Serenity Aides Value Creation

Ashish Chauhan ,MD & CEO, BSE

Share with us your thoughts about today’s market in the context of value creation?

Basically, one must remember that the stock market represents how the economy is changing. Forty years back or eighty years back, companies that were value creators may not be in the list today. So, many times we hear that the Sensex is at so and so level but many of the stocks are at lower levels. This is because everything changes and accordingly some of the stocks which were not even existing ten years back might be doing well today and some which have been existing from 100 years may not be doing so well. 

So, effectively, you need to look at it from that perspective. IT and pharma are the two best examples of it. In the last 20 years, basically IT has been a good contributor to jobs in India, it has also helped in increasing India’s confidence that it can take on the world and shown India in good light in many ways. We would not have thought even in 1991, when we started liberalizing, that IT would be so big.

Similarly, pharma companies have done extremely well over the last 15-20 years. And again you can see why it is so. It is primarily because Indian companies have figured out the patent laws and how to take advantage of those laws in their own framework.

So, for me it is about changing life, changing needs of the society, changing perspectives. Stock markets in some sense reflect very fast compared to what we as humans are used to capture. The primary market has been very dormant in the last couple of years. 

Do you think that trend is changing and where we are headed economically? 

If you see the history of the Indian capital markets over the past 140 years, whenever there has been a bull run, more and more IPOs have come up.

In a bearish market, not many IPOs come in. The last five to six years were bearish. So naturally, not many companies came up with IPOs. At the same time, although we don’t recognize them in the way they should be recognized, the SME sector has seen almost 55 IPOs over the last two years and they have done very well. So, the smaller companies which are coming into the market are also doing well.

There has been a trend seen in the last 10-15 years, after the free pricing of IPOs was allowed, that not many companies have given good returns post listing. So, whether IPOs will get a good response going forward, that would depend on how much money is on the table for the investors post six months or post one year of listing. For me, SMEs which have listed recently have shown the larger companies that if you have underwriting, market-making, and liquidity post six months or one year after the issue has been listed, then more and more people would want to participate in the markets and help the company raise funds.

From the investor perspective, smaller issues that come in to the market (SME issues), would they not take much longer time to deliver value as compared to the larger ones?

This is an interesting question. If you see in the month of December 2012, BSE launched an index called the BSE SME IPO index. It started at 100. It is around 14 months old. That index today is at 786. In 14 months, the returns are around 686 per cent, which is unprecedented. So, while there is a perception that smaller companies will not deliver value, it is otherwise. To some extent, you have to give credit to SEBI for coming out with regulations which are tough on merchant bankers and rightfully so because SME companies are not known so well. 

A lot today is being talked about how the political scenario will shape up and hence its impact on the markets. What are your thoughts about it?

 There is a hope that the next government would be able to come out with policies which are business friendly and also create more jobs, which will again kick-start growth. If that happens, capable companies would be at the forefront to take advantage of that growth. In a sense, you can see that the market has gone up recently, and going forward, the companies which have done well need to be seen on how they perform on new policies and new framework that comes up.

For the Indian investor, the Sensex or Nifty is the benchmark, in that sense if you look at the Sensex, you say that it has gone up to 22000 levels and hence the market is going up. This is where retail investors try to jump in thinking they are losing out. But, the levels as we see are looking a little superficial given that we are trading on things that may or may not shape up the way they have to. Do you advice retail investors to stay calmer in these conditions? 

One should always be calm. The idea is not to get carried away on money matters. One should always be more conservative when one is putting money to earn more money. At the same time, India has a great potential and in the last 3-4 years we have had a situation where we were not confident ourselves, although the rest of the world was very confident of India’s capabilities.

 Now, projects are getting cleared. So, for me it is about a place where the land value comes down because everyone goes out and then everyone comes back and the value appreciates again. It is a matter of confidence and if the confidence continues, which it should, then India has a great story to offer to itself and also to the rest of the world.