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Economic activity has been impacted significantly in Q1 2020 in wake of the covid-19 related lockdowns and social distancing. Global economy is heading towards a recession with GDP contraction in advanced economies ranging from 3.4% to 14.2% in Q1 2020. In India also strict lockdown in April and May slowed down economic activity with collapse of demand in urban and rural segments. However from June 2020 as the economy is being opened up and lockdowns are relaxed, the Indian economy is showing early sign of recovery. The arrival of normal monsoon has also brought good news from agriculture and allied activities. Food grains production has registered an increase of 3.7%, a new record (as per estimate of Ministry of Agriculture released on 15th May). The Indian Meteorological department has further forecasted a normal southwest monsoon in 2020.
Monetary Policy committee of RBI in its last meeting in May 22 has decided to continue with accommodative stance to revive growth in light of Covid-19 crisis. It has reduced policy repo rate by 40 bps to 4.00% from 4.40%. Bank rate has been reduced to 4.25% from 4.65%. RBI has also remained proactive in infusing liquidity in the system through absorptions under liquidity adjustment facility (LAF), refinance to NABARD, SIDBI & NHB and three targeted long term repo operation (TLTRO) auctions amongst other measures.
Trends in Secondary Markets:
S&P Sensex closed at 34,916 in June 2020 up from 32,424 in May, an increase of 2492 points (7.69%) over previous month closing. Nifty 50 closed at 10302 in June, an increase of 7.53% over May closing of 9580. Improvement in economic activity following the relaxations in lockdowns, liquidity in the system and expectation of positive monsoon were the primary reasons for market gains. Indian market performance was also in line with the global indices, most of which delivered positive returns in June.
Foreign portfolio investors (FPI) and Foreign Institutional Investors (FII) infused Rs. 26,009 Crore in India in June 2020. Earlier overseas investors were net sellers for three consecutive months March, April and May. FPI and FII investments in June came amid high liquidity in the global market due to measures taken by various governments to increase liquidity. The same is finding its way in India as India is well placed amongst emerging economies. It can be argued that the recent stock market rally is at least partly fuelled by the liquidity in the system.
Almost all of the BSE sectoral indices ended positively in June 2020. Finance sector (11.91%), Realty (12.05%), Auto (8.38%), Bankex (9.75%) and Industrial sector (9.69%) were amongst BSE sectors which were key gainers.
Primary market Update:
There were no main board public issues in last three months due to Covid-19 pandemic, as investor sentiments were poor. There was three IPOs on SME board in April which raised Rs. 14 Crore from public. During May, Private Placement of Corporate Debt Reported to BSE and NSE increased to Rs.84,573 Crore compared to Rs.54,639 Crore in April 2020.
SEBI in June has allowed one time relaxation to promoters to acquire 10% stake through creeping acquisitions without triggering open offer instead of currently permissible 5%. This allows the promoters flexibility to raise additional funds. However this route only permits creeping acquisitions through preferential allotments and is not open for secondary market purchases.
Private Equity key deals:
Reliance Jio and Facebook:
Transaction: Reliance Industries Limited (RIL) and Facebook, Inc. announced in April 2020 signing of binding agreements for an investment of ₹ 43,574 Crore by Facebook into Jio Platforms (then a wholly owned subsidiary of RIL). This investment will be 9.99% equity stake by Facebook in Jio platform and values Jio Platforms at ₹ 4.62 lakh Crore pre-money enterprise value ($65.95 billion assuming a conversion rate of ₹ 70 to a US Dollar).
Subsequently RIL has sold further 15.25% of stake in JIO platform to TPG, KKR, L Catterton, General Atlantic, Vista Equity Partners, two sovereign wealth funds from Abhu Dhabi — Abu Dhabi Investment Authority and Mubadala – one from Saudi Arabia – Public Investment Fund and Qualcomm ventures. As on July 2020 total 25.24% stake of Jio is diluted for a fund raising of Rs. 118,318 Crore. This fund raising along with recent right issue of Rs. 53,124 Crore makes RIL a net debt free company.
Investee: Jio is the digital arm of RIL and comprises of Reliance Jio Infocomm ltd. which has 388 million subscribers. Jio is now thriving to become a digital platform company with leading technologies such as Broadband connectivity, live television service, payment bank, Smart Devices, Big Data Analytics etc. to cater to MSME businesses, farmers and small merchants of India.
Investor: Facebook is a global tech giant with almost a billion subscribers in India with its platforms Facebook, Instagram and Whatsapp. It has excellent big data analytics capacity and can effectively target consumers based on their preferences.
Rational: Data is the new Oil. With the Facebook & Jio alliance, consumer focused advertisement between Reliance E-commerce and Facebook or Instagram will now be possible. Jio launched E-commerce platform Jiomart soon after the deal; the Jiomart uses Whatsapp as the interface. With the series of investments RIL becomes net debt free company in line with the goal of Promoters to make RIL debt free by 2021. Global Private Equity funds are having record dry powder as on date and Jio provides them with a digital platform in India with proven execution which explains the number of PE investments that happened in quick succession.
Merger & Acquisitions key deals:
Gujarat Urban Development Company acquires IL&FS stake in Gift City:
IL&FS completed its sale of 50% stake in GIFT city to the Gujarat Government (Gujarat Urban Development Company Ltd., GUDCL) generating Rs. 32 Crore for equity value and also reducing its debt by Rs. 1230 Crore. IL&FS said that this deal will reduce its large consolidated debt of over Rs. 90,000 Crore.
Adani Power Ltd. Acquires stake in Odisha Power Generation Corporation:
Adani group declared in June that Adani Power Ltd (APL) has signed a definitive agreement to acquire the 49 per cent stake in Odisha Power Generation Corporation (OPGC) from the affiliates of The AES Corporation (AES), the US-based global energy company. Adani power will acquire 49% stake for USD 135 mn in cash, while Odisha government will retain its 51% stake in the utility that operates 1,740 MW coal fired power plant.
Infibeam Avenues Ltd. acquired Cardplay technologies:
Ahmedabad based company Infibeam Avenues Ltd. acquired 100% stake in Bangalore based Cardpay Technologies Limited which offers spend management platform with physical and virtual credit cards, invoice processing, and early payment discounting. Founded by former Amazon executive Vishal Mehta, Infibeam which started primarily as an E-commerce platform now also offers digital payment solutions and enterprise software platforms.
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