Hello. Mumbai is surpassing Hong Kong and South Korea in IPOs, and Indian sovereign debt is officially joining the JP Morgan EM index this Friday! Anyone else popping champagne? Just us? Alright.

We’ll dive into everything you need to know to be ahead of the curve on Indian IPOs and bonds, and close with Gupshup, a round-up of the most important headlines from the week.

BTW: Shani Shingnapur, a village in Maharashtra, is unusual in that it has remarkably low crime and experiences no theft, except for one reported incident in both 2010 and 2011. The village achieves this feat in likely the most unusual way possible — do you know how? (Answer at bottom)

BTW x2: Which day of the week do you want to receive this email? Let us know here.

Markets

Quick Appendix: NFTY is a weighted average of the largest 50 companies listed in the National Stock Exchange of India by market capitalization. FLIN, or Franklin TSE India ETF, tracks large and mid-cap companies, weighted by market cap, to give international investors exposure to Indian markets. MSCI EM is an index that captures large and mid-cap companies across 24 emerging market countries and covers 85% of the free float-adjusted market capitalization in each country. SP500 is the index of the 500 largest companies listed in U.S. stock exchanges by market cap. MSCI India is an index that covers 85% of the Indian equity universe.

Indian IPOs Are Getting Hot. Here’s What You Need to Know.

There are record numbers of Indian IPOs occurring this year in India, from tech to distillers. For perspective, the highest number of IPOs in India ever was in 2007 with 108 (though 4 failed). In total, the companies raised $4B (Rs. 340B). The most ever raised was in 2021 with 63 IPOs raising $14B or Rs. 1.2T. So far there have been 35 completed IPOs raising just under $4B in 2024, with many more including Hyundai’s $2.5B landmark IPO to be completed. 

There are a number of reasons for why there has been an uptick. Private equity and venture capital see going public as a great exit since they can leverage high retail participation. Fundamentals led by the government (infrastructure, digital, and manufacturing investment) plus steady consumer spending have made India the fastest-growing G20 nation. 

While overall an IPO is comparable from country to country (a company sells a part of its equity in shares to the general public), there are key differences between the US and India.

1. Allocation of initial shares: in India there are far more retail investors involved with IPOs compared to the US, where traditionally investment banks dish shares to institutional investors. Additionally, during the allocation phase of an IPO in India, initial anchor investors (an institutional investor that buys significant amounts of pre-IPO shares) are pre-chosen by the bank. This is compared to the US where the going public company has far more choice with the investors who initially invest, mostly being large banks. 

2. Volatility: The US stock market has shown returns as high as India’s with lower volatility, driven by many of India’s larger stocks being dependent on government contracts and investment along with high long-term economic growth, to maintain valuations as a growth company. Infrastructure sector stocks like Adani Group or Tata Group are prime examples.

But why are Indian companies going to the US in droves for IPOs and seed funding? Varying governance standards make it difficult to undergo the process specifically for the shareholder rights that the Securities and Exchange Board of India (SEBI) set. This includes coming up with several types of KPIs from the past 3 years as disclosure to retail and institutional backers. The aforementioned volatility also drives larger companies away as small caps, like Sona Machinery, routinely rise 300% but turn negative all within a single day of trading. Ultimately, the RBI and private lenders like Axis Bank have stepped in to limit options trading and clamp down on large price swings with trading stoppages.

Still, many foreign and domestic companies choose to IPO in India for a myriad of reasons. Frothy Indian markets lead to rich valuations, with the overall market trading at 21x P/E comparable to the US and higher than most emerging market economies. Mutual funds in India have been seeing more than $2B (Rs. 166B) in monthly inflows due to investment plans, with most choosing equities over credit or commercial paper. India also has major shareholders being forced to act as ‘promoters’ to parlay information and grow awareness of the company - promoters, between 2021 and 2023, were responsible for $9.8B (Rs. 814B) of share sales. Add strong fundamentals and an expectation that the BJP will continue advancing growth, and most companies see promise in advancing valuations and raising capital in India.

Many Indian companies also choose to IPO in both Indian and U.S. stock markets. Infosys, an IT company, was listed on the National Stock Exchange of India (NSE) in 1993. In 2012, it conducted a secondary offering by through the American Depository Share Program, which issued certificates representing foreign shares to trade in a U.S. stock market. Foreign shares traded in U.S. markets are known as American Depositary Receipts (ADRs). These can be bought and sold by investors just like any other U.S. share. ADRs enable the listing company to bypass regulations on foreign investors in Indian markets.

Are Indian Bonds a Buy?

This Friday, JP Morgan will add Indian government debt to its biggest emerging markets index, representing a huge milestone of global institutional investors recognizing Indian debt as a legitimate long-term hold. Not only is India gaining more notoriety as seen with the G7 conference or trade negotiations, the country is set to see a $40B (Rs. 3.2T) inflow amid a huge boom in IPOs. 

