India’s Buzzing IPOs May Have Been Rigged

In partnership with

Good morning. Could India’s oversubscribed initial public offerings (IPOs) be a result of calculated rigging? If not all of them, the regulator Securities and Exchange Board of India (SEBI) is probing at least six investment banks over their management of IPOs. Could this be yet another scam in the making in India’s stock markets? Read on to know more. 

It’s no news that India has warmed up to electric vehicles (EVs), with two-wheelers, three-wheelers and even cars finding many takers. This has prompted some vehicle manufacturers to think of making electric motorbikes. But this segment may not be easy to crack. 

THE TAKE

The Fears Of A Real Stock Market Scam

It is early to say whether a scam has been perpetrated in the Indian stock markets, at least of the scale that we have seen before. But it is evident that many financial market players have played fast and loose with rules and have been already hauled up for it.

In a booming market investors and savers have bought into financial products of all kinds to find better returns. These range from non-bank finance companies disbursing gold loans, banks going all guns out on opening fresh savers accounts to now, investment banks helping small companies raise funds from the stock market.

Reuters has reported that it has found that at least half a dozen small investment banks have charged companies fees equivalent to 15% of funds raised through their IPOs.  The problem is that the fee is much higher than the standard practice of 1-3% in India.

The modus operandi becomes clear if we work backwards. Companies and promoters have evidently paid a substantial sum to investment banks to coordinate the whole process, including bringing in the big subscriptions from high-net-worth entities and other investors and then raking in the retail subscription that follows.

SEBI has already been warning investors about the dangers of investing in some small businesses as well as plans for tighter rules for such IPOs. SMEs are companies smaller than Rs 250 crore in turnover and can be listed on the Bombay Stock Exchange and the National Stock Exchange. They need fewer disclosure requirements and the offerings are vetted by the exchanges and not the SEBI, which is focused on larger or what they call “mainboard issues”. 

Reuters said that SEBI's preliminary findings suggest that the high fees are being charged to ensure the offerings are oversubscribed through huge bids. "These bids are not genuine and are cancelled at the time of allotment but the high subscriptions end up attracting more bids and investments from other investors," a source told Reuters.

In the last fiscal year that ended in March, 205 small firms raised Rs 6,000 crore, a sharp jump from the 125 companies that raised Rs 2,200 crore a year earlier, according to PRIME Database, a capital markets data provider. 

Rigging prices or IPOs, in this case by cornering floating stock, is a methodology that seems as old as the market itself. Interestingly, it has returned in full glory, if that is what has happened here.

The worry is that if there is effective rigging happening in this segment of the market, could there be malfeasance in other segments of the stock market? Well we don’t know yet and can hope that is not the case. But, all bull markets usually see such signs before they start fizzling out if not crashing.

Indian markets have considerable genuine flows of capital both from domestic and international investors and that is keeping the markets up and away. But mini scams like this which expose chinks in the armour so to speak can shake confidence in the overall system and lead to questions elsewhere. Hopefully, the SEBI will act quickly and nail the offenders and make public the nature of the mischief that investment bankers have been upto.

DECODE THE NEWS

India Will Be An Uphill Battle For E-Bike Makers

This month, its Ather Energy filed for an initial public offering. In its draft red herring prospectus, Ather indicated that it planned to use some of the capital raised to back the electrification of motorcycles. It is also anticipated that incumbent players like Bajaj, TVS and Honda, which are already pretty big in the internal combustion engine (ICE) motorcycle market, may follow suit. 

Currently, the share of e-motorcycles in the overall motorcycle market is less than 1%. The space is dominated by startups. However, more mainstream EV players are looking at the segment, which is decidedly more popular in India. 

According to various industry estimates, e-motorcycle penetration might grow to 8-12% by FY2030, significantly lower than the 70% penetration expected for electric scooters in the same period. The Indian two-wheeler market is seeing a growing shift towards scooters over bikes. Not to mention e-bikes are significantly costlier than their ICE counterparts. Despite increasing mainstream interest in the segment, e-bike makers face an uphill battle in capturing bike users’ interest.

