Posts Tagged ‘Jagannadham Thunuguntla’

Standard Chartered IDR : “Opportunity in Crisis”

Standard Chartered IDR : “Opportunity in Crisis”

By Jagannadham Thunuguntla

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The bad market conditions are putting pressure on the ongoing IPO of Standard Chartered IDR. However, if one closely observes, there is some opportunity emerging in the Standard Chartered IDR.

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What’s the trade?

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When the price of Indian IDR was fixed, the trading price of the Standard Chartered Plc share on London Stock Exchange was trading in the range of GBP 15.5.

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However, thanks to the stabilization of the global equity markets in the past 2 to 3 trading sessions, the price of the Standard Chartered Plc on London stock exchange has reached to the tune of GBP 16.82 on Thursday closing. Hence, the Indian rupee translation of the trading price in London stock exchange works out to the equivalent price of Rs 1140. As, there is 10:1 exchange rate, the effective equivalent price of Standard Chartered Indian IDR works out to Rs 114.

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If one observes, the Standard Chartered IDR issue book is getting built at the lower end of Rs 100.

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So, the institutional investors and large HNIs can take this opportunity, by simply applying for IDRs in the Indian public issue; and shorting the share in the London stock exchange. Hence, there is a spread of Rs. 14 (that is, between Rs. 114 and Rs. 100), that is 14%.

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This trade is more fascinating, especially, on the back of the fact that recently the listing days from the closure of the issue have been reduced to 12 days from the erstwhile 22 days. So, 14% is the spread available for a trade of just 12 days.

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Further, it is appearing that the IPO book will at best get barely subscribed one time. Hence, there is no risk of oversubscription. So, whoever applies is assured of allotment. Hence, as there is no spill-over risk due to oversubscription, this trade can really work well.

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It seems there is a clear 14% opportunity in just 12 days for institutions and large HNIs.

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Even if we assume that the final issue price will be in line with the Rs 104 per IDR, as applied by the Anchor investors, still there is Rs 10 spread (that is, between Rs 114 and Rs. 104), that is to the tune of about 10%.

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The couple of assumptions that need to be highlighted are:

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(a) The IDR issue will be able to get closed successfully and will not get called off; and

(b) The currency risk is properly hedged

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Conclusion

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As this is the first ever IDR issue in India, the learning curve will be steeper for every one associated in the value chain, regarding the concept and nuances of the modus operandi. As always, the “first mover advantage” can prove to be invaluable.

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Indian Stock Market Reaction To Indian Budget :)

Indian stock markets, reacted positively to the budget, with a benchmark index breaking free to close 237 points higher than its previous weekly close. 🙂

The 30-share sensitive index (Sensex) of the Bombay Stock Exchange (BSE) moved up 237.92 points or 1.47 percent to end Friday at 16,429.55 points, 237 points above its previous weekly close at 16,191.63 points.

The broader S&P CNX Nifty of the National Stock Exchange (NSE) too posted gains to end the week at 4,922.3 points, up 77.4 points or 1.57 percent.

Broader market indices, however, ended the week in the red with the BSE midcap index closing 0.54 percent down and the BSE smallcap index 1.67 percent lower.

“Though it is not possible to keep everyone happy, the finance minister has done a commendable job. This was evident from the way markets reacted to the announcements,” said Jagannadham Thunuguntla, the equity head for brokerage firm SMC Capitals.

“The budget did help in breaking from the side-ways movement, but it is not going to help much going forward. A lot of the budget news has been factored in and one should not expect a major rally,” he added.

The top gainers during the week included Hindalco (up 7.7 percent), Maruti Suzuki (up 6.8 percent), L&T (up 6.2 percent), Hero Honda (up 5.5 percent) and ICICI Bank (up 5 percent).

Among top losers were ITC (down 6.5 percent), Reliance Communications (down 2.8 percent), Tata Power (down 2.2 percent), Hindustan Unilever (down 2.2 percent) and Reliance Industries (down 0.6 percent).

Data with markets watchdog Securities and Exchange Board of India (SEBI) showed that foreign funds were net buyers during the week, having bought scrips worth $313.56 million.

Benchmark indices in the US ended slightly lower this week with Dow Jones industrial average dipping 0.8 percent, the Standard and Poor’s 500 Index 500 down 0.4 percent and the Nasdaq composite falling 0.3 percent.

