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Sebi chief Ajay Tyagi says the disconnect between financial markets, real economy a global phenomenon

Capital markets regulator Sebi chairman Ajay Tyagi on Thursday acknowledged the systemic risk concerns raised by the RBI and Financial Stability Board over a disconnect between financial markets and the real economy, but said that this is a global phenomenon.

He said the heavy fall in markets, followed by quick gains on the equity benchmarks since the onset of the pandemic is the sharpest V-shaped recovery in the last 30 years. ”Typically, stock markets have been the barometers of the economy and move in the direction in which the economy moves or is expected to move. However, after the onset of pandemic, several institutions including FSB and RBI have raised concerns of an increasing disconnect of financial markets with the real economy and a possible risk it may pose to systemic stability,” Tyagi said. ”It is not just India which has been witnessing such unprecedented market movements, but similar trends have been there across many global markets i.e. movements one can clearly attribute to effects arising out of the pandemic and the efforts to tackle the pandemic,” Tyagi said, speaking at an NISM event.

It can be noted that in the last few months, a slew of concerns have been raised about the disconnect wherein the markets have rallied by over 80 per cent from the lows of April post a sharp correction following the declaration of the pandemic, even as the economy went into a contraction zone.

In the Financial Stability Report, RBI Governor Shaktikanta Das flagged risks to overall financial stability and asked lenders to be cautious about the same.

According to some experts, a liquidity glut induced by economy-boosting measures taken by countries following the pandemic has resulted in the surge in markets.

Tyagi on Wednesday said the pandemic has been rare and catastrophic, and has led to never-before jump in volatilities. The volatility index has come down in the last few months, but continues to be higher than five year averages.

He said a defining trend in FY21 has been the direct retail play in the markets, which has seen an increase in both the number of demat accounts and also investments by individuals. Corporates have adopted a newer way of working, with annual general meetings and board meetings being held online.

Tyagi said there is a possibility of many of these new practices continuing even after the end of the pandemic, but said issues over confidentiality and security on virtual board meets will have to be assessed going ahead.

He also pondered whether shareholders are getting adequate time to pose their questions at the annual general meets.

Tyagi welcomed the focus on environment, social and governance themed investing and added that Sebi is looking at introducing newer regulations for having more granularity in disclosures.

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Dodla Dairy files IPO papers with SEBI, a public issue largely an offer-for-sale

Hyderabad-based Dodla Dairy Ltd has filed a draft red herring prospectus for the initial public offering (IPO) with the capital market regulator Sebi. The public issue comprises a fresh issue of equity shares worth up to Rs 50 crore and an offer for sale (OFS) of up to 1 crore equity shares by promoters and an investor. The OFS consists of 83 lakh equity shares by TPG Dodla Dairy Holdings Pte Ltd and up to 4.16 lakh equity shares by Dodla Sunil Reddy and up to 10.41 lakh equity shares by Dodla Family Trust and up to 3.27 equity shares by Dodla Deepa Reddy.

The company plans to utilise the net proceeds of the fresh issue towards repayment and/ or prepayment, in full or part, of certain borrowings availed by the company; funding capital expenditure requirements, and general corporate purposes. The company will join listed peers such as Hatsun Agro Products, Heritage Foods and Parag Milk Foods. Hatsun Agro Products has a price to earnings (P/E) ratio of 102.3 x while Parag Milk Foods has a P/E of 9.7x. ICICI Securities Ltd and Axis Capital Ltd are the book running lead managers to the issue, while KFin Technologies Private Ltd is the registrar.

For the six months ended on September 30, 2020, Dodla Dairy posted a profit of 74.7 crore while in the financial year, its profit stood at Rs 49.8 crore. India is the largest milk producer globally and milk production is growing at a healthy rate. Per capita availability (PCA) of milk in India has grown at 5.2% CAGR over FY15-19. According to the DRHP, even before a nation-wide lockdown was announced on March 24, 2020, many urban cities had ordered a closure of restaurants and public eateries to contain the spread of COVID-19. This created supply chain disruption temporarily up to June 2020.

The strengthening of the co-operatives model has aided the growth of the milk processing segment. a subsidy of Rs.4-5 per litre of milk supplied to the farmer by the co-operative dairies, has also encouraged new farmers to enter milk production, enabling co-operative organizations to establish a strong foothold of their brands. To counter this, private players like Nestle and Britannia are investing in differentiated products like high-quality tetra pack ultra-high-temperature processed milk (UHT) and flavored milk. These products sell at a 50-60% premium compared with milk sold in pouches and cater mainly to very health-conscious consumers.

