IPO updates: June 16, 2021

There are 4 IPOs hitting the markets this week. Our views are as below:

Both Shyam Metalics and Krishna Institute of Medical Sciences (KIMS) have a good estimated grey market as of June 15, 2021 and we are subscribing to both in anticipation of listing gains.

We are avoiding the other two IPOs as estimated grey market premiums are lower. Our views below are targeted at making listing gains and are not long-term views on the companies:

Name  IPO opens IPO closes Issue price Current Grey market premium
(GMP)
Current GMP
(% upside)
Our View
Shyam Metalics Ltd14th June 202116th June 2021Rs. 303 – 306Rs 146 – 14848.4%Subscribe
Krishna Institute of Medical Sciences (KIMS)16th June 202118th June 2021Rs 815 – 825Rs 225 – 25030.3%Subscribe
Dodla Dairy Ltd16th June 202118th June 2021Rs 421 – 428Rs 75-8018.7%
Sona BLW Precision Forgings Ltd14th June 202116th June 2021Rs. 285 – 291Rs. 15 – 206.9%


Note: This update is part of our blog post on how to enhance your returns on idle funds from 7% to 10% with limited short term equity risk. If you need a quick refresher on that, click here.

Multipie Weekly: June 13, 2021

Hey there!

A very good morning from Team Multipie! We present you another edition of Multipie Weekly, where we summarize market trends and interesting developments from the week gone by.
So grab a cuppa of your morning drink and let’s get started!


The Week (and month) Gone by…🗓

Indian markets had another green week with Nifty and Sensex closing at fresh highs.

We dissect the rally via a snapshot of Sector-wise returns over the last week and month.

IT, Power & Real Estate were the big gainers last week, while Financials are seeing some tiredness. Overall, all sectors were in the green, indicating continuing strength and optimism in the market.

Interestingly, the rally is moving towards small and micro caps over the last week & month as you can see in the chart below:

Note: Market cap – Microcap (<= ₹ 1,000 cr); Smallcap (₹ 1,001 – 5,000 cr); Midcap (₹ 5,001 – 20,000 cr); Largecap (> ₹ 20,000 cr)

We also went a step deeper and looked into sector wise-market cap bucket wise performance.

Here is what we found out:

Let us know what you think?

Buffett Invests in Brazilian Fintech Nubank

Last week, Berkshire Hathaway invested $500 Mn in the Brazilian fintech startup Nubank, valuing it at $30 Bn (INR 2.16 lakh crores). That’s equivalent to the valuation of Axis Bank and slightly higher than expected IPO valuation of Paytm!

Why we think this matters:

  • Warren Buffett has long been seen as a traditional, conservative investor. But with these new age investments, he seems to be making a gradual shift from his approach of targeting bluechip companies by making an investment of this stature in an ‘alternative’ bank.
  • This is Buffett’s second investment in a Brazillian fintech which is intriguing given Nubank and StoneCo, his other investment, are direct competitors. 
  • We find this interesting because it strengthens the global use case of challenger banks, which can reform the global outlook on financial services
  • Nubank’s co-founder and CEO, David Velez sees this as a validation for Nubank’s efforts to change in traditional banking by prioritizing the customer and making banking more accessible and transparent. 
  • While ‘challenger banks’ are big in UK and Latin America, the model is fairly nascent in India, given licensing of Digital only banks is not allowed by RBI. The players in Indian ecosystem such as Niyo, Open, Razorpay X, Jupiter, etc operate as Banking partners facilitating banking support functions.

The curious case of retail investors buying DHFL and why one shouldn’t – stock to be delisted!

The NCLT approved the resolution plan of Piramal Group, bringing the long standing insolvency proceedings of DHFL to near closure.  We found it shocking to see that ~2 crore shares exchanged hands on June 8th and June 9th, mainly transferred to clueless retail investors. This is more shocking given the resolution plan clearly states that the company’s entire share capital will be cancelled, a.k.a the value of equity is zero.
PS: Trading in DHFL will be suspended from Monday, June 14, 2021.

We draw attention to Section 53 of Insolvency and Bankruptcy code (IBC) that lays down order of payment under IBC resolutions. Equity owners stand last in the waterfall and any value accrues ONLY when all other stakeholders are settled off. You can read more on that here.

We explain the sequence of events at DHFL and the resolution below:


Apple dropped some interesting announcements!

So Apple wrapped up it’s flagship annual event, WWDC, earlier this week, and we couldn’t help but tell you about the barrage of new features and software updates it released. Thankfully, these won’t burn a whole in our pockets. 

