Rising cash calls – Will they drown the market?
- Cash calls rising, but manageable: Improving investor sentiment hasl d to a surge in equity fund-raising plans of Indian companies. Thecurrent pipeline of US$15B, at 1.5% of outstanding market capitalization, is not daunting in relation to the historical levels or regional peer group. Issuers need to guard against a bunching up, though, as equity fund-raising in excess of US$2B a month has typically led to a phase of consolidation and relative under performance.
- Global risk appetite needs to remain supportive: As international investors are expected to fund a substantial part of the equity issues planned. Over the past, equity fund-raising by Indian companies has not been excessive in relation to regional peers. Success herein has spin-off benefits for the broad markets as it results in a higher country weight, on the back of larger market cap and increased free float. The currency and rates markets benefit too.
- Rates market – liquidity support continues: Liquidity in the overnight inter-bank market is near an all-time high, and this improvement is also reflected in a halving of commercial paper rates since October 2008. However, after the initial euphoria following the election results, the yield curve steepened, given concerns about the government’s borrowing program.
- Bulls retain momentum: A decisive verdict in the national elections encouraged most investor segments. Insurance companies, though, used this opportunity to book profits.
- Insider activity: Insider activity picked up over May, but was surprisingly skewed towards the sell side
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