ECBs and FCCBs Dropped 6% in Dec 2009 !

external commercial borrowings (ECBs) and foreign currency convertible bonds (FCCBs) have dropped 6% in December 2009

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Total approvals received by Indian companies to raise capital by way of external commercial borrowings (ECBs) and foreign currency convertible bonds (FCCBs) have dropped 6% in December 2009 to $1.56 billion as against $1.66 billion in December 2008.

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This is as per the data released by the Reserve Bank of India (RBI).

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Total approvals received by Indian companies to raise capital by ECBs and FCCBs stood at $2.35 billion in November 2009.

There were about 68 deals in December 2009, out of which three deals were by way of FCCBs.

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Daimler India Commercial Vehicles Pvt Ltd raised $402 million by way of ECBs for new projects for a maturity period of eight years and 11 months.

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“The ECB market is definitely looking bullish for 2010, however the robustness will not be the way it was in 2007.

Indian banks are also not lending to the corporates here.

Hence, there will be appetite for foreign funds. However, there is a challenge on the forex fluctuation risk as well,” noted Jagannadham Thunuguntla, equity head with SMC Capital.

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According to market analysts, more Indian companies are going to take the ECB route to raise funds, with the interest rates heading northwards in India.

Currently there is also more demand for short-term funds.

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🙂

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Indian Private Equity Industry to Hit By US Banks Curbs : Experts

Indian Private Equity Industry to Hit By US Banks Curbs

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In case, US President Barack Obama‘s proposal to curb the role of commercial banks in hedge and PE funds is implemented, then fund-raising could indeed become a very tough task for Indian private equity players.

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But at the same time, the move could help Indian funds take part in more deals, market players insist.

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Obama has proposed to bar commercial banks from owning, advising and investing their own capital in PE and hedge funds.

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Though most investors in Indian PE funds are university funds, endowment funds, pension funds, insurance funds and institutional investors,  the industry expects the move to impact fund-raising in the long term and in big way, as banks will be barred from taking part in these funds.

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A large number of venture capital and PE funds of US-based commercial banks had reduced their exposure to India during the economic slowdown.

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Though few big ones like Goldman Sachs, Merrill Lynch etc; stayed back in the market.

Indian PE players hope to get more deals if these players vacate the market.

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Market experts do not see any significant impact in the coming few months, but cannot deny that a slowdown in USA market will surely impact the Indian private equity industry.

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They feel that any curbs on banks would make fund-raising a very difficult task since banks were the biggest contributors of funds.

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Industry players say the focus will shift from funds of banks to fund of funds, pension funds, and university and endowment funds.

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“It will be difficult to put a number as these transactions are structured in a complex manner.

But I believe a significant proportion of investments in India-based PE funds come from balance sheets of these banks.

These firms will be affected and will have to look for new sources of money,” said Jagannadham Thunuguntla, equity head at SMC Capitals.

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🙂

US Based VC Fund To Heavily Invest in Indian Firms

US Based VC Fund To Heavily Invest in Indian Firms

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New Enterprise Associates Inc. (NEA), an US-based venture capital (VC) fund will allocate 15%, or $375 million, for investment in Indian firms, a senior company official said.

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Earlier, it had also raised $2.5 billion (Rs 11,425 crore) in its 13th fund to focus on the emerging markets.

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Firm’s senior managing director told to media person that they will be only doing growth equity deals in India.

Moreover, they may enter early in some sectors and do follow-on funding till they reach $50 million.

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Firm does have plans of investing funds in India over a period of four years, with a deal size of $30-80 million.

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Though, their main focus will be the mid-market segment, all the way.

The new fund will also restructure its alliances in India.

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NEA – IndoUS, started in 2006 by Vinod Dham, Vani Kola and Kumar Shiralagi, when NEA had no direct presence in India.

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It raised $189 million in 2007 and has invested in firms such as mobile phone marketer mGinger, movie rental service Seventymm Services Pvt. Ltd, and online gift service Myntra Designs Pvt. Ltd.

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The services sector and the clean technology space are among sectors the company will invest in.

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The NEA fund also marks a revival of venture fund-raising.

The global financial meltdown that followed the September 2008 collapse of US investment bank Lehman Brothers Holdings Inc. dramatically affected the VC environment.