FaceTime

  • Expect much crisper sound with machine learning based isolated and spatial audio. Users now don’t need a browser extension to stream and listen to music with friends either. FaceTime now allows screen sharing with synchronized play controls!
  • Android users can access FaceTime now: Yes you heard that right. You can share FaceTime links with your friends irrespective of their device.

Privacy: Freaked out every time you spoke to your friend about a product and immediately got an ad on Insta? Apple will now provide you with a report of which apps have used your phone to track your activity so you can decide to give permissions accordingly. Even Safari becomes safer with an iCloud+ subscription that completely hides your information from any third party websites or even Apple itself!

Endnote: These announcements are yet another addition to Apple building an unmatchable ecosystem around its products and software. Very soon, we might see a considerable shift of users from Android to Apple as the premium price might start justifying itself.


WazirX faces the Enforcement Directorate

This is for all the Crypto enthusiasts and skeptics – On Friday, 11th of June, the Enforcement Directorate served a show cause notice to Indian crypto exchange WazirX and its directors under the Foreign Exchange Management Act (FEMA), 1999 for transactions involving crypto worth Rs 2,791 crore.

Brief: WazirX, the largest Crypto exchange in India, is being investigated under FEMA as a part of ongoing investigations into money laundering through certain Chinese betting applications.

“During the course of the investigation, it was seen that the accused Chinese nationals had laundered proceeds of crime worth Rs 57 Crore approximately by converting the INR deposits into Crypto-currency Tether (USDT) and then transferring the same to Binance (exchange registered in Cayman Islands) Wallets based on instructions received from abroad”.

ED press release

ED also, notably, stated that failure on part of WazirX to collect required documentation was in clear violation of certain crucial crime financing prevention norms. 

This made it possible for users to “launder” money / indulge in illegitimate activities by transferring “valuable cryptocurrencies” without the risk of being tracked or audited. 

Response:  WazirX director Nishchal Shetty tweeted that WazirX did not receive the show cause and that they remain committed towards complying with all required laws and agencies. They also agree to fully cooperate if they were to receive an official communication for the investigation.

Implication: It will be important for crypto participants to keep a watch out for ED’s actions as it could have immediate effects on those using WazirX for crypto trading. Also, it could have a structural impact on the Indian Govt’s stance on crypto, and delay any possible hopes of statutory approval. Interestingly, WazirX is effectively owned by Chinese crypto exchange Binance.

Chart of the week

Our chart of the week is called – “Refining: In Transition to a Golden Age”

As per Morgan Stanley, India’s Gas market is poised for the next up-cycle, as connectivity, mobility and availability of domestic gas rise. Strong chemicals demand, consolidation in global refining, fuel price hikes and refinery upgrades bode well for oil marketers.

In Other News

  • China adopted a new data security regime which enables it to shut down or fine Tech companies to gain control of their data reservoirs.
  • Tata Digital is set to acquire 60% of Indian healthtech startup, 1mg at a valuation of $450 Mn. With this, the company adds to its portfolio of CureFit and Big Basket, acquired in the past month. 
  • Indian forex reserves at all time high of $605 Billion making it the joint 4th highest with Russia.

    Multipie Note: Given India runs a Current account deficit, which is generally financed through external borrowings, it limits the potential use case of such forex reserves.
  • Adani Group has entered Cement business and has incorporated a wholly-owned subsidiary namely Adani Cement Industries Ltd (ACIL) on June 11
  • The US FDA has rejected the emergency use application for Indian origin vaccine, COVAXIN by Bharat Biotech.
  • Petrol & diesel prices saw record highs across the country after fresh hikes were announced. In Mumbai, petrol crossed Rs. 102/L.
  • Don’t forget to catch Novak Djokovic vs Stefanos Tsitsipas for the French Open Finale today. 

Please share with your friends if you found this helpful and subscribe at multipie.co to start receiving these as a weekly digest every Sunday!

Multipie Weekly: June 6, 2021

Hey there!
A very good morning from Team Multipie!

We are starting our weekly newsletter digest called Multipie Weekly and going forward, it will start hitting your inbox every Sunday morning with handpicked recommendations to watch, read and summarize the week gone by.

Grab a cup of tea or coffee and let’s get started!


🗓 The Week (and month) Gone by…

Markets have been in green territory over the last week and month. We prepared a snapshot of industry wise returns over recent time periods.


PLI scheme paving the way for EV Infra 🔋🔋

Recently, a PLI scheme of ₹18,100 crores was notified to incentivize infra for EV batteries. Given the higher share of battery in cost of a car under EV ecosystem compared to fuel cars, there have been deliberations on in-house production versus outsourcing by OEMs. Powerhouses such as RIL, Tata, Adani have shown interest in setting up Lithium Ion plants.

