Sunday, November 23, 2014

Retail Investors are getting shut out of new ventures

Since investing is for the future, I decided to consult my 16-year old son about companies and sectors he saw as holding promise. 
“Technology,” he said. “Phones, and computers.” Like Apple, I thought. That’s a US company. Samsung? Korean. There is, of course, Micromax, but that’s not yet listed.
“Can’t really invest in those.” I told him.
“Other gadgets?”, he offered “Like TVs, fridges, air-conditioners?”
“The Koreans practically own the space”, I explained. “And none of them have listed in India”
“If I was a little younger, I would have said, candy”.
“Chocolates dominate candy markets around the world. And I would love to own shares in Cadbury. But that’s now owned by Mondelez, and they delisted Cadbury India a long time ago”
“Amul?” he asked. That’s a cooperative federation, and its shares are not openly traded.
The soft drink space is dominated by the global rivals, Pepsi and Coke, and neither of them have Indian listing. Through its Frito-Lay division, Pepsi also dominates the Indian snack food market, with Kurkure and Lay’s potato chips. The number two snack-food player, with the Bingo range, is ITC. One could buy ITC shares, but you’d be buying into a conglomerate which purveys everything from cigarettes to agarbatti, and exercise books to hotel rooms.
The largest player in aviation, Indigo, is also unlisted. Times of India, the largest print media brand, is owned by Bennett Coleman, a privately held company. Among television channels, two market leaders, Sony and Star, are owned by foreign companies. The digital space is completely dominated by US brands, whether Google, Twitter, Facebook or Instagram.
The battle for Indian e-tail is likely to be an intense and keenly fought one, with Flipkart and Amazon India both drawing up investment budgets that top a billion dollars, but not a paisa of that is coming from the Indian retail investor. 
You get the drift - as an ordinary investor in listed Indian companies, vast swathes of business are not looking for my money. This makes me feel deprived.
The figures are eloquent - in all of 2014, Indian markets have had 5 IPOs*, with an aggregate issue size of Rs. 1355 cr. To put that in context, the market cap of Indian stocks is close to 1.8 trillion US dollars, or 100,000 crores. That’s a lot of zeros, but if I got my math right, the Indian IPO market in this year of boom and optimism is .001% of the market cap. The investor is secondary to the process of raising capital! The stock market trades only in second-hand goods. The factory-fresh merchandise is ear-marked for financial intermediaries of all manner - VCs, PE funds, pension funds, investmant banks, sovereign wealth funds.
I’m not writing this piece to plead for my right to invest. My intent was to explore three thoughts:
• how constrained my opportunities are, which I have done above
• whether regulation or other structural issues have moved the market in this direction
• how an individual might expand his pallette of opportunities.
*IPOs in 2014:  Shemaroo: 120 cr., Sharda 352 cr, Snowman 197 cr, Wonderla 181 cr. , Engineers India 505 cr.

The Falling IPO Market

The IPO market has been falling, both in numbers and money collected, since 2007. Last year saw a late issue by Powergrid that bumped up the number (it was a 7,000 cr. IPO). But thats still tiny compared to the 34,000 cr.+ issues in 2007 and 2010, both great bull market years. This year is a bull market, by any standard, except the enthusiasm to list companies through an IPO. 
In context, Zomato, Snapdeal, Ola cabs and Housing are Indian businesses that raised money from private markets (venture capital). Snapdeal alone raised 3,700 cr. - more than all the public market IPOs in 2014 put together and multipled by 2. 
In the next part, we'll speak of regulatory hassles companies face when they go public, and how we can look forward to participating in a growth story that is almost exclusively restricted to non-retail investors today.

No comments:

Post a Comment