2 New Age IPOs - A journey towards something good or a farce?

New Age IPOs - A journey towards something good or a farce?

By: Vani Agrawal (B. Com, The Liberal College - Indore)

From a society that was fixated on investing in only gold and creating fixed deposits is now locked within their house and are easily creating multiple demat accounts online for each and every family member to increase their probability to get allotted an IPO in this bull run. This scenario has unfortunately been reduced to a lottery ticket - after all, the connotation has been established that their stock price is going to double on the day the company gets listed.

As of October 2021, in India, there are 7.38 crore demat accounts, more than double that of March 2019. As per MoneyControl, as many as 10 to 30 lakhs new demat accounts are expected to be opened with the upcoming IPO of LIC. With the higher participation of these first-time investors (including high net-worth individuals) analysts are suggesting that companies are going public due to the excellent performance that is currently seen in the stock markets.

According to The Economics Times, 63 Indian companies cumulatively raised an all-time high of ₹1,18,704 crore through IPOs in 2021. To put this in comparison, a total of only ₹73,003 crore was generated by IPOs in the last three years combined.

We also saw the growth of finance educators on social media platforms raising awareness amongst their young audience. They have also contributed towards the transition of the Indian public to not be as risk-averse and to dip their fingers in these financial instruments. With the emergence of the new players, the companies are now pushing in IPOs to raise capital in these times of excess cash being injected into the market, in other words causing a temporary bullish situation that could potentially be a disastrous crash awaiting in the future.

Freshworks, a SaaS company founded in Chennai was listed in NASDAQ and created more than 500 crorepatis overnight with 70 of them being under the age of 30. A prime example of the newage software companies applying for IPOs. In 2021, India witnessed the birth of 33 unicorns. With the changing landscape of tech and software companies who are successfully able to disrupt markets and generate hyper-growth, is it time to also re-evaluate how we look at an optimal company? Zomato marked the debut of loss-making unicorns to hit the public markets.

In 2021, SEBI relaxed its regulation and framework for listing startups. Moreover, it altered its procedure for the listing of large companies by allowing the IPO to divest a low to 5% from 10% and allowing 5 years, from the previous 3 years, to get the public float to 25%. This has paved the path for India’s largest IPO to get listed - LIC which is currently valued at ₹4-5 trillion. These positive reinforcements have become a catalyst towards companies going public. In the year 2021, we saw a record total of 115 IPO filings with SEBI, to put this in context, a total of 50 filings were cumulatively witnessed in 2019 and 2020.

Previously, the lock-in period for shares held by institutional investors was 30 days, which could arise in a situation where they would exit after 30 days irrespective of the fundamentals of the company; thus, the shares of the newly listed company would fall and hurt the retail investors. From April 2022, SEBI has plans to increase the lock-in period of 50% of the shares held by institutional investors to 90 days, this step will increase the confidence of retail investors in IPOs.

My two cents on riding this bull market: entering through the primary markets (getting the shares of the newly listed company directly) and exiting with the listing gains profit is completely acceptable, however, the same companies’ shares are not that attractive in the secondary market for a reason. My advice is to look at the subscription rates of the institutional investors as well as the subscription rates of the first day. They had subscribed 4.77 times for Nykaa and just 2.77 times for PayTM, which was a reality check to the retail investors who bore the burnt of the shares

listing at a discount. A clear trend is visible in identifying the companies that can provide listing gains. However, the very same companies might not be your best bet in the longer run. Moreover, the IPO’s first-day returns aren’t predictive nor an instrument to gauge its long-term returns and performance.

To conclude, we can witness the evolution of the market and its growing participants, of course, it is a good thing that IPOs are being listed, these are all new-age companies that are going to directly benefit from the growing economy and digitalization of India; the bullish scenario could just be an exaggerated unrealistic fear-mongering tactic, however, one thing is certain: we are bullish on India, this is just the start of India’s golden era and our entrepreneurs shall be spearheading our new-age companies to the moon!

THE PAST, PRESENT, AND FUTURE OF ECONOMIC INEQUALITY – AN INDIAN PERSPECTIVE

By: Gayathri Ajayan and Syed Salman Ashraf (National Institute of Bank Management)

Here’s a little something that encapsulates the essence of economic inequality, and perhaps of what an equal society should look like.

“A society can be said to provide equal opportunities when circumstances do not determine

the differences in life outcomes.” (Ferreira et al., 2009)

One only needs to look around to comprehend that the reality of our country is nothing short of sharp contrast to the utopia described above.

Mumbai, the financial capital of India, the so-called city of dreamers, is also the city of maximum contrasts. Behind the allure of glass facades and some of the most expensive housing projects in the world like Antilia, the city also houses one of Asia’s largest slum regions (Dharavi) where a sizeable population lives in uninhabitable dwellings and go to bed hungry.

There is growing consensus in India and the world over that the benefits of increasing economic growth are shared inadequately, with poorer countries and communities getting a disproportionately smaller share of benefits. Such widely skewed income distributions are a serious threat to social and political stability. The latest World Inequality Report 2022 found that the richest 10% of the global population currently takes 52% of global income, leaving a mere 8.5% to the poorest half of the population. The report also flagged India as a poor and very unequal country, with the top 10% holding 57% of national income in 2021, and the bottom 50% holding just 13%. This begs the question -is this outcome the natural order of things, or is the system rigged? French economist Thomas Piketty gives us a noteworthy argument in this regard - he observed that inequality, far from being an outcome solely of fate/chance, can be reversed through targeted policies and reforms.