We read a note from Morgan Stanley on their outlook for battery players under PLI. Here are our key takeaways:

  • The approved PLI scheme for EV batteries aims to achieve manufacturing capacity of 55GWh with an outlay of ₹181 Bn.
  • For an EV penetration of 5% in PVs and 10% in two-wheelers, India requires ~13GWh of battery storage capacity (outlay planned is 55GWh). 
  • Localization of battery production will lead to sharp decline in prices of Electric Vehicles and will increase affordability, thus boosting adoption
  • If OEMs such as Maruti, Tata and Toyota look towards developing battery capacities on their own, the majority of demand will be taken up by them. 
  • Globally, MS is less optimistic on battery companies due to high competition 
  • Indian companies such as RIL, Maruti and Tata Chemicals have shown interest in the Lithium-Ion battery market in India. While RIL has decarbonization at the forefront of its energy strategy, Maruti is investing in India’s first cell-level lithium battery manufacturing unit, and Tata Chemicals – who has the capability of building a circular economy around such batteries –  has partnered with global players for R&D and has invested in a plant site, indicating strong intent. 

While end outcomes are yet to be seen, Indian automotive segment is clearly heading into exciting times.. 


Have the rules of investing changed? 📈

Does the classic investment philosophy of buy right, sit tight still work? Have the rules of investing changed forever? Many have questioned this recently, given the rise of meme based investing. We found this article on the topic by @ReformedBroker quite relevant and interesting.

Multipie view: Digital era doesn’t alter the laws of supply & demand. It just shortens the cycle, squeezing into higher peaks & troughs. In short, we believe the classic rules of investing are timeless.

Can you play the long game in investing? 

Moving from one extreme of meme based investing, @VJ_Rabindranath wrote this fascinating story about his father’s investing journey called “The next Warren Buffett”. It talks about the other extreme, of playing the long game of investing. This is a must read.


Takeaways from RBI’s Annual Report

We read through RBI’s Annual Report that was released last week and here are some summary takeaways:

This is clearly not a replacement to reading the original Annual report document, which has great insights.


The Adani Group demerger and wealth creation story 

Gautam Adani is now the second richest Asian | GQ India

Adani Group is THE most successful demerger story in India Inc. From a market cap of ~68,000 cr for Adani Enterprises pre demerger, the group market cap now stands at over 9.5 lakh cr, ~14x in 6 years. Here is the break-up across group companies:

We found this post on Gautam Adani’s life story and some trivia interesting.

Modern Retail: Large opportunity size + consolidation 

Morgan Stanley is bullish on the outlook for modern retail format and especially Avenue Supermart (DMart). It expects its EPS to rise from 18.1 in FY21 to 42.2 by FY23E. Here are key takeaways for you:

  1. Grocery forms ~60% of India’s retail market
  2. Expects growth in grocery @ 7% and modern format grocery @17% CAGR
  3. Expects consolidation & duopoly with Reliance Retail
  4. Here is how their industry growth outlook adds up:

That’s all for this week. Please share with your peers if you found this helpful and subscribe at multipie.co to start receiving these as a weekly digest every Sunday!

Goals and Risk Profiles II

Last week, we explored what a risk profile means, its implications on your asset allocation and also debunked a myth that your risk profile is linked with your age. Here’s a quick recap of it. Alternatively, read through the entire article here.

  • Key factors determining your risk profile are
  1. Your future financial goals
  2. Your Emotional Quotient
  3. Time spent by you analyzing and researching investments
  • Debt Investments – lower risk, potentially lower (but stable) returns
  • Equity Investments – higher risk, potentially higher (but unstable) returns
  • Your risk profile (amongst other factors) determines your asset allocation

If you resonate with the above, then congratulations! You are out of the Matrix.

I can estimate my risk profile now but what are financial goals?

A financial goal is a destination. Investing is a journey to that destination.

We all learn the concept of saving since childhood. Remember your piggy bank where you saved up to buy an action figure toy? That’s a financial goal.

But let us define it in more detail. A financial goal should have

  1. The “what” – A purpose – could be a vacation, education, marriage, your retirement (or financial independence as we call it), just about anything that money can buy you
  1. The “when” – A time horizon – you wont wait indefinitely for that vacation, would you? You have to visit Disneyland before your kids outgrow it. Some goals like a vacation have flexible timelines – missing them by a few months wouldn’t matter. But some goals like paying for your/your child’s education have hard timelines that are completely inflexible.
  1. The “how much” – An Amount – of course, you need to quantify your goal

Why should I define financial goals?

Defining financial goals helps you allocate investments with the specific purpose of meeting those plans. A financial goal is the answer to the questions “Where do I invest?” and “How much do I invest?”. This table should give you the gist.

