Net flows from foreign institutional investors in the cash segment of the equities market, at Rs18,470 crore, were the highest ever last month. But adjusting for net outflows from the futures market and investments in primary market issuances, the net inflows in the secondary market were a tiny Rs270 crore.
It’s important to note that most of the outflows happened after the market peaked on 24 July. Until then, net inflows to the secondary market, even after adjusting for futures trades and primary market investments, stood at a strong Rs10,820 crore. These flows not only offset outflows from domestic mutual funds, but also fuelled a 7% rise in the market. Nevertheless, when the tide turned, FIIs were heavy sellers. In just seven trading sessions between 25 July and 2 August, they’ve sold stocks worth Rs3,000 crore in the secondary market, after adjusting for the qualified institutional placement (QIP) made by UTI Bank and two small initial public offerings (IPO). Besides, they have built up short positions worth Rs10,470 crore in the futures market.
Some of these numbers may not tally with those published by market regulator the Securities and Exchange Board of India (Sebi), since they exclude investments made by FIIs through public issues, QIPs and conversion of foreign currency convertible bonds. Till 24 July, FIIs invested Rs6,780 crore in public issuances by companies such as ICICI Bank, HDIL, Spice Communications and Bharat Earth Movers Ltd, and a QIP by IDFC. Also, on the last trading day in June, they invested Rs5,300 crore in the DLF issue. Despite these large investments, they continued to pour in funds in the secondary market (Rs11,980 crore). What’s more, short positions in the futures market were relatively low at Rs1,160 crore, indicating that there were genuine long positions being taken in the secondary market. But thanks to the sales in the past seven trading sessions, FIIs have ended up being net sellers since the beginning of July. Sebi numbers may continue to show a high investment in 2007, but that’s largely on account of primary market investments. The tide has clearly turned so far as FII investments are concerned.
Is Puravankara Project’s struggle to sell its IPO in the Indian market mirrored in the US market by the re-pricing of Genpact’s IPO in the US? India’s largest BPO firm had to lower its price to $14 (Rs565.6), well below its initial range of $16-18 a share. The irony is that the stock went all the way up to $16.75 on its debut, which indicates that the merchant bankers underpriced the issue, giving too much weight to current market conditions. The stock closed at $15.75 on Friday. But there was ample reason for the caution—the stocks of both WNS Holdings and EXLService Holdings, the two Indian BPO firms listed in the US markets, are quoting below their listing prices.
What a difference a year makes. WNS Holdings, India’s second largest BPO firm, not only managed to price its offering at the top end of its range, but was also one of the most sought after IPOs when it made its debut on NYSE in July last year.
But it wasn’t just Genpact’s timing that was an issue—its pricing, too, was much higher than its peers. For instance, WNS Holdings currently quotes at a multiple of 36 times diluted earnings for the year to March 2007. Genpact, even at $14 a share, was priced at a multiple of 70 times pre-dilution earnings per share for calendar 2006. Seen in that light, Genpact should be congratulated for getting its richly-priced offer oversubscribed three times in such uncertain market conditions. It also testifies to the strength of the outsourcing story. That strength can be gauged by the fact that operating profits at Genpact rose to $10.6 million in the March quarter from $4.2 million in the year ago period, while the comparable numbers for WNS were $8.8 million and $3.7 million, respectively. Nevertheless, BPO firms will have to contend with rising wages and an appreciating rupee.
Genpact’s $494 million will come in handy in its bid for Citigroup Global Services. Analysts have been pointing out that it has little cash in its books, compared with rival suitor WNS. The IPO has remedied that.
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