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“Even funds with a good track record have found it difficult to raise money with many trying to raise funds since the past one year,” said Jagannadham Thunuguntla, equity head at Delhi-based investment bank SMC Capitals Ltd.

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“It is not good news for first-time fund managers.

However, for the ones who have managed to raise money and invest in 2009-2010 they will get fair valuations and can at least expect modest returns” he added.

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🙂

India Inc Set to Raise Rs.50k Crores Through IPOs in 2010: SMC Capital

India Inc Set to Raise Rs.50k Crores Through IPOs in 2010:SMC Capital

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Domestic companies seems set to get on with the huge fund raising exercise this year with plans to raise over Rs 50,000 crore via public offers, driven by the sharp recovery in the stock market.

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Almost 50 companies have already filed the draft prospectus with the market regulator, the Securities and Exchange Board of India (SEBI).

This depicts at the healthy prospect of the strong IPO market after the encouraging revival of IPO market in 2009.

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Indian companies had raised about Rs 20,000 crore through IPOs in 2009.

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Market Experts feel that fund raising can go up to Rs 50,000 crore this year since Government has already planned to sell shares in a host of public sector companies by way of IPOs and follow-on public offers (FPOs).

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Five companies aiming to raise over Rs 300 crore have already received the regulator’s clearance for the IPO, if draft prospectus filed with the SEBI is anything to go by.

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“The IPO pipeline looks strong in 2010.

Also the way the government is pushing ahead with the disinvestment plan, fund raising can go up to Rs 50,000 crore by the end of the year,” SMC Capitals Equity Head Jagannadham Thunuguntla said.

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As part of its disinvestment plans the government intends to raise over Rs 20,000 crore by way of FPOs of NMDC, SAIL, NTPC, and REC.

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Some of the prominent private companies which have their IPOs lined up, beside this, include Jindal Power, BPTP, Reliance Infratel, Emaar MGF etc;

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“Of the total IPOs that are in the pipeline, as many as 16 are from real estate sector. However, their success is a bit doubtful as the appetite for realty IPOs are currently less,” Thunuguntla added.

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Primary market fund raising in 2008 saw 30 IPOs mopping up Rs 17,000 crore, but shares of many these companies gave the investors modest-to-good returns.

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🙂

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Market Experts Expect IT Stocks to Do Well During 3rd Quarter

Market Experts Expects IT Stocks to Do Well During 3rd Quarter

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With IT Biggy Infosys showing up with better-than-expected results and revenue guidance, IT stocks have turn out to be hot picks.

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This is owing to the factor that market participants are now anticipating good third quarter results on improved global demand scenario.

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Month-to-date, the BSE IT index has returned 4.16 per cent against a marginal 0.51 per cent advance in the BSE Sensex.

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Where IT biggies have climbed as much as 5 per cent during the period, mid-cap and small-cap IT stocks have followed the cues even better.

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“The Infosys numbers have set the tone for the IT sector. The numbers posted by the sector for the third quarter of financial year 2009-10 are encouraging and even the guidance is optimistic.

The analysis shows that revenue visibility has gone up,” said Jagannadham Thunuguntla, head of research at SMC Capitals.

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Financial Technologies shot up 20.55 per cent. Tech Mahindra climbed 14.77 per cent.

Patni Computer jumped 7.20 per cent followed by Polaris Software, Rolta India, MindTree and MphasiS, which climbed 4.67 per cent, 4.11 per cent and 0.33 per cent respectively.

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However, MphasiS and Redington India inched down 0.41 per cent and 0.45 per cent respectively.

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“We expect IT service companies to be more optimistic regarding the macro environment compared with the stance in the previous few quarters.

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While 2010 IT budgets are likely to be flat with a positive bias, managements might not provide significant clarity on them,” the brokerage added.

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The years 2009 and 2010 underline a significant recovery in business optimism and economic conditions.

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Thunuguntla feels signs of recovery have also started appearing in the US and in the global financial sector, which was the genesis of the financial crisis.

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In such a situation, there is no reason why the Indian IT sector shouldn’t do well during the third quarter.

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Understandably, the sector’s fortunes are linked to the value and fluctuation in the dollar.

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A strengthening dollar can put pressure on the profitability margins of IT companies.

But, IT volumes still remain strong, and sector should see healthy performance.

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🙂