GoalTimelineAmountDebt Allocation *Equity Allocation *
Europe Tour2 years from now5,00,000MoreVery low to nil
Car6 months from now10,00,000MoreNil
Buying a house5 years from now1,00,00,000LessMore
Child’s education15 years25,00,000LessMore
Retirement (We don’t like this word, more on it later)35 yearsHow the hell do I estimate this? We have a blog coming up on this soon!LessMore

*How much “less” or “more” debt and equity allocation is determined by your risk profile.

Are you seeing a trend here? The shorter the timeline of the goal, the higher the allocation towards debt. This is because investments in equity can lead to erosion in principal over a short term. Over a longer term, equity provides higher return than debt.

How should I go about defining financial goals?

There are some goals in life that you will have to meet. Come what may. Plan for those goals first. The order of preference, in my opinion, should be as under:

  1. Retirement – Whatever you do, a day will come when you have to retire. Your current income stream from active work will stop. This is inevitable. Plan for it!

Side note: We do not like the word “retirement”. We believe in financial independence itself. Retirement is forced on you, retirement makes you less active. Financial independence is achieved by you, not imposed on you. It enables you to pursue whatever you wish.

  1. Child’s education – We all want the best for our children, don’t we? Again, educating your children is inevitable.
  1. House – Buying a house is a dream for all of us. But it’s not inevitable. You can always live in a rented house. Hence, the other 2 goals take priority over this.
  1. Child’s marriage – We all want to save for this. It may or may not be inevitable.

These 4 life events are important, and hence should be planned for. Once that is done, shorter term goals (which I call as consumption goals) such as vacations, buying a car etc can be planned for.

Do note here that I am nowhere implying that you achieve your long-term goals before investing for short term goals. However, it is wise to plan for long term goals before you plan for short term goals.

What do you mean by goal planning?

Goal planning is simply allocating a part of your active income into investments based on the allocation for each goal.

There are 4 mathematical variables involved here

  1. The timeline of the goal – this is more or less known
  2. The corpus required at the end of the timeline – this is more or less known
  3. The returns your investments will fetch – this is estimated
  4. The amount required to be invested every month to achieve the goal – this is calculated on the basis of 1, 2 and 3 above

Once you have planned for (i.e. allocated periodic investments for the 4 major life goals), feel free to plan for your short-term goals.

What happens if I plan too many short-term goals?

Too many short-term goals would mean large part of your money sitting in debt investments. And that in turn means lower returns, albeit lower risk.

However, the hazard in this is that you will achieve all your short-term goals at the risk of not achieving your long-term goals which are more crucial and inevitable.

Your money is finite and it deserves to be allocated efficiently.

I have myself given up short term goals multiple times in favour of long term goals and it has always worked out. Short term goals have to pass Raju’s filter below:

I have been wanting to buy an apple watch ever since it was launched. Apple is currently on Watch 6 and I still hadn’t got one. Every year, I invested the cost of an apple watch into my long-term financial independence goal. The return on that money is enough to buy an apple watch today without disturbing my corpus. Isn’t that what financial independence truly is? – wanting to do what you wish without worrying about money!

Had I planned a short-term goal of buying an apple watch in 2015, I would just have had an apple watch!

My top priority remains allocating most of my money towards my long-term goal of financial freedom. That is my core portfolio.

We should endeavour to not fall prey to this mindset of Bandya and Gundya, as far as short term consumption goals are concerned.

Because it always leads to this

In summary:

  • Your risk profile is determined by your financial goals, emotional quotient and time spent on researching investments rather than your age.
  • An aggressive risk profile implies higher allocation to equity investments; a conservative risk profile implies higher allocation to debt investments.
  • Define financial goals, it helps in planning your investments better.
  • Longer term financial goals imply higher allocation to equity investments; shorter term financial goals imply higher allocation to debt investments.
  • Plan for inevitable long-term goals. Retirement is a beast that’s tough to tackle!
  • Always favour long-term goals over short-term consumption goals.
  • Your goals and risk profile are an important (but not the only) factor determining your asset allocation.

Don’t ask someone “Is this stock good?”, “Can I buy this stock?”, “Should I sell this stock?”, “Will this stock go up?”, “Whats the target? Stop loss?”.

Instead, ask yourself, “Does this stock fit into my goals?”, if yes, then “what % of my portfolio should it be?”.

Here’s a tip – The next time you get that call giving you stock tips, learn from Babu Bhaiya on how to respond.

Ok, maybe you can exclude the expletives, but you get the point.

In the coming few weeks, we will cover more on the above questions and also on asset allocation which is point 2 of the 5 point investment plan from my earlier blog.

