📰Hyundai Adds Fuel to India's IPO Frenzy

Hello. If you read Friday’s newsletter, rest assured that India’s rupee is back down to 83.99 USD/INR after likely RBI intervention. Today, we investigate Hyundai’s upcoming IPO and what it means for India’s stock market and the upcoming RBI policy decision on Wednesday. Then, we’ll close with Gupshup, a round-up of the most important headlines.

BTW: How many post offices does India maintain to deliver packages and mail to its 1.4 billion population? (Answer at bottom)

Markets

Read here for an appendix on the above.

Analysis

Hyundai Eyes $19 Billion Valuation in India IPO, Adding Fuel To India’s Market Frenzy

Hyundai Motor Co. is seeking a $19 billion valuation for the initial public offering of its India unit, Hyundai Motor India Ltd. The company plans to sell a 17.5 percent stake, which could raise around $3.3 billion in what is set to be India’s largest IPO. The listing is expected to take place on October 22 in Mumbai, and, if successful, it would break the record set by Life Insurance Corp. of India, which raised $2.5 billion in 2022.

The Japanese-owned automobile company is the second largest by sales in India, and is expected to put fundraiser money into increasing its production capacity to serve India's growing middle class, already the world's third largest market for cars. Hyundai has a long way to go to compete with India's largest car producer, also Japanese-owned, Maruti Suzuki, which has 42 percent of the market share, compared to Hyundai's 15 percent.

Alongside Hyundai, India's markets are prepared for two additional blockbuster IPOs: Swiggy, a food delivery service, and Vishal Mega Mart, an online grocery and household item store, which are expected to raise an additional $2 billion during their public offering.

India's IPO Market

The Hyundai IPO is expected to rain $40 million in fees into investment bankers pockets, adding to the paychecks of Indian financiers who now outearn their counterparts in Hong Kong by 4.5 percent and Singapore by 7.7 percent in base pay, as per Bloomberg. Mumbai and GIFT City — a free trade zone city in Gujarat— bankers are also seeing their salaries increase by 10 percent, faster than rival financial hubs.

India had the highest number of public listings of any country in the first half of 2024, representing an impressive 27 percent of global IPOs. The Indian IPO market has reached an all-time high, with over 100 companies raising $8.6 billion in the first eight months of 2024. Even more telling, India saw 223 companies listed in 2023, compared to just 154 in the U.S.

However, India’s IPO proceeds remain a fraction of the U.S. In the first half of 2024, 82 companies raised $17.6 billion on American stock exchanges — a fraction of the 2021 IPO frenzy where 2,436 companies raised $459.9 billion. At India’s peak in 2021, its companies raised $17.7 billion during public offerings. While India’s market is brimming with excitement, its IPO proceeds are a fraction of the U.S. because its companies function in a smaller economy with lower-income consumers. Most Indian IPOs raise less than $50 million.

Why India’s IPO Market is Booming

India’s stock market frenzy has investors flipping newly issued shares for quick profits. A study by India’s securities regulator on 150 IPOs from 2021 to 2023 found that retail investors, with less than $2,500 in investments, sold 50% of their shares within the first week of listing. High-net-worth investors, with over $2,500 invested, sold more than 60%, and non-anchor institutional investors offloaded 65%. In contrast, Qualified Institutional Buyers (QIBs), bound by mandatory lock-up periods, sold just 20%.

Fueling this IPO hot potato is investors trying to take advantage of a skyrocketing Indian stock market. In May of this year, India’s exchanges crossed a $5 trillion valuation, making them the 4th largest in the world, after adding $1 trillion in just six months. These valuations are sometimes disconnected from underlying fundamentals:  300 Indian companies had declining revenue for two consecutive financial years, yet 216 of their stock prices rose in the 12 months ending May 2024, as per CNBC. Indian equities are the most expensive in the world by price-to-earnings ratio, currently hovering around 26.48. Indian investors are engaged in world record-breaking levels of speculative trading, with 84 percent of all future and options contracts being executed in the country during the first quarter of this year.

As Hyundai targets a $19 billion valuation in its India IPO, it adds fuel to an already gravity-defying market.

Explainer

Next Reserve Bank of India Meeting Wednesday

• No Immediate Rate Cut: The RBI is widely expected to maintain the current repo rate at 6.5%, as inflation, though easing, remains a concern. While inflation has started to move closer to the 4% target, it is not yet low enough to justify an immediate rate cut​. High food inflation and energy woes due to the Middle East Crisis make it less likely to see a rate cut at this meeting. At this point, the RBI is expecting growth at 7% and inflation at 4.5% for FY25. 

• Potential Sentiment Shift: Although a rate cut is not anticipated, the RBI might shift its stance from "withdrawal of accommodation" to a more neutral position. This would signal a future easing cycle, with potential rate cuts expected in 2024 if inflation continues to cool and growth slows​.

• Liquidity Management: The RBI has been actively managing liquidity by canceling treasury bill auctions and intervening in the forex market. Additionally, it has conducted bond buybacks on behalf of the government to smooth the debt curve. These actions are designed to maintain sufficient liquidity as credit growth slows and cash demand rises during the festive season.

• New Members of the MPC: This meeting will be significant as it marks the introduction of three new members to the committee: Ram Singh, director of the Delhi School of Economics, Saugata Bhattacharya, an economist, and Nagesh Kumar, director of the Institute for Studies in Industrial Development. Their immediate stance is expected to align with the broader consensus of the RBI​.

Macro

• Bond traders are betting on a dovish RBI (BBG). Swaps pricing is leaning toward a 25 bps rate cut in December, with several experts at Nomura supporting this outlook. Meanwhile, Wall Street expects a consensus hold, anticipating dovish language to signal the first rate cut.

Equities

• India's largest private sector lender, HDFC Bank is selling 100 percent of subsidiary HDFC Education, to Vama Sundari Investments in an all-cash deal worth $23 million (ET). The bank is streamlining its business. HDFC Education provided educational and vocational training services to schools.

• Foreign institutions sell $1 billion worth of Indian equities while domestic funds buy $1.5 billion (ET). The global sell-off of non-Chinese equities persists, with another significant drop occurring two weeks after the Chinese government announced its Sept 24 stimulus package.

Alts

• Gold prices continue upswing, reaching all-time highs (Economic Times). Institutional and retail investors have been buying the commodity to hedge against inflation risk and the appreciating dollar index.

• Secondary investors, which buy from private equity funds, are looking to buy $20 billion worth of deals in India (BBG). The PE/VC deal pipeline is attracting international investors, looking to capitalize further on the $120 billion deployed in India between 2013 and 2018.

Policy

• The Maldives looks to repair relationships with India on its first bilateral visit in years (Economic Times). Although President Muizzu is seen as more pro-China, he is working to mend relations with India to secure economic support amid the threat of a looming default.

• Early polls for Indian state elections are showing BJP losses (BBG). India National Congress — India’s primary opposition party — holds an advantage in Haryana, while the Opposition Alliance is leading in Jammu and Kashmir. Northern farmers remain discontented with Modi, and many Kashmiris continue to blame him for the 2019 crackdown and its aftermath.

• Indian Foreign Minister Jaishankar will attend a China-led summit in Pakistan next week (BBG). This is the first Indian official visit to Pakistan since 2015. The SCO is a meeting between Eurasian countries Russia, Tajikistan, Kyrgyzstan, China, Pakistan, and India.

Oh, and India has the world’s most expansive network of post offices, totaling 150,000, including one floating in the middle of the Dal Lake in Kashmir.

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 = 83.99 Indian Rupee