the SEBI, has proposed to do by way of 'blocking' application money in the investor's account till the time the allotments are made. Simply put, you, as a retail investor can participate in an IPO or rights issue without the application money actually leaving your bank account.

  • Check this out before applying to IPOs

    What the bank will do in this case is block the 'application amount', which still remains in your account (but which you cannot use for other purposes) until the allotment process is finalized. The money will be transferred to the stock issuing company only when you, an applicant, get the actual allotment. And in case the allotment does not happen, the money will get automatically 'unblocked' for you to use for any purpose.

    The rationale behind the entire exercise if to simply the entire process and take heed to investors complaints about not receiving refund on time and sometimes not at all. What will this move do for the banks is to take away the free 'float' that they can use for these days, starting from the day of application to allotment. The exercise usually takes 36 days, which is a good enough time for the banks (and even companies) to play around with the investors' money.

    Terror's ugly strike
    The pink city of Jaipur (Rajasthan) bathed in red yesterday, as terrorists struck the innocent citizens with six bomb blasts. 80 lives have been lost and 150 people wounded in these strikes on the city, which is one of India's hot spots for foreign tourists. While terrorism in the shape of attacks like these, does not impact any country's long term economic plans and growth, what it does is disturbs the business landscape for the short to medium term. Industries like tourism and hospitality are the worst hit.

  • We ended 2007 with terrorism

    Investors in India have been aware of the risk of terrorism for years. Along India's eastern and north-eastern borders and in the extreme northern state of Jammu & Kashmir, insurgent attacks are commonplace. But recently, terrorists have repeatedly targeted India's largest and prominent cities like Mumbai, New Delhi, Varanasi (one of the most sacred place for the Hindus and a tourist destination) and now Jaipur. These are places of economic significance for the country and any disturbance created in these cities is bound to impact the national economy, even if for a short term.

    We believe terrorism is now a global reality (talk about attacks in New York, Madrid and London) and policymakers and citizen groups are trying to find solutions to minimise the impact of the same, both on the society and the economy. Understood that it leaves a temporary impact on the economy, the mark that it leaves on the families of the deceased is indelible.

    What could impact India's manufacturing dreams?
    Now, let us talk about 'terrorism' of a different kind. It's called 'Naxalism', a phenomenon that is impacting the rise of India's manufacturing set-up. People who follow Naxalism, called the Naxalites are insurgents who seek the violent overthrow of the state and who despise India's landowning and business classes. As reported in the latest issue of Business Week, Naxalism is a big threat to India's economic power, even 'more damaging to Indian companies, foreign investors, and the state than pollution, crumbling infrastructure, or political gridlock'. The attacks on Essar Steel's factory in Chhattisgarh in April and earlier attacks on Tata Motors' small car plant in Singur (West Bengal) are examples of this rising insurgency.

    The report further states that 'just when India needs to ramp up its industrial machine to lock in growth - and just when foreign companies are joining the party - the Naxalites are clashing with the mining and steel companies essential to India's long term success. What is more, the Business Week report talks about the threat that Naxalism can have on establishments (of retailing, outsourcing and finance) in Indian cities. A non-uniform progress that India has seen ever since Independence in 1947 has been the genesis of the Naxalite movement (which started way back in 1967). If the cause of unequal distribution of wealth between the haves and the have-nots is addressed, we believe the problem will also get reduced to the minimum.

  • What's holding India back?

    Proactive policy measures to improve living standards (especially by way of employment generation) in rural areas, especially in the areas of extreme poverty in the states of Bihar, Chhattisgarh, Jharkhand, West Bengal, Orissa, Madhya Pradesh and Andhra Pradesh are probably a way this menace to be curbed. Till that happens, however, companies (both domestic and global) trying to mine resources in these states will have to live with these risks. And that will, in a way, impact the rise of India as a manufacturing and mineral resource hub.

    Copyright © Equitymaster Agora Research Private Limited. All rights reserved.
    Any act of copying, reproducing or distributing this newsletter whether wholly or in part, for any purpose without the permission of Equitymaster is strictly prohibited and shall be deemed to be copyright infringement.

    LEGAL DISCLAIMER: Equitymaster Agora Research Private Limited (Research Analyst) bearing Registration No. INH000000537 (hereinafter referred as 'Equitymaster') is an independent equity research Company. Equitymaster is not an Investment Adviser. Information herein should be regarded as a resource only and should be used at one's own risk. This is not an offer to sell or solicitation to buy any securities and Equitymaster will not be liable for any losses incurred or investment(s) made or decisions taken/or not taken based on the information provided herein. Information contained herein does not constitute investment advice or a personal recommendation or take into account the particular investment objectives, financial situations, or needs of individual subscribers. Before acting on any recommendation, subscribers should consider whether it is suitable for their particular circumstances and, if necessary, seek an independent professional advice. This is not directed for access or use by anyone in a country, especially, USA, Canada or the European Union countries, where such use or access is unlawful or which may subject Equitymaster or its affiliates to any registration or licensing requirement. All content and information is provided on an 'As Is' basis by Equitymaster. Information herein is believed to be reliable but Equitymaster does not warrant its completeness or accuracy and expressly disclaims all warranties and conditions of any kind, whether express or implied. Equitymaster may hold shares in the company/ies discussed herein. As a condition to accessing Equitymaster content and website, you agree to our Terms and Conditions of Use, available here. The performance data quoted represents past performance and does not guarantee future results.

    SEBI (Research Analysts) Regulations 2014, Registration No. INH000000537.

    Equitymaster Agora Research Private Limited (Research Analyst)
    103, Regent Chambers, Above Status Restaurant, Nariman Point, Mumbai - 400 021. India.
    Telephone: +91-22-61434055. Fax: +91-22-22028550. Email: info@equitymaster.com. Website: www.equitymaster.com. CIN:U74999MH2007PTC175407