As Indian sovereign debt enters the international conversation as a serious contender for the first time, here are the bullish and bearish outlooks.

Bullish

• India’s current account deficit (difference between exports and imports) set to stand at 1.2%, indicates that India is able to finance itself through its exports, signaling a healthy economy. Additionally, the planned reduction in the fiscal deficit from 5.8% to 5.1% shows a commitment to fiscal discipline. These factors combined can make investors bullish on Indian bonds because they suggest economic stability and a lower risk of default. A healthier economy with sound fiscal policies generally leads to higher investor confidence, which can drive up demand for Indian bonds, potentially resulting in lower yields and higher bond prices.

• Yields at 6.5% are highly attractive to investors especially compared to other EM countries like Mexico and Egypt which have highly volatile currencies, making conversion back into dollars less guaranteed. Given RBI intervention, the rupee is the most stable currency against the dollar compared to any other EM currency.

• Overall, EM performs well during risk-off environments with rate-cutting cycles which is expected to start in the US as soon as September.

Currency volatility matters as most investors have to convert their earnings back to dollars. However, clearing house data shows that Mexico had an oversubscribed $7.5B issuance with sovereign bond indices gaining nearly 10%.  Egypt had a $2B bond issuance that was 8 times oversubscribed resulting in $16B of demand for a single issuance. India, for all of 2023 including the last 3 months after JPM announced, had $7.2B of bond inflows (Rs. 600B). 

This is considering India has a 75% larger GDP than the 2 countries combined. GDP matters greatly as a country’s growing wealth signifies their ability to pay back debt.  

So why would investors still be hesitant to invest? 

Bearish

For investors to be bearish on Indian debt, they do not need to be pessimistic about India’s ability to service its debt, but simply less optimistic about Indian debt than other similar options, including U.S. Treasuries.

• The primary risk all EM debt faces is remaining attractive in a high-rate environment. As inflation consistently prints above target in Western central banks, rates are less likely to be cut, meaning investors can receive attractive yields in U.S. Treasuries without risking the political and economic volatility present in India.

• Indian debt also suffers from the poorest ratings of any BRICS nation (except Russia, which is under sanctions); Fitch gives India a BBB-, Moody’s is Baa3, and S&P is BBB- with a positive outlook.

• India has never defaulted on its sovereign debt payments, but its debt-to-GDP ratio has also never been as high as it is today, starkly rising after COVID.

Macro

Growing smelting capacity worldwide - particularly in India - points to increasing copper prices (FT) 

• While neighboring China is seeing copper prices fall due to oversupply, overall prices for the precious metal continue climbing

• Developing economies have been demanding it in droves due to its use in automobiles and housing

The government will start releasing urban jobs data monthly; rural quarterly (BBG)

Government officials debate over tax cuts for the poor while sticking to a fiscal deficit of 5.1% (BBG)

• The cuts would likely benefit individuals earning $6-18,000 (Rs. 500,000 - 1.5M) annually

• Around 2 percent of Indians pay any income tax at all

Economic activity expanded in June driven by services and manufacturing (BBG)

• The services PMI rose to 60.4, manufacturing to 58.5, and composite is at 60.9 ( >50 is expansion)

• Business confidence also remains positive as the private sector expects demand momentum

Indian inflation moderating too slowly according to RBI Governor Shaktikanta Das (BBG) 

The rupee hits a record low amid extraordinary dollar strength and RBI intervention (BBG)  

• The dollar is now worth 83.67 rupees amid Fed hawkishness, though the rupee has been stable

• FX reserves dropped by $2.9B to moderate volatility amid this INR low as foreign inflows increased

The RBI managed to curb risky unsecured credit growth (BBG) 

• Growth in outstanding credit card debt has moderated from 30 to 23% before the crackdown in Q1

Equities

Fosun to cut stake in India’s Gland Pharma for $172M (Rs. 6B) at a valuation of $3.9B (Rs. 300B) (BBG) 

• Fosun is a widely owned subsidiary of Shanghai Fosun Pharmaceutical which invested in Gland as a secondary from KKR

• Gland specializes in antibiotics, oncology, and cardiology with a presence in 60 countries

UK-based Vodafone to sell 10% stake in India’s Indus Towers for $1.1B (Rs. 91B) (BBG)

• Vodafone’s new CEO, Margherita Della Valle, has sold off underperforming markets to scale back

• The company’s rationale had come in 2017 when there were brutal tariff wars in the telecom industry, but is now working with BNP Paribas, Morgan Stanley, and BofA to focus on their core

Ola Electric Mobility aims for a $7B (Rs. 580B) valuation at IPO compared to a previous $5B (Rs. 415B) (BBG)

• Ola, a scooter company backed by Tiger Global and Softbank, is looking to raise $660M (Rs. 55B) to expand into battery-powered two-wheelers, cars, and motorcycles 

• They likely will face pushback on the larger valuation, and insiders say they likely will not IPO then