Goals and Risk Profiles I

A while ago, I wrote about how investing is simple. I also laid out a 5 point plan for managing investments. If you haven’t read it, it’s here. A mere 4 minute read.

Let’s build on that and explore point 1 – “Assess your goals and risk profile” in greater detail now.

All of those who have heard these classic dialogues please raise your hand. Or, well, subscribe to the blog so I know you raised your hand.

  1. Your risk profile is determined by your age
  1. Invest 100-your age % of your portfolio in equity
  1. Just started your career? Make sure you invest in small cap equity funds
  1. Nearing retirement? Make sure you shift your investments into fixed deposits
  1. Hello, Devi Prasad ghar pe hai? – Sorry, this has nothing to do with investments! But this blog features Hera Pheri memes and nothing introduces Hera Pheri better than this dialogue. :-p

First, let us examine why goals and risk profiles matter. The key concepts to understand here are

  1. Return – what you make on your investments
  2. Risk – what it takes to make returns

Risk is measured in the form of volatility of returns. Think of it as a speeding car. The faster you drive, the earlier you reach your destination. But is it really that simple? The faster you drive, the more prone you are to a risk of accident.

Debt investments (fixed deposits, bonds, debentures, debt mutual funds etc), generally, give stable returns with lower risk. A fixed (or near fixed) stream of cashflows followed by return of your capital. That being said, debt investments are subject to default too – DHFL bonds, Yes Bank AT 1 bonds, Franklin Templeton Debt MF schemes – we have all seen those collapse. However, these are rare events and with discipline you can avoid these.

Equity investments (stocks, equity mutual funds, ETFs etc), generally, give higher returns but come with increased volatility. Cash flow streams are uncertain as well as differ in amount and frequency. Underlying stock prices also fluctuate – some more violently than others and can result in losing capital. That being said, bond prices also fluctuate with changes in interest but that’s a topic for another day.

For now, debt investments – lower risk, lower return, gives surety of corpus and equity investments – higher risk, higher return, generally gives better returns over long horizons.

So, what determines your risk profile?

Age? This is greatly over-rated and over-emphasized because there is some correlation between age and risk profiles. But not as much as one is made to believe.

A young person wanting to save up for their higher education can definitely not afford to have a higher allocation towards riskier investments in the hope of earning higher returns.

A person close to retirement may have enough capital to pass on to their next generation after having achieved all their personal financial goals. Why shouldn’t they invest more in equities to earn a potentially higher return?

Does Warren Buffet, at his age of 90 years have 10% of his wealth in equity and 90% in debt? His equity exposure is a result of the below mentioned factors rather than his age.

Here’s what should be determining your risk profile

  1. Your future financial goals – the quantum as well as the time horizon towards the goal. The further away your goals are, the more allocation to equity.
  1. Your emotional quotient – can you enjoy a good night’s sleep without worrying about what happens to your portfolio value when you wake up? Happiness is an important factor in investing.
  1. Time spent by you analyzing and researching investments – the more time you spend, the higher your conviction and generally, the higher your risk-taking ability and vice versa

So, what is my risk profile?

It is important to understand that risk profiles can only be estimated. Moreover, risk profiles change with time as your situation in life changes.

Your risk profile can be estimated through a set of questions that address the 3 points raised above. Here is an oversimplified way of estimating your risk profile:

FactorTending towards AggressiveTending towards Conservative
Future financial goalsLargely achievedJust beginning
Emotional quotientCan tolerate drawdowns. In other words
– a fall in the markets makes you go
shopping for stocks without worrying about loss of value of existing portfolio
Can’t tolerate large fluctuations in value of portfolio
Time spent on analyzing and researching investmentsYou love doing thisUgh, who is going to go through all those numbers?
Risk Profiles

The above is only a guide. Of course, there are shades in between Aggressive and Conservative. For eg – moderately aggressive, moderately conservative, neutral etc.

For meme lovers,

Raju is EXTREMELY aggressive. He mortgaged his house and invested in a risky scheme. We all know how that ended. This is an exaggerated example to drive through the concept of an aggressive risk profile.

Shyam is probably neutral, he asks questions about investments and risks, doesn’t like fluctuations in his wealth.

Babu Bhaiya is at the other end of the spectrum. He is being EXTREMELY conservative. At least in this meme.

What does a risk profile mean?

Your risk profile should determine your asset allocation. Here’s a quick table.

Risk ProfileAllocation towards debtAllocation towards equity
Tending towards aggressiveLessMore
Tending towards conservativeMoreLess
Risk Profiles and Allocations

Notice how I say less and more and not 0% or 100%. Also, your risk profile is not the only determinant of your asset allocation. Market factors such as valuation, earnings etc also matter but thats a topic for another day.

