1 Lac crore raised in IPOs, Amazon’s tussle for Future, P2P lending dynamics and more

In this week’s edition

• 🆕 TLDR – a new fortnightly section on things that made us go 🤔
• 3 articles from the research desk
• 5 conversations from the slack community
• 5 interesting reads from across the internet 

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2021 – The year of IPOs 🤑

The funds raised were the highest as several Indian technology startups – many still burning cash but promising rapid growth – have made an unprecedented beeline for the equity markets starting this summer.

The boom was fuelled by a tsunami of cash unleashed by central banks, the rise of individual investors, eagerness to buy a piece of their favorite companies, and big bang listings.

But a boom in the IPO market could well be a sign of caution for the equity markets. Since 2007, every time the IPO market has boomed, the Indian equity market has underperformed in the subsequent year.

In 2007, when the IPO market topped for the first time, the equity markets fell more than 50% in 2008. In 2010, the funds raised were the highest, and again the equity markets entered a bear phase the following year.

Now in 2021, the funds raised are the highest ever, so does that mark a market top?”

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Future Retail’s Independent Directors suddenly grew a spine🤨

There’s this little and very long letter written by Future Retail’s shareholders (read link) about uhm, how the situation at Amazon was actually illegal from the first time. Before we go there, here’s the detail of this sordid drama so far:

• Future Retail, in 2019, needs to raise money. Future Retail is a retail company (duh!) and so cannot get money from foreign investors because of something called Press Note 2, which disallows foreign direct investment (FDI) in Indian retail companies.
• Amazon is a foreign investor. (Duh! again)
• Amazon then invests in something called Future coupons – taking 49% of that company, for 1430 cr.
• Future Coupons then buys around 9.8% in Future Retail. Sounds small? Apparently, it’s a bigger thing than that.
• Amazon also made a side-agreement with Future Retail’s promoters – the Kishore Biyani Group – that they wouldn’t do certain things. Specifically that the Biyani’s couldn’t sell Future Retail to Reliance. This is significant because…
• In 2020, after serious stress, the Biyani group made a deal to effectively sell Future Retail’s assets to Reliance. (Read our post)
• Amazon busts a blood vessel and goes all over the place, specifically to Singapore, to enforce their agreement.

Future Retail is a listed company. Future coupons (where Amazon has 49%) have a tiny stake in it. How can Amazon claim that Future retail can’t sell its assets? This question is being asked in courts. But let’s just say Reliance Retail is effectively rescuing lenders of Future Retail, who are owed some 30,000 cr., via this deal. Also, read Future Group’s future with or without Reliance.

The latest in the saga is: The independent directors of the listed Future Retail have woken up from a two-year slumber, to say that oh wait, we didn’t know that Future Coupons had such control over Future Retail, and Amazon simply bullied its way into the company without having any real ownership. And because of that, to ask the Competition Commission of India (CCI) to cancel the approval for the Amazon investment in Future Coupons.

They seem to have grown a spine now largely because they have to take a stand, otherwise Future Retail stands to go bankrupt. Already the Singapore courts are siding with Amazon for the most part, but Indian courts will have a higher jurisdiction. The battle in courts however will last a long time. However, it’s obvious that:

• Amazon’s investment and thus indirect control over FRL is an obvious violation of the FDI limitations
• And everyone in Indian retail finds a loophole like a “Future Coupons” route
• And when the bad stuff hits the fan, everyone is surprised that a foreign entity has control, except the foreign entity, which goes off to file cases in Singapore

Keep some popcorn handy because picture abhi baaki hai..

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Capitalmind Research 💡

• [Podcast] How does P2P lending work in India? How safe is P2P lending? Deepak and Shray explore how the industry works, the risks involved, and whether the returns are enough to justify the risks. Listen in – P2P lending in India.
• Investing in US stocks is the new fancy and everyone is jumping on this bandwagon. While on the face, it may seem like an interesting idea, but as with everything in life, the devil is in the details. Read – What they don’t tell you about investing in US Stocks from India
• [Premium] In the last decade, shareholders of Tata Motors have seen everything. Euphoria, despair, agony & now FOMO. The stock was down 85% between 2016 to 2020. Only to rally 7x from its March 2020 low. Read – Tata Motors – Is the future green?

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[Premium] School of Slack 😎

Putting together the best conversations from our slack community

• An update on the reported earnings of a focused PF stock. [link]
• While NSE IPO is always around the corner, an interesting discussion on the market price of the share. [link]
• Options premia do not change with the movement of underlying. What gives? [link]
• Is there a case of Momentum PF with US stocks? [link]
• How have different asset classes performed over the years? [link]

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Links we Like✨

In this section, we bring you curated articles from across the internet that we found interesting. Today’s links are curated exclusively from our slack community: 

• Bored Ape Yacht Club became internet rock stars by making NFTs of grungy simians that aren’t just viral images — they’re tickets to a whole new lifestyle. Read – How Four NFT Novices Created a Billion-Dollar Ecosystem of Cartoon Apes
• New age businesses have started listing these days. The private equity valuations that amazed us are far behind and the current valuations are even higher.  Nithin Kamath, Founder – Zerodha, shares his views – Investing in high growth, low profit businesses?
• Much of investing is accessing and managing the risk. Here’s a framework that helps to do better with it. Read – Managing risk with the NASA Risk Matrix
• The author talks about how he manages his biggest positions and a way to evaluate money managers. Read – What Makes A Great Investor?
• Getting profitable in trading is not easier than climbing a steep hill. Here’s an article that says literally that. Read – Stock Market Traders And Climbers: What Do They Have In Common?

That’s all folks. Have a great weekend!

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