CO:RELATION

Drug Makers’ High

Pharmaceutical companies involved in active pharmaceutical ingredient (API) manufacturing have had a dream run in 2024. Share prices of pure-play API players like Divi’s Laboratories surged due to substantial revenue and profit growth. However, the domestic and export markets of essential drugs like paracetamol ciprofloxacin have witnessed a steep decline over the past year. 

According to India Ratings, an affiliate of global ratings agency FITCH, aggressive Chinese dumping, stabilisation of supplies from China after disruption, excess capacity and weakness in export demand triggered the fall. Export prices per kg have also witnessed a decline in significant APIs. Despite that, the gross margins of most API makers have witnessed a steady increase over the past few quarters. That is due to a sharp fall in raw material prices. The decline in key raw material prices, including benzene, toluene, and acetic anhydride, has been over 20% over the past two years, the rating agency observed. Amidst an across-the-board rally, investors do not seem to be worried. However, a weak export demand is no good news in the long run.

MESSAGE FROM OUR SPONSOR

It’s time to STOP using Honey and Credit Karma

• Ditch Honey: Kudos doubles your credit card rewards.

• Nerdwallet, but better: One app for all your cards.

• Simplify shopping: Autofill payments with a single click.

Download Now—It’s Free!

FROM THE PERIPHERY

—🪧 Even as protests by its factory workers in Tamil Nadu have gone on for almost two weeks, South Korean electronic major Samsung has refused to give in to their demands. Samsung said on Tuesday that they were paid 1.8 times more than workers in companies nearby. Over 1,000 workers at the Samsung factory have been demanding better wages and work conditions. "Our workers are also eligible for overtime pay and other allowances and we provide a workplace environment that assures the highest standards of health, safety and welfare," The Economic Times quoted Samsung as saying. 

—🛑 The death of EY employee Anna Sebastian Perayil was yet another reminder of the toxic nature of hustle culture. As it happens, Indian women in the technical and communications sectors work the longest globally. Data from the International Labour Organisation (ILO), Business Standard reported, showed that women in India work an average of 55 hours per week. In professions like IT and journalism, this is 56.5 hours per week, and for professional and technical jobs it was 53.2 hours a week. 

—💰 Investors in portfolio management services (PMS) are increasingly favouring quant-based schemes over traditional ones managed by fund managers. Data from PMS Bazaar reveals that quant-based PMS schemes have doubled in the past year, from 16 in August 2023 to 32 in August 2024. These schemes delivered a median return of nearly 51% compared to 38.56% for non-quant schemes. The surge in demand is attributed to enhanced transparency and reduced human bias in stock selection. Notably, top quant schemes like INV Approach and Aqua Strategy saw significant inflows since April. 

—📈 Hotel room rates near Mumbai’s DY Patil Stadium have shot up to Rs 1.42 lakh a night during the days when British rock band Coldplay will perform in India. While there was much hoopla about the ticket sales and lakhs of fans disappointed, now even hotels near the stadium are all booked out. The most in-demand were the rooms in Courtyard by Marriott Navi Mumbai as they overlook the stadium. For fans who did not find tickets to the show, this would be the second-best thing. Concerts boosting sales isn’t unheard of. Swiftonomics was a term coined during musician Taylor Swift’s Eras tour as it boosted local economies. According to financial services company Nomura, the six-month-long tour generated total consumer spending of $5 billion in the US alone. 

SUPPORT THE CORE

Dear Readers,

Some of you have written to us expressing your intent to contribute to The Core’s journalism. While we currently do not have a subscription or membership plan, you can still support us by clicking the link below.

Another way to support The Core is by sharing this newsletter with like-minded people in your communities, colleagues, friend and family.

SPONSORED

• TechInsights AI Newsletter explore AI's full spectrum: trends, tech, policies, funding, innovations, and business impacts. Subscribe

• TheTechOasis is the newsletter to stay ahead of the curve in AI. Subscribe

• LLMs Research is a daily newsletter categorizing & easily explaining LLMs research papers as they published. Subscribe

• The Closing Chronicle delivers actionable insights for B2B sales professionals and startup founders, focusing on strategies to close deals, optimize sales processes, and stay ahead of industry trends. Subscribe

Was this email forwarded to you? Subscribe