And if you believe in a proof of the pudding approach, here’s a shortcut – In the previous market meltdowns, how did you act? If you exited, your risk appetite is low. If you added to your portfolio, your risk appetite is high.

Ok, I can estimate my risk profile now but what are financial goals? – Let’s explore that in part 2 of this blog, coming soon.

Bajaj Finance’s payment frontier

One interesting development during the week was that Bajaj Finance got RBI approval to issue and operate “Semi-closed” Prepaid Payment Instruments (PPI) with perpetual validity. Here is an explainer note on what this means for Bajaj Finance and potential implications.

Image


What are Prepaid Payment Instruments?

PPIs are instruments that facilitate purchase of goods & services or interpersonal money remittances, etc, against the value stored on such instruments. While PPIs aren’t entirely new (remember Sodexo coupons, Edenred cards), it was formalized by RBI in 2017. Here is the full list of RBI authorized PPI license holders.

Okay, and how are these different from Credit Cards?

Prepaid payment instruments come with a pre-loaded value and in some cases a pre-defined purpose of payment (more on this later). PPIs makes it more convenient to get credit at the retail store, or to get an EMI without a physical credit cards.

What are the various PPI instruments?
RBI categorizes 3 types of PPI wallets – Closed, Semi-closed and Open.

Closed: Brand-specific gift card, wallets etc (Sodexo, Ola Money, etc). More prominent in 2000s.

Semi-closed: Mostly e-wallets issued by Fintechs and NBFCs.

Open: Issued by Banks (eg: Travel cards).

We explain the same via the image below:

Image

Let’s understand the landscape of PPI players in India. As we can see in the image below, single use closed wallets were prominent earlier and have since given way to mostly semi-closed PPIs/ e-wallets.
Open wallets such M-pesa (ICICI Bank) and Payzapp (HDFC Bank) have seen limited success.

Image

This brings us back to the topic of the day – Bajaj Finance (BF). What does the PPI license mean for them?

BF had indicated its’ Vision 2.0 via “Bajaj Pay” in their Q3 FY2021 earnings call, an integrated payments solution of UPI, PPI & EMI Store (zero EMI). As per analysts, this should help Bajaj Finance in increasing cross-selling. The image below from the investor presentation provides some color:

Image

Bajaj Finance’s payment capabilities and growth imperatives

Over time, Bajaj has built a network of over 1 lakh merchants and ~5 crore customers. The two together create a base for a strong marketplace model, wherein payment capabilities was a missing link. While Bajaj Finance has grown at over 30% in last few years, it needs new legs to maintain similar growth trajectory, which is a key reason for its valuation premium. See recent customer growth metrics via a Business Standard article:

Image

How big can the semi-closed PPI license approval be for Bajaj Finance?

As per a PwC publication, revenue pool of PPIs was estimated to be at INR 253 BN in FY2021 and projected to grow to INR 497 BN in FY2025P, growing at a CAGR of 18.4%. With Bajaj Pay, the company plans to create a robust ecosystem to tap into this large opportunity.

While semi-closed PPI e-wallets have their limitations, there have been two key recent regulatory changes that have significantly expanded their playing field:

1. Mandatory interoperability for full KYC PPIs
2. Increased limit from ₹1 Lakh to ₹ 2 lakhs.

With these changes along with allowing Video KYC, it is expected that e-wallets would see a comeback and may soon function close to a Bank account.
More details in this article on The Mint: https://t.co/lqIPrI4Ape?amp=1

Conclusion:
While market reaction to this has been neutral, credit card expert Sandeep Srinivasa, founder of RedCarpet Up and a Payments and Credit cards expert had an optimistic take on this: “NBFC O/D line + prepaid + 2lakh limit + cash withdrawal + mandatory UPI linkage could be killer.”

We will continue to monitor developments here. Let us know what you think.

Note: This is not an investment advice on BF.

Update on Power Grid InvIT IPO

Power grid InvIT has several pluses like strong sponsor, demand for power transmission assets expected to remain very strong etc.


But it should be noted that IRR over the life of the existing contracts is approximately 8.5% pre-tax. (Yield of 11-12 % which is being marketed by some distributors is only for first 3 years)


Leverage is low. Hence there is scope of adding new projects. This can take overall IRR to say 10% with addition of new projects


Conclusion: Given lack of fixed income and related opportunities this IPO could be considered as part of an overall portfolio of fixed income. It should be borne in mind that the best way to evaluate InvITs is IRR over life (like we do for bonds) and not yield in initial years

What is NFT all about?

Everydays: The First 5000 Days

Sold for $69,346,250!

