Market Mix - Anti-Immigrant Sentiments Are Rising

Good morning. Growing resentment over immigration across the world could hold key lessons for India, where regionally uneven demographic transition and growth are driving internal migration. Read on to know more. 

In other news, the IPO market will be bustling this week with 13 companies set to go public. What does this mean for the Indian stock markets? 

JANUS VIEW

Lessons For India From Anti-Immigrant Sentiments Across The World

Around the rich world, immigration has become a lightning rod for public anger over crime, rising prices and the seeming erosion of cultural integrity. In elections to two states in Germany last week, a hard-right, anti-immigrant party, the Alternative for Deutschland, emerged the largest party, even as members of the ruling coalition running the federal government suffered serious setbacks. In the US, the Republican presidential nominee threatens to throw out all illegal immigrants, if he becomes president. In Canada, Australia and Britain, immigrants are blamed for rising house prices. This has led to severe restrictions on visa policies for students, even as foreign students are a major source of revenue for these countries’ higher education systems.

Increased demand for housing should be seen as a growth opportunity, to build and prosper. Instead, increasing demand for housing only results in higher prices, making home ownership increasingly difficult for the young. For this, rigid zoning and town planning restrictions are responsible, rather than immigrants.

This has lessons for India, where a regionally uneven demographic transition and faster growth in the South and the West are driving internal migration from the North and the East to the areas of economic growth. India has the added prospect of large-scale urbanisation, in which millions of people would migrate from village to town. If anti-outsider sentiments are not to mount in the host states, they must gear up.

Because millions of people would seek to resettle in towns, India needs to increase the supply of towns, not just of dwellings in existing towns. It would be useful to recall that China’s decade of double-digit growth was driven by extensive urban development, in which thousands of new towns came up, throwing up giant property companies and immense demand for steel, cement, paint and construction services. Supplying these and building the roads, high-speed rail and trains galvanised Chinese growth.

States need to plan for dozens, if not hundreds, of new towns, planned to account for climate change and water shortage. Accepting that India’s increasingly footloose workforce needs accommodation available for affordable renting, rather than ownership, the government could float special purpose vehicles to build public housing that would avoid slums and ghettoisation, and remain sanitary and amenable to effective policing.

New towns with efficient connectivity with older ones would reduce pressure on house prices while accommodating immigrants in large numbers.

THE TAKE

Givers And Takers Of The Indian Stock Markets

There are two kinds of people in the stock market, particularly in primary markets — the givers and takers. Givers are those who invest their savings or earnings in initial public offerings (IPOs) in anticipation of future returns, including on listing day. Takers are those who raise funds from the market, either for themselves or their companies. 

There comes a time when the takers' appetite exceeds that of the givers. Usually, this happens at the top of a cycle and leads to the whole market, primary and secondary, going down. The question is: is this happening now? 

The honest answer is - one does not know whether we are at the top of a cycle. What we do know is that substantial wealth is being transferred from ordinary investors into the hands of promoters of companies or their companies, oftentimes the former. A recent report by brokerage house, Kotak Institutional Equities said that promoters of 37 National Stock Exchange 500 companies sold Rs 87,000 crore worth of stock in the first half of the current year, marking the highest level in the past five years.

In 2019, the value of promoter stake sales was Rs 24,100 crore and touched Rs 99,600 crore for all of last year, according to a report in Mint.  Another report in Nikkei Asia said promoters sold shares worth Rs 81,424 crore between 2021 and 2023 on the exchanges in IPOs. 

There is no easy formula that dictates at which point the takers take so much that the overall market starts feeling the pinch. One reason is that domestic flows are strong and are absorbing both IPOs and sending fresh funds into mutual funds. But there are good reasons and historical instances to believe that overheated IPO markets usually trigger a flattening if not a drop in secondary markets. Are we near that point? 

A few weeks ago, a motorcycle showroom in Delhi raised funds through an SME IPO. SME IPOs are only regulated by the exchanges and not by the Securities and Exchange Board of India. There are several other such IPOs documented where the antecedents of the companies concerned were shaky, to say the least.  Signs like these are more worrying than the data that may or may not provide clear signals. Particularly when flows are so strong.

Meanwhile, this week four companies, including Bajaj Housing Finance, are set to raise some Rs 8,390 crore. August too saw several major IPOs, mostly from tech companies.

Estimates suggest that main-board IPOs, or those not part of the SME offer, have raised around Rs 80,000 crore till last month and could cross Rs 1.25 lakh crore by the end of the calendar year. Going by the extent of oversubscription, the appetite is high.

In August, main-board IPOs were subscribed on an average of over 75 times, while the year-to-date average for 2024 is 66 times.  For SME IPOs, the average subscription in August was 290 times, with a year-to-date average of more than 259 times, the PTI reported quoting data. Such high levels of appetite are warning signs too and reflect a desperation to make quick returns rather than anything else. This also means that such capital can be more fickle than patient.

We are most likely in a more steady phase in the markets rather than hyper-growth. This is good for the overall health of the stock markets. Unless something major happens, it could well stay in this mode for a longer period. As long as the takers don’t get greedy and kill the golden goose, so to speak.

FROM THE PERIPHERY

—📱 Gen-Z is leading ‘big shifts’ in India’s consumer market according to a report by Bernstein. This includes the rise of quick commerce delivery, short-form content and direct-to-consumer brands. According to the report, Indian Gen-Z make up 20% of the world, and 27% of India’s population. The generation shows a preference for digital-first and new-age brands. It accounts for 17% of India’s consumption and is dominating consumption trends. 

—💰 Education loans for overseas studies are expected to continue being one of the fastest growing segments in non-banking financial companies (NBFCs), according to credit ratings agency Crisil. Their assets under management (AUM) are likely to grow 40-45% to cross Rs 60,000 crore this fiscal. The number of Indian students studying abroad has doubled in the past five years. However, only a tenth are funded by NBFCs, which indicates that there is significant room for growth. 

—🏭 Vedanta Ltd has filed for a demerger with the National Company Law Tribunal (NCLT) and is transitioning from an asset manager to an asset owner, according to Chairman Anil Agarwal. The demerger will separate Vedanta’s operations into independent entities focused on over 15 commodities like aluminium, oil and gas, power, steel, and base metals. The restructuring will help simplify the company’s corporate structure and provide direct investment opportunities in specific sectors. The demerger is expected by the end of the fiscal year. 

—💊 India’s drug formulation market is expected to grow at a 9-10% compounded annual growth rate over the next decade, according to pharmaceutical company Glenmark. The drugmaker said in its annual report that the government’s Jan Aushadhi outlets are expected to emerge as stronger players, with its procurement accounting for 3-5 % market share by volume and around Rs 40-50 billion in value over the next decade. However, despite the growing influence of Trade Generics and Jan Aushadhis, branded generic drugs are expected to remain dominant, it said.

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