Finance Friday: India News Digest

Finance Friday is our weekly round up of buzzing stories relating to Finance and Indian Stock market.

Cold Response To Tech Mahindra’s QIP, Investor Confidence still shaky

Tech Mahindra’s plan to raise capital up to Rs 1,000 crore via a qualified institutional placement (QIP) has not gone down well with the potential investors. It is notable that TECHM secured the board mandate almost two months ago but the issue is yet to be floated.

This might prove to be a big dent into Tech Mahindra’s plan of raising finances to pay for the acquisition of the beleaguered Satyam Computer Services.

The interest payments on its borrowing are actually hurting TECHM’s balance sheets. In the last quarter, the firm had paid Rs 57.1 crore as interest on its total borrowings.

It is however not a one off issue with TECHM. The problem of Low Investor Interest is being felt across industries in general.

Over 100 companies have announced plans to raise more than $16 billion (around Rs 77,000 crore) in institutional placements this year (Source: Bloomberg)

In fact GMR Infrastructure had put off its plans to raise $500 million (around Rs 2,500 crore) through a QIP given the market conditions.

With TECHM’s QIP, I think it is owing to the ongoing uncertainty about Mahindra Satyam’s finances.

Ever since the acquisition of Satyam by TECHM, the market consensus clearly suggests that TECHM management has been shying away from sharing details about finances, operations etc citing compliance issues. It has clearly deterred Investors-retail and institutional alike from buying into the company stocks.

PS:: QIP is one of the finance jargons. Please head to the end of the digest for explanation

A see-saw week For Indian Stock Markets, Monsoons playing Spoil Sport

Img Src (Moneyvidya.com)

The ongoing week has been a see-saw ride for the Indian benchmark stock index. BSE Sensex has been volatile for the complete week, signifying low investor participation and more of a trader favourable market sentiment.

In fact, the 7 day pattern clearly suggests that every gain was followed by a drop the very next day cancelling out the previous day’s gains. It is interesting to note that the markets have been range bound mostly in the ~14.5k to ~15k region. The day-to-day movement has been just enough to negate the previous day gain-fall.

The 15300 level for Sensex is what I think is a strong resistance level. If that is broken on the positive side, we could witness a positive upsurge to 16k levels.

On the negative side, the next support level should be at 14.5k level with a further downside taking it close to 14k.

It however, is going to hugely depend on the monsoons. Monsoons have been playing a real spoil sport and have affected the Stock markets badly among other things. In a recent meeting the FM declared that 246 districts have been declared drought hit.

Lack of adequate monsoon has hit the country badly with drastic reduction in the agricultural produce. In fact, Friday’s inflation numbers shows a marginal increase of 24 basis points in line with the RBI’s expectations. The inflation is set to go higher with the monsoon situation still worrisome.

Finance Jargon Buster: Qualified Institutional Placement (QIP) and why it is preferred by organizations

Qualified institutional placement (QIP) is a capital raising tool, primarily used in India, whereby a listed company can issue equity shares, fully and partly convertible debentures, or any securities other than warrants which are convertible to equity shares to a Qualified Institutional Buyer (QIB).

So, in basic terms QIP is just another route that the companies can take to raise capital other then the preferential allotment via IPO’s etc. QIP however is hugely favoured by corporate then other routes for various reasons

Bare minimum Legal Formalities

Unlike an IPO or a rights issue, The formalities on issuing a QIP are very less. It can be highlighted from the fact that for a QIP a company’s audited balance sheet are enough

Considerable Time Saving.

Since, the formalities are less and multi-level approvals are not needed to come out with a QIP, it saves organizations considerable time and money. With the right kind of investor interest, the whole process of a QIP can be completed in a very short time.

However, the transparency of QIP’s has been questioned time and again. Market manipulation via pricing is something that QIP’s are subjected to often. Moreover, QIP is a purely capitalist instrument. Hence, it is a deviation from the people-participation instrument at large.

[This Finance Friday News Digest is written by Ankit Agarwal, an ERP Consultant by profession, a wannabe entrepreneur and stock market stalker by passion]