HONG KONG (
Commodity Online): Data released by CRISIL Equities and Standard and Poor’s Index services signify the fact that recent equity rally may be moderating. On the other hand it also raises doubts whether the worst of the recession is over yet.
Following three months of consecutive gains, global equity markets declined 0.58% in June, according to The World by Numbers, Standard & Poor’s Index Services monthly global stock market review. The year-to-date gain of 9.03% is in stark contrast to the one-year decline of 30.79% as all sectors continued to react to global economic events.
A study by CRISIL Equities reveals that most Qualified Institutional Placements (QIP) made in 2009 in India have returned negative value, with 10 out of 13 QIP's trading below their offer price. As on July 10, 2009, total return on investments, by all QIPs is marginally negative despite significant gains registered from the first QIP of Unitech, that delivered positive return of around 75 percent.
“Despite a strong second quarter in which all ten sectors posted double digit returns, June proved a mixed bag for equity markets.” says Howard Silverblatt, Senior Index Analyst at Standard & Poor’s. “Five sectors generated positive returns whilst an equal number posted a decrease. Healthcare and Information Technology continued to fare well, but the Energy and Materials sector losses dragged the market down and contributed strongly to the decline across the month".
Emerging markets continued to decline in June, posting a -1.45% return for the month. Within the group, Asian countries continued to shine as Thailand lead the sector with a +8.56% return in June. The BRIC nations remained lackluster, with only China managing an increase of +3.48%. Developed markets fared slightly better with a decline of 0.47%, thanks in large part to strong performances by Australia (+31.61%), Spain (+3.13%) and Japan (+2.56%).
In June, the best performing sectors were Healthcare and Information Technology with 2.63% and 2.14% increase respectively. Energy was the laggard with a 5.62% decline across the month. When examining long term trends, it is important to note the marked revival in Financials during the second quarter with a substantial increase of 35.72%. Leading the field on year-to-date returns was Information Technology with a +24.98% return.
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In Indian equity markets, however, excluding the first QIP offer of Unitech, the overall returns of QIP is negative 12 percent. QIPs provide an easy investment alternative for the institutional investors. The QIP route enables an institutional investor to garner shares of the company at a discount to the market price, and also helps them save on transaction cost. Further, since there is no lock in period for the shares allotted through QIP route, institutional investors’ return through this route can be high if timed appropriately. Further analysis of the QIPs indicates that around one-fourth of the QIPs are trading 20 per cent below
their offer price
In percentage terms, the Bajaj Hindustan QIP declined the highest with its current market price around 28 per cent below the offer price. In absolute terms, Unitech (second tranche of QIP at Rs 81) and HDIL have lost maximum value for QIPs, by more than Rs 4.5 and 3.5 billion respectively. On the positive side, Unitech first QIP of Rs 16.2 billion in April 2009 at an offer price of Rs 38.5 is the largest wealth creator for QIPs with total gains of Rs 12.2 billion.
Commenting on the analysis, Chetan Majithia, Head- CRISIL Equities said, “The significant run up in the stock prices before the 2009-10 union budget made QIP deals unattractive as the inherent fundamentals of most companies which queued up for QIP have not changed materially. With the global economic growth concerns still persisting and delayed monsoons, the S&P CNX NIFTY is still trading at a slightly expensive 15 times its FY10 expected earnings. With the recent decline in prices and consequent erosion of the QIP investment value, we expect raising capital through the QIP route may slowdown significantly”.
During 2009, the Indian capital markets witnessed a sudden spurt in the QIPs activity with 13 companies raising funds through the QIP issue. Total amount raised through QIP was Rs 125 billion.Unitech through its two QIP issues (in April and June 2009) raised around Rs 44 billion or 35% of thetotal QIP amount while the Rs 500 million QIP of Power Trading Corporation was the smallest.Among sectors, real estate with five companies raising funds close to Rs 95 billion or 76% of the totalamount of QIP was the largest beneficiary.
Majithia further adds, “After declining by around 90 per cent from their peaks during the globalmeltdown, the prices of the large real estate companies looked relatively attractive. However, not all the companies in the sector offered a sound fundamental value proposition. ”