Yes you read it right. The JPG file (21,069 by 21,069 pixels) which I just took from the internet was sold on 11th March 2021 on Christie’s for $69mio. The art work is called Everydays: The First 5,000 Days and is by an artist who goes by the name Beeple. This is the highest ever for a piece of digital art, third highest for a piece of art by a living person. 

Who bought it?

Bought by an Indian guy who goes by the pseudonym Metakovan. He lives in Singapore and this is not his first Beeple. He revealed his identity a few days back as  Vignesh Sundareshan along with his colleague and friend Anand Venkateswaran aka Twobadour.

Their journey and rise from a small village in the southern part of India to buying Beeple’s is clearly depicted in the below picture and was part of their coming out article.

Why did he buy it? 

Because he thinks it’s a good investment and he has tasted success with earlier ones.

“When you think of high-valued NFTs, this one is going to be pretty hard to beat. And here’s why – it represents 13 years of everyday work. Techniques are replicable and skill is surpassable, but the only thing you can’t hack digitally is time. This is the crown jewel, the most valuable piece of art for this generation. It is worth $1 billion.”

Now that might sound like a dialogue from a Christopher Nolan movie, but it’s real.

Earlier, in a January auction of original Beeple art on an online marketplace, Metakovan purchased 20 images for a combined US$2.2 mio. He later fractionalized them. Currently, those works have a market cap of US$163.5 mio. That means the value is up 75 times.

What about authenticity? 

The image file is connected to a non-fungible token (NFT), which was “minted” just last month, and serves as its certificate of authenticity recorded via blockchain technology.

Confused? Please don’t be. We will explain everything.

First things first, Who is Beeple and what is this piece of art?

Beeple’s original name is Mike Winkelmann, and he is a graphic designer from Charleston, South Carolina in the US.

Beeple started posting new works of art online starting on 1 May 2007. He then continued doing the same thing day after day, creating and posting a brand-new digital picture, or ‘everyday’ as he called it. He did that for every single day for 13-and-a-half years. Have you heard of 10,000 hours? He probably spent over 50,000 hours doing this. 

EVERYDAYS: THE FIRST 5000 DAYS, is a unique piece of work in the history of digital art where he has digitally stitched together all those 5000 pieces of art into one.

What’s this masterpiece made up of?

This is one of the 5000, and it’s one of my favorites. You can deep-dive and check out all 5000 individual frames here

Right then, time to understand NFT!

NFT stands for Non Fungible Token. NFTs are tokens (or simply, a unit of data) that can be used to represent (or act as proof of) ownership of unique items. NFTs act as unique identifiers of things like art, collectibles, or even, real estate. 

While the digital files themselves, in the case of say art such as Beeple’s, are infinitely reproducible, the NFTs representing them are tracked on their underlying blockchains and provide buyers with proof of ownership as they can only have one official owner at a time. This proof of ownership is secured by a blockchain such as Ethereum. 

And, no one can modify this type of record of ownership or copy/paste a new NFT into existence. At a very high level, most NFTs are part of the Ethereum blockchain. Ethereum is a cryptocurrency, like bitcoin or dogecoin (made popular by Elon Musk), but its blockchain also supports these NFTs.  It is worth noting that other blockchains can implement their own versions of NFTs (Some already have)

A quick aside, on ‘non-fungible’…

Non fungible here means that each of these tokens is not interchangeable with any other token. I.e. Each of these NFTs is unique. (This is different from say a cryptocurrency like bitcoin where 1 bitcoin looks exactly like all others or even other currencies like USD or INR.)

What is a blockchain?

Blockchain is an open, distributed digital ledger (or record of entries) that can record transactions between any two parties efficiently and in a publicly verifiable and permanent way. 

Blockchains therefore provide a coordination layer for digital assets, giving users ownership and management permission. 

Because the records are publicly verifiable i.e. open, transparent and visible to all, the parties who undertake exchanges of value within this system don’t need to trust each other. The incentives are such that they can come together to create a single, working, growing, indestructible ledger that remains open and transparent to all.

Bringing it back to Beeple’s unprecedented success selling his piece of digital art, using NFTs. What role did NFTs play here? 

Because every NFT must have an owner and because this is a matter of public record and easy for anyone to verify, NFTs enable unique identification of digital objects such as art in this case.

And, if you own a piece of art to which an NFT is attached:

  • You can easily prove you own it.
  • No one can manipulate it in any way.
  • You can sell it anywhere as it’s borderless
  • You can even retain ownership rights over your own work, and claim resale royalties directly
  • You can hold it forever, resting comfortably knowing your asset is secured by your wallet on Ethereum.

So you can use NFTs to buy digital art. What else can NFTs be used for?