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IPO update: Heranba Industries public issue to open next week; check issue price, size, other details

Continuing the spree of initial public offerings (IPO), agrochemical firm Heranba Industries’ public issue will open for subscription next week. The Gujarat-based agrochemical company is looking to raise Rs 625 crore from capital markets through the issue which will be a mix of an Offer for Sale (OFS) by existing shareholders and a fresh issue of equity shares. Heranba Industries will join peers such as Rallis India, Dhanuka Agritech, Sumitomo Chemical India, and PI Industries, among others on the stock exchanges.

Heranba’s IPO includes an OFS by promoters Sadashiv K. Shetty and Raghuram K. Shetty. Along with the promoters, Babu K. Shetty, Vittala K. Bhandary, and SAMS Industries Limited. The promoters will be seeling more than 81.22 lakh equity shares. Fresh issue portion of the IPO will be worth Rs 60 crore. Heranba will only be receiving this portion of the issue amount. The company, in its RHP, said that the firm plans to use the amount to fund working capital requirements and to fund expenditures for general corporate purposes.

Investors can bid for the issue in the price band of Rs 626-627 per share. The minimum bid size has been decided at 23 equity shares and multiples thereafter. This would translate into a minimum bid price of Rs 14,421. The issue opens for subscription on February 23 and closes on February 25. 50% of the issue will be reserved for Qualified Institutional Buyers (QIB), 15% will be available for Non-Institutional Investors (NII) and the remaining 35% is for Retail investors.

Axis Capital in a note earlier said that the FY20 EPS of the company is Rs 25.03, with a return on net worth of 30.47%. Peers such as Rallis India and Sumitomo Chemicals currently trade at a P/E ration of 29.67 and 72.11.

Heranba Industries earns 49% of its revenue from exports, whereas 87% of the revenue comes from institutional customers. The company has a diverse customer base with only 20% of the total revenue coming from the top 10 customers. The company exported their products to more than 60 countries in Latin America, CIS, Middle East, Africa, Asia and South East Asia in the previous fiscal year. Heranba’s management said that it has started the process of entering developed markets such as the USA and Europe.

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Petrol at Rs 89 in Delhi, inches towards Rs 100-mark in Rajasthan

Petrol and diesel prices on Monday were hiked for the seventh day in a row as a rally in international oil prices took retail rates in India to new highs.

Petrol price was increased by 26 paise per litre and diesel by 29 paise, according to a price notification of state-owned fuel retailers.

This pushed retail rates, which differ from state to state depending on the incidence of local sales tax or VAT and freight charges, to their highest level.

The hike took petrol price in Delhi to a record Rs 88.99 per litre and to a highest-ever rate of Rs 95.46 a litre in Mumbai.

Diesel rate climbed to Rs 79.35 a litre in Delhi and to Rs 86.34 in Mumbai.

Rajasthan, which levies the highest VAT on fuel in the country, had the highest petrol and diesel prices.

In Sriganganagar town of the state, petrol soared to Rs 99.56 and diesel to Rs 91.48 per litre.

The Rajasthan government had late last month cut VAT on petrol and diesel by 2 per cent. Despite this, the state has the highest VAT at 36 per cent plus Rs 1,500 per kilolitre road cess on petrol. On diesel, the state levies 26 per cent and Rs 1,750 per kilolitre road cess.

Branded or additive mixed petrol on Sunday crossed Rs 100-mark at some places in states like Maharashtra and Madhya Pradesh.

Branded petrol at Sriganganagar was priced at Rs 102.34 a litre and similar grade diesel at Rs 95.15.

The main difference between regular and premium fuel grades is the octane number. Regular fuel has a lower octane number — 87, while premium fuel generally gets a 91 octane rating or higher.

Octane number is a measure of the ignition quality of fuel — higher the number, the less susceptible is the fuel to ‘knocking’ when burnt in a standard engine.

In seven straight days, prices have gone up by Rs 2.04 per litre for petrol and Rs 2.22 for diesel.

The relentless hike in prices has been criticised by the opposition parties including Congress that has demanded an immediate cut in taxes to ease the burden on the common man.

A six-hour bandh called by the party in Odisha affected normal life on Monday.

Oil Minister Dharmendra Pradhan last week had told Parliament that the government is not considering a reduction in excise duty to cool rates from their record highs.

Central and state taxes make up for over 61 per cent of the retail selling price of petrol and about 56 per cent of diesel.

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