In the last couple of years there have been more than 25 cases of major broker defaults. There have been some high profile names like Karvy, Anugrah Broking, Arcadia Stocks, Bezel etc. In a number of these cases, the trading license was cancelled by the stock exchanges after the brokers were found to be illegitimately pledging client shares to raise funds.

To address the issue of broker defaults and to protect the interests of the small investors, SEBI now plans to hike the broker net worth requirements. While, this may not address all the challenges, it will at least ensure that well capitalized serious players will remain in the interest. That way, the customers will not have to worry about the safety of their shares.

Currently a Professional Clearing Member (PCM) or a Trading cum Clearing Member (TCM) requires a net worth of Rs.3 crore for clearing transactions in cash market. If they also clear transactions in the F&O market, then the net worth requirement doubles to Rs.6 crore. Going ahead, this number is likely to be increased manifold.

SEBI has now proposed that the base net worth requirements for PCM and TCM be raised in tranches. For example, the base net worth requirements will be raised to Rs.25 crore by Oct-22 and increased further to Rs.50 crore by Oct-23. Brokers may have to show higher variable net worth if 10% of average client balance retained exceeds Rs.50 crore.

One of the justifications given by SEBI for this move is that the current limits were set about 20 years ago. In the last 20 years, the capital markets have changed drastically in terms of size, breadth, institutional participation and complexity. Also, in the light of the proliferation of the number of trading accounts in the last one year, SEBI has called for this move.

While the larger brokers are already well capitalized, this move will actually impact the small and mid-sized brokers. The smaller brokers have remonstrated that this would push most of them out of business. However, SEBI is right that they cannot afford another big default in the stock markets, and prevention is always better than cure.

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Reliance Jio may have postponed the launch of its JioNext smart phones by 2 months due to chip shortage but it is putting the time to good use. In a move to enrich the digital ecosystem of Reliance Jio, it plans to acquire a stake in Glance InMobi for a consideration of $300 million or approximately Rs.2,200 crore at current exchange rates.

Check - Reliance Jio Puts off Smart Phone Launch

Interestingly, Alphabet which is the holding company of Google, already has a stake in InMobi and has been mentoring the start-up for some time now. With Google already having announced a major investment in Reliance Digital as well as its commitment to a long term strategic partnership, this 3-way relationship surely does make a lot of sense.

It is relevant to understand where exactly Glance InMobi fits into the Reliance digital ecosystem. Glance InMobi specializes in pushing curated news and entertainment content onto the lock screens of mobile phones. This is an interesting property with a high visibility and a constant interaction with the user who finds interesting content thrown at them.

Incidentally, the platform is also versatile. It uses artificial intelligence to personal content in various languages. More importantly, this is a unique property as the lock-screen is something few people in the modern world can avoid. Hence, if the content is curated and personalized, it can bring to the table tremendous recall value.

Glance InMobi became a Unicorn with valuation in excess of $1 billion in December 2020 itself. At that point, Glance InMobi had raised funding from Google and from early investors, Mithril. The big question is; how does this kind of purchase add value to Reliance and how does it really fit into the larger scheme of things.

Reliance sees a great fit with its proposed launch of the Jio Next phone. That is already being touted as the cheapest feature-rich smart phone sold at the price of basic phones. It is estimated that the 115 million active daily users of the Glance InMobi platform spend an average of 25 minutes daily on the platform. This gives access to lock-screen property.

It surely looks like Reliance is leaving no stone unturned to fully monetize its smart phone launch. Glance InMobi will be one more addition to the ecosystem of Reliance Digital.

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The stock of Gujarat State Fertilizers & Chemicals Ltd (GSFC) normally does not show too much movement in trading. On 28th September, GSFC started nearly 8-9% higher and touched a 52-week high of Rs.133.65. However, towards the close, the price did taper but the stock did close with gains of 3.2% on the NSE, amidst a falling Nifty index.

What exactly triggered this rally in GSFC?

The Central Board of Indirect Taxes and Customs (CBIC) has proposed anti-dumping duties on Caprolactam. This was based on an application made by GSFC requesting for an imposition of anti-dumping duties on imports so as to help Indian production of caprolactam remain competitive. 

Based on the prima facie evidence submitted by GSFC and its investigations, the CBIC concluded that anti-dumping duties were warranted on Caprolactam, especially for the consignments coming from the European Union, South Korea, Russia and Thailand. Anti-dumping duties are necessitated when other governments reduce costs through subsidies.

GSFC currently has two caprolactam plants having rated capacities of 20,000 tonnes per annum (TPA) and 50,000 TPA respectively. GSFC is broadly into the manufacture of fertilizers and industrial chemicals and is one of the major producers of caprolactam in India. Benzene and ammonia are some of the major inputs that go into caprolactam.