Pine Labs, an Asian fintech firm, is considering an Indian IPO to raise $1B (Rs. 83B) (BBG) 

• Pine Labs serves over 500,000 merchants in 3,700 cities across SE Asia, the ME, and India

• The firm’s IPO, backed by Peak XV Partners and Mastercard, would be the largest fintech raise since Paytm’s parent One97 in 2021

Zepto, a grocery delivery app, is preparing to go public after boosting its valuation (BBG)

• The company led a round of financing with US and domestic investors from Avenir, Lightspeed, and Avra leading to an updated valuation of $3.6B (Rs. 300B)

• Zepto will handle $1B (Rs. 83B) worth of goods this year and double the warehouse count within a year

A Mumbai-based distiller, Allied Blenders and Distillers sets an IPO worth $960M (Rs. 80B) (BBG)

• They plan on raising $180M (Rs. 15B) and received approval from the SEB in May 

• The company makes whiskey, rum, gin, vodka, and bottled water 

Adani Ports top global peers in market cap as cargo value surges (BBG) 

• Adani Ports is now worth $37B (Rs. 3T) and is predicted to surge further after being added to the Sensex index

• Adani handles 27% of India’s total cargo with an increase of 24% YoY through port acquisitions

Hyundai serves as a model of Indian manufacturing success (BBG) 

• Hyundai India has fully recouped the Korean parent’s investment, with $2B (Rs. 166B) in dividends, a 3.5% annual royalty, and soon an IPO of $2.5B (Rs. 210B)

Credit

Vivriti, an asset manager, is looking for $240M (Rs. 20B) for its new private credit fund (BBG)

• Private credit continues to be all the rage with a new fund designed for SMID caps is launched

• The fund will have a tenor of 5 years targeting 16% pre-tax returns

Hinduja is raising $873M (Rs. 73B) in an effort to acquire Reliance Capital (BBG) 

• Several anonymous private credit funds are in talks to subscribe to the bonds

• The arrangers, Barclays and 360 ONE, began the syndication process last week and the deal will likely close within a month

State Bank of India looks to raise $1.2B (Rs. 100B) through infrastructure bonds (Finmize) 

• They successfully issued $600M (Rs. 50B) in January but this is the first infra issuance this year

HSBC has executed $250M (Rs. 20.8B) of total return swap deals with foreigners seeking onshore exposure to Indian debt (BBG) 

• Total return swaps allow investors to get exposure without needing the license to deal with regulations

Politics

Big foreign business looks forward to the 2024-25 budget in July and Modi’s August 15 speech (FT) 

• Skeptics believe that the lack of huge structural reform in the last decade is a death knell for any change now with a reduced majority

• Other analysts believe that there should be broad policy continuity, but that the budget and speech will reveal the exact fiscal and political clout the BJP still holds

US National Security Advisor Jake Sullivan meets Indian advisor Ajit Doval on chips, AI, and space (BBG) 

• The two met on Monday (June 17th) and reportedly discussed civilian/defense technologies, advanced telecommunications, biotechnology, and possible co-production of land warfare systems

• The first technology initiative launched in 2023 charted a course for the two superpowers to collaborate more on sensitive technologies as India is a counterweight to China

Accused plotter suspected to target American Sikh was extradited to the US (WSJ)

• Nikhil Gupta pled not guilty to all charges related to him targeting a Sikh activist on the orders of an India-based serving official 

• Attorney General Merrick Garland was staunch on the Justice Department’s stance, though most think tanks believe that the US government will not disrupt the larger Indian strategic partnership

A third foreign journalist did not get renewed permits, continuing a crackdown on critical media (BBG)

• Sebastien Farcis was told on March 7th that his permit would not be renewed becoming the third journalist this year to be removed; two of them had Overseas Citizens of India status

• This follows more journalists and media firms coming under fire for news coverage critical of Modi

Rahul Gandhi is confident that the Congress and INDIA alliance just had a permanent resurgence (FT)

• Rahul Gandhi believes that under fair conditions the INDIA alliance would have won (he alludes to two state leaders being jailed and Congress bank accounts being frozen)

• Though Modi tried to brand Gandhi as a shehzada, or prince, Congress received a much higher proportion of lower and middle class votes due to inclusive policy

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Oh, and Shani Shingnapur’s secret to low crime is that no house in the village has any locks on its doors. Yes, really. The residents believe that Shani, a Hindu god associated with the planet Saturn, offers them unique protection, and that committing a crime would break this sacred trust and bring ruin to the village. In recent years, Shani Shingnapur has also become a popular tourist destination. Visitors come to see if the legend of the lockless houses is true and to visit the sacred temple and shrine dedicated to Shani.

See you next week.

Disclaimer: This is not financial advice or recommendation for any investment. The Content is for informational purposes only, you should not construe any such information or other material as legal, tax, investment, financial, or other advice.

1 USD = 83.57 Indian Rupee