Currently, the main use case is collectibles and that’s how you can think about digital art being sold with NFTs. But, it is not just art, there are other areas that are seeing NFT related innovations: 

History of NFTs

Though you can trace the history of NFTs from 2012 onwards, real work on NFTs began as late as 2017.

The first Ethereum-based NFT experiment was CryptoPunks, which consisted of 10,000 unique collectible characters (punks), each of which has a set of unique characteristics. Today, given their limited supply and strong brand among the early adopter community, CryptoPunks are likely the best candidates for true digital antiques. As recently as March 2021, individual punks have sold for more than the equivalent of $7mio. 

It was around 2018-2019 the art world started getting excited about NFTs. Digital art turned out to be a natural fit for non-fungible tokens. 

Then came NBA Top shot. Ok what about it?

NBA Top Shot is an online-only marketplace where users can buy, sell and trade NBA highlights. These highlights, or “moments,” are owned by users through NFT.

They’re basically virtual sports cards, but instead of a picture of a player with statistics on the back, you get a video highlight of a play like a LeBron James dunk or a Steph Curry 3-pointer.

Packs are sold in low quantity and are backed by a NFT. All Top Shots are officially licensed by the NBA. The league partnered with Dapper Labs, a company that specializes in blockchain, to develop NBA Top Shot.

So far it has generated over $230mio in sales.

Net net, why do people buy NFTs?

You can think of them as collectibles. It’s the same reason people buy paintings or any other physical art. 

Their demand is usually driven by quite traditional forces: utility, authenticity and scarcity. Utility is the obvious one. For example, people are willing to buy an NFT ticket because it lets them into a conference. Or, they are more willing to buy a piece of art if they can show it off in a virtual world. And, they are willing to buy an item if it gives them special abilities in a game. 

The concept of authenticity tells you the story behind an NFT.  Where did it come from? Who has owned it in the past? 

Finally, scarcity is best explained by Leonardo Da Vinci’s famous painting ‘The Mona Lisa’. In the world of NFTs, just as there is only one of The Mona Lisa, there is only one Beeple’s. 

Final Thoughts:

Hope you all are not confusing NFTs with Bitcoin. So while Bitcoin enables transfer of digital value without a trusted third party, NFT enables transfer of digital authenticity without a trusted third party

Markets have a long history of creating mania like the tulip mania in 1637. The baseball cards mania burst in the 90s.  Today, it’s mostly millennials who are getting excited about NFTs. Christie’s reported that among Beeple’s bidders, 64 percent were under 40 years of age i.e. Millennial or Gen Z. 

It may feel like a gold rush right now but the key question is if the supply is unlimited, then how long will there be value created in all of these new forms? 

One point to remember is that in a mania or a bubble, usually, the most value is created by people serving those involved in mania. During the California gold rush in 1848, firms that specialized in serving gold miners profited, usually more than miners themselves. How so? While prospecting for gold some struck riches while others found nothing, one could make steadier profits from serving the mining industry by selling supplies, lodging miners, or shipping money and mail.  In 1851, Henry Wells and William Fargo, who worked for American Express, seeing the opportunity presented by the California Gold Rush left American Express. Thus Well Fargo was formed, which is now a  $165bio bank.

This is not to say that a Beeple work’s value or market price may not increase or that it is not worth $69mio. Frankly, the value (beauty) of a piece of art lies in the eye of the beholder. What I would say is that the efforts of producing something everyday for 5000 days is surely worth something. For Metakovan it’s worth $14k per day of work.

To conclude, to me the crypto movement is also related to a “class war”. This quote from @metakovan and @twobadour sums it up “The point was to show Indians and people of color that they too could be patrons, that crypto was an equalizing power between the West and the Rest, and that the global South was rising,” write Sundaresan and Venkateswaran. 

What do you think?

IPO Updates 17th March, 2021

Photo by Hans Eiskonen on Unsplash 

We had shared our positive view on MTAR IPO about 10 days ago. It listed at around 90% premium to issue price. However, allotment success rate was low due to high oversubscription.

We have a slew of IPOs in next 7 days.  Below are details:

Both Nazara Technologies and Laxmi Organics have a good estimated grey market and we are subscribing to both in anticipation of listing gains. Both are expected to be heavily oversubscribed and it’s better if application can be done for larger amounts.

The bottom 3 in above table have low grey market premium and we are not subscribing.

Update on MTAR Technologies IPO

Current Grey Market premium is estimated at 80%.

Retail category has been subscribed 15.05 times and HNI/Non-Institutional category has been subscribed 6.86 times as on end of today i.e. 4th March, 2021 (second day of IPO). Subscription is expected to increase further.

We are applying through our savings (ASBA ) accounts purely for listing gains.