Countries like China have been traditionally known to dump cheaper products into other countries on the strength of huge subsidies given to them by their government. This gives them an unfair advantage and in such cases, even under the WTO regulations, the anti-dumping duties are justified. Since dumping is hard to prove, it is normally based on the submissions of the aggrieved manufacturer and the investigations of CBIC.

The imposition of anti-dumping duties means that the imported goods are subjected to countervailing duties to the extent of the special benefits that they get to reduce their cost of production. This protects the interests of the local producer like GSFC. Normally, such anti-dumping duties tend to have sustained positive impact on the price of the stock.

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1) What is so hot about fertilizer stocks?

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One of the reasons, the stock of HDFC Asset Management Company was down 5.51% on 29th September was the sale of 5% stake by Standard Life UK. The sharp fall in price was specifically because the seller had set the floor price for the sale at a discount of nearly 6.65% to the closing price on the previous day. But first a look at the deal.

Standard Life, the foreign partner in the HDFC Asset Management Company, plans to sell a total 5% stake at a floor price of Rs.2,870 per share. The closing price of Rs.2,904 on 29th September was quite close to the floor price of the proposed sale. The plan is to sell a total of 1.06 crore equity shares in HDFC AMC representing 5% of the capital.

Currently, Standard Life owns 4.52 crore shares in HDFC AMC representing 21.23% of the outstanding capital of the company. The current sale of shares entails a total of 1.06 crore shares representing 5% of the total capital base of HDFC AMC. The total value of the sale is estimated at Rs.3,042 crore. Normally, large blocks are sold at a discount to market price.

Standard Life has been gradually paring its stake in the insurance venture, HDFC Standard Life, too. The AMC stock is up sharply in the last 1 year on the back of solid traction in the form of a big boost to systematic investment flows into mutual funds. However, the AMCs have also been under pressure due to falling revenues as expense ratios moved lower.

HDFC AMC was the second AMC to list on the Indian bourses after Nippon India AMC. Subsequently, UTI AMC also listed on the bourses and currently the Aditya Birla Sun Life AMC IPO is on and that stock is also likely to be listed in the next 10 days. That would make it four listed AMC stocks traded on the Indian markets.

The supply of HDFC AMC is likely to be easily absorbed considered the expected demand.

The Rs.2,768.26 crore IPO of Aditya Birla Sun Life AMC Ltd, consisting entirely of an offer for sale (OFS) of Rs.2,768.26 crore, was partially subscribed on Day-1. As per the combined bid details put out by the BSE, Aditya Birla Sun Life AMC Ltd IPO was subscribed 0.58X overall, with bulk of the demand coming from the retail segment. The issue closes on 01st October.

As of close of 29th September, out of the 277.99 lakh shares on offer in the IPO, Aditya Birla Sun Life AMC Ltd saw bids for 159.89 lakh shares. This implies an overall subscription of 0.58X. The granular break-up of subscriptions were tilted in favour of retail investors but HNI and QIB bids typically come in only on the last day of the IPO.

Aditya Birla Sun Life AMC Ltd IPO Subscription Day-1
 

QIB Portion

On 28 September, Aditya Birla Sun Life AMC Ltd did an anchor placement of 110.81 lakh shares at the upper end of the price band of Rs.712, raising Rs.789 crore. The list of QIB investors included a number of FPI names like HSBC, IMF, ADIA, Morgan Stanley, Societe Generale etc. It included domestic institutions like ICICI Pru MF, HDFC MF, SBI MF, Axis MF, SBI Life, HDFC Life, Kotak MF, IIFL Special Opportunities Fund and Abakkus Growth Fund. 

The QIB subscription saw negligible subscription at the end of Day-1. The QIB portion (net of anchor allocation of 110.81 lakh shares as above) had a quota of 73.87 lakh shares of which it has got bids for just 0.26 lakh shares, implying a negligible subscription by QIBs at the end of Day-1. QIB bids typically get bunched on the last day, but anchor response does indicate strong interest.

HNI Portion

The HNI portion got subscribed 0.14X (getting applications for 7.54 lakh shares against the quota of 55.40 lakh shares). This is a rather tepid response on Day-1 and could be due to the large size of the IPO. Bulk of the funded applications and corporate applications, come in on the last day, so the actual picture should only get better. 

Retail Individuals

The retail portion was fully subscribed 1.09X at the end of Day-1, showing strong retail appetite. For retail investors; out of the 129.28 lakh shares on offer, valid bids were received for 140.97 lakh shares, which included bids for 109.06 lakh shares at the cut-off price. The IPO is priced in the band of (Rs.695-Rs712) and will close for subscription on 01st October.
 

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Upcoming IPOs in 2021

List of Upcoming IPOs in October 202