September 2018: Headwinds Time Is To Innovate
(Image used for illustrative purpose only)
September has, historically, brought little cheer in the Stock Markets. The degree of poor sentiments in September varies from year to year depending on the overhang of previous months. For example, it was nothing short of party-time in 2017 in the primary market. 20 SME IPOs and 7 larger ‘mainboard’ IPOs or nearly 20% of annual number opened last year in September. It was euphoria all around and everyone cashed in. This year, it will be a decent achievement if we manage 50% of last year’s performance. Things look different in 2018.
The divergence in performance this year between benchmark indices and broader markets is curiously significant. SENSEX and NIFTY are hovering around their lifetime highs whereas the mid-cap and small-cap are nowhere out of the woods yet. Some say that it is the hangover of heady 2017 while the others blame fluid political environment for under-performance in broader markets. While, admittedly, this does not explain the positive gains in benchmark indices.
The international scenario including US-China standoff on tariffs, the potential for auto tariffs on other countries by US, Iran oil sanctions by US, etc. Other international factors include US Fed meeting in towards end of September, rising dollar, turmoil in emerging markets, European crisis led by Italy’s debt issues, the BREXIT, challenges in Argentina, unfinished business of denuclearising North Korea, etc. All of these are weighing on the minds of FIIs while investing in India.
For stock markets in India, there are more headwinds this year. The political environment is the main one. The macros such as GST, demonetisation, crude oil prices, US dollar touching Rs. 73 mark, rising Current Account Deficit, the social environment, etc are also playing on the minds of investors.
There are more, specific issues affecting the primary market. The number of IPOs are likely to be less than half when compared to September last year. Most of the IPOs last year opened in last week of September. This year, after completing the Jain period of penance, 24th September marks the beginning of a two-week Shraddh period for Hindus. This period is generally considered inauspicious for investments or starting anything new. The bloodbath witnessed in smallcap and midcap shares and bad experiences on certain Issues have shaken the confidence in SME IPOs. Lack of confidence is becoming a major headwind here.
May be this is the right time for the regulators to further tighten the screws and also bring in some more innovations so that only the good SMEs find it easier to access the market. This will also ensure that large and more serious investors enter into this space. In a country with breath taking growth and over 50 million SMEs, only about 400 have accessed the markets so far in over five years. It is time also to press the accelerator.
SME IPOs have not taken off as well as the policy makers would have desired, but SME access to growth capital must succeed.