UNDERSTANDING ECONOMIC INEQUALITY

A 2015 definition of economic inequality by the Department of Economic and Social Affairs of the United Nations gives a holistic view of looking at inequality. It defines economic inequality as the distribution of key economic variables among individuals in a group, among groups in a population, or among countries. While historically, development theory has largely been concerned with measurements of inequality in terms of studying the distributions of income and wealth, the focus slowly shifted to a more broad-based approach of access to a basic minimum standard of living, defined not only in terms of income and wealth, but also in terms of other fundamentally important economic variables such as education, health, and nutrition.

WHAT THE PANDEMIC LEFT IN ITS WAKE

Throughout history, financial and economic shocks have disproportionately affected the developing and underdeveloped economies, and within them the poorest sections of social strata. The same is true of the novel coronavirus pandemic. Primarily a health crisis that manifested into a financial and economy-wide crisis, the pandemic triggered an economic downturn that left the poor to fend for themselves amidst lockdown induced mobility restrictions, consequent job losses and compounded further by an already strained healthcare infrastructure. In many ways, the pandemic revealed how easily the financial security of working-class individuals could be destabilized by factors beyond personal control.

According to Oxfam's "Inequality Kills" report, despite the fact that the wealth of Indian billionaires surged by Rs 30 lakh crore during the pandemic, over 4.6 crore people fell into abject poverty. The collective wealth of India’s 100 richest people hit a record high during the pandemic months, however, the income of 84% of Indian households declined during the same period.

The fallouts of the pandemic were apparent from early on when in the months of April-May 2020, India witnessed its worst domestic migration crisis since the partition of the subcontinent in 1947. Triggered by government-induced lockdowns and job losses, millions of unemployed wage laborers left crowded cities to travel back to their villages. According to a study conducted by The Lancet, India ranks poorly in measurements of healthcare access and quality. The fractures in India’s healthcare infrastructure were evident during the peak of infections in the country when a deficiency in the supply of oxygen-supported beds, ICU beds, vaccines, and drugs spelled out death for the less privileged. Many families that have lost the sole earning member of the household have been pushed to the edge of poverty.

India was a highly unequal economy even before the advent of the pandemic. And what the pandemic has done is collateral damage. Although we are one of the fastest-growing economies in the world, we continue to rank poorly in various global indices that reflect the quality of human life such as the Human Development Index (rank 131 out of 189 countries) and the Global Hunger Index (rank 101 out of 116 countries). It is also generally recognised that India's economic

recovery is K-shaped, which means that the earnings of the lower sectors of society are declining while those of the affluent sections are growing.

WHAT CAN THE GOVERNMENT DO TO ADDRESS ECONOMIC INEQUALITY?

The continuous increase of economic disparity in India – and throughout the world – is not unavoidable. It is the product of policy decisions. Governments may start reducing inequality by rejecting market fundamentalism, opposing the special interests of powerful elites, and altering the norms and procedures that have got us here. They must enact measures that redistribute money and power and level the playing field. So far, the weight of the crisis has been unequally distributed, with the poor bearing the brunt of it. A greater direct cash transfer to the poorest, the continuance of PDS rations, the extension of MGNREGA in rural regions, the implementation of a new urban employment guarantee program, and increased expenditures in education should all be included in the recovery package. These steps would assist households in regaining their footing, partially compensating for previous losses, and mitigating long-term consequences. A case in point here is the inadequacy of direct provisions in the recently unveiled Budget 2022 to address the inequality and insecurity of the poorest. While there are some welcoming decisions such as increased allocation to urban planning to make urban spaces more equitable and inclusive, the allocations towards big-ticket social expenditure items such as MGNREGA and PDS is not enough to meet the reality on the ground. The amount budgeted for food grains delivered via PDS has also been reduced in the forthcoming year. Ideally, even if households were now earning enough to meet their basic food needs at the pre-pandemic levels, provisioning of expanded rations will enable them to devote some resources to other ends, such as paying down debt or increasing consumption on other items and will go a long way in improving living standards. Experts have also proposed restoring the wealth tax, which was repealed in 2016 or imposing a one-time tax on the affluent to fund the Covid-19 economic recovery. According to a Business Standard editorial, low-skilled job development, which may provide employment for a lowskilled workforce, is critical.

CONCLUDING NOTES

Extreme inequality is a form of economic violence. As long as a rising tide fails to lift all boats, for every family that can afford three meals a day, there will be many more that get by on one and for every child that has the privilege of accessing a decent education, there will be many more who are forced to drop out of school. If India is to achieve its target of transforming into a global superpower, then it must ensure that the benefits of burgeoning growth are shared more equitably among all sections of society.

REFERENCES:

WORLD INEQUALITY REPORT – https://wir2022.wid.world/executive summary/#:~:text=The%20World%20Inequality%20Report%202022,%25%20today%20(Figure %2012).

CONCEPTS OF INEQUALITY https://www.un.org/en/development/desa/policy/wess/wess_dev_issues/dsp_policy_01.pdf

WOMEN AND COVID-19 INDIA - https://www.unwomen.org/en/news/stories/2021/7/faqwomen-and-covid-19-inindia#:~:text=In%20India%2C%20reports%20of%20domestic,between%20February%20and%2 0May%202020.

INEQUALITY MEASUREMENT https://www.un.org/en/development/desa/policy/wess/wess_dev_issues/dsp_policy_02.pdf