The India Cost of Capital Survey 2021 aims to understand the cost of capital that companies use for capital allocation and strategic decision making.
This study is based on the views of 197 respondents, comprised primarily of finance professionals from a mix of Indian and multinational as well as listed and unlisted companies, collected between December 2020 and February 2021.
Research at NSE
For countries experiencing rapid growth, development of a healthy financial sector is critical. As the economy grows, and complexity increases, the financial sector needs to become more efficient at managing resources. In parallel, the eco-system surrounding the growth of the financial markets too need to grow and there needs to be the development of supplementary sources of investment capital.
A critical element of a well-developed financial sector is the contribution of its key components and human resources to the reforms and policy that underpin the development of the industry, by provide quality intermediation and insights to market participants. Growth cannot be lopsided and benefit a section of a society by keep the other at bay. Hence, understanding of the role of the financial sector has increased markedly, but research and insights continue to mount.
At NSE, we have identified 3 focus areas of research to aid the development of an efficient micro-system to continue on the path of growth and financial inclusion, we set as a roadmap of this journey we started in 1994.
Financial Research Initiative
The Effect of Conflict on Lending: Evidence from Indian Border Areas
Author: Mrinal Mishra and Prof. Steven Ongena, University of Zurich
Corporate Governance Initiatives
Quarterly Briefing on: Shares with Differential Voting Rights
Chief Contributor: Bala N Balasubramanian
Latest Macro Review
RBI Monetary Policy Review: Inflation (finally) takes precedence
The RBI’s Monetary Policy Committee (MPC) unanimously decided to keep the policy repo rate unchanged at 4% and maintain an accommodative stance while focusing on withdrawing accommodation citing worsening growth-inflation dynamics. The RBI also introduced an overnight unlimited collateral-free Standing Deposit Facility (SDF) at 3.75% as the new floor of the Liquidity Adjustment Facility (LAF) corridor, whereby banks would deposit excess liquidity with the RBI at their discretion. This normalises the much-anticipated LAF corridor to pre-pandemic level of 50bps and strengthens the monetary policy operating framework by having standing absorption and injection facilities at the lower and upper end of the corridor respectively. The overnight fixed rate reverse repo (FRRR), however, has been retained at 3.35% as a liquidity management tool but deployed only at RBI’s discretion, even as it has lost its relevance owing to SDF introduction as the floor.
The MPC acknowledged a build-up of upside risks to the inflation trajectory and downside risks to growth outlook in the wake of intensifying geopolitical tensions, hardening commodity prices, persistent supply chain bottlenecks, divergent policy stance and resultant financial market volatility. As such, the RBI reduced its FY23 GDP growth forecast from 7.8% to 7.2%, with growth in FY24 pegged at 6.3%. Headline CPI inflation estimate for FY23 has also seen a sharp jump from 4.5% to 5.7%, assuming a normal monsoon and average crude oil price of US$100/bbl. This is more aligned with market expectations now and reflects the impact of ongoing geopolitical uncertainty and persistent supply shortages on global commodity prices and key food items and their pass-through to retail prices.
A shift in RBI’s focus from ‘reviving and supporting growth on a durable basis’ in the February policy to ‘withdrawing accommodation to curtail inflationary pressures’ in today’s policy provides a clear indication of the future policy direction. In fact, a hike of 40bps in overnight rate via SDF introduction is more hawkish than market expectations of a guidance at best considering a massive dovish tilt in the February policy. This is reflected in a steep 10-30 bps spike in sovereign bond yields across the curve during the day, with as high as 40bps intraday movement in the one-year paper.
With inflation taking precedence, today’s policy paves way for a change in stance to ‘neutral’ in the June monetary policy, followed by hike in policy repo rates beginning the August policy. Overall, we maintain expectations of 75bps hike in repo rate in the current fiscal year, with more hikes not ruled out if inflationary pressures fail to abate. On the liquidity front, despite a huge surplus overhang, the RBI would resort to only a gradual and calibrated withdrawal spanning over multiple years to ensure minimal disruption and effective completion of the Government’s borrowing programme. This, in turn, should provide some support to bond yields in the wake of huge incoming supply this year.
Latest: India Ownership Tracker
India Inc. Ownership Tracker December 2021: Who owns India Inc.? - FII share in NSE listed space dipped to nine-year lows
In this edition of our quarterly report “India Inc. Ownership Tracker”1, we extend our analysis of ownership trends and patterns in NSE-listed companies to include the data available for the quarter ending December 2021. We note the following key takeaways from our analysis.
- Government share (promoter and non-promoter) dipped by 29bps/20bps in the NSE listed/Nifty 500 companies to 5.7%/6.0% in the December quarter, partly attributed to underperformance of some of the Government-owned companies during this period, while it remained steady at 5.1% in the Nifty 50 universe.
- Private promoters saw their ownership rising for the fourth quarter in a row by 21bps/33bps QoQ in NSE listed universe/Nifty 500 Index to 45.1%/44.6% in the quarter ending December 2021, thanks to a jump in private Indian promoter share that more than made up for a steady drop in foreign promoter ownership.
- FII2 (foreign institutional investor) ownership in the December quarter fell by a steep 65bps (2021: -165bps) and 81bps (2021: -204bps) in Nifty 500 and NSE-listed universes to nine-year lows of 20.9% and 19.7% respectively, marking the fourth consecutive quarter to record a dip. This is partly attributed to huge foreign capital outflows during the quarter in the wake of strengthened risk-off environment due to COVID resurgence, rising inflationary concerns, expectations of faster-than-anticipated policy normalisation by the US Fed and China slowdown.
- DMFs (domestic mutual funds) stake inched up for the third quarter in a row by 38bps, 23bps and 11bps to 8.5%, 7.8% and 7.4% in the Nifty 50, Nifty 500 and NSE listed companies respectively in the December quarter, aided by strong SIP inflows. In fact, DMF stake in Nifty 50 touched two-decadal high by the end of 2021. The share of Banks, Financial Institutions and Insurance companies, however, remained broadly steady at 21-year lows.
- Individual retail investors’ holding in Nifty 50, Nifty 500 and NSE-listed companies inched up by 21bps, 29bps and 36bps QoQ to near 14-year highs of 8.3%, 9% and 9.7% respectively in the December quarter.
- FIIs continued to play the India story with an outsized, albeit sequentially weaker, bet3 on Financials, and retained a modest positive view on Energy and their perennial cautious view on India’s consumption as well as investment themes.
- Unlike FIIs, DMFs strengthened their OW4 position on Financials, at the expense of reduced exposure to Energy, retained positive bias on Industrials, and turned OW on smaller Consumer Discretionary companies, while echoed FIIs’ view on Consumer Staples.
- While FII portfolio got incrementally less concentrated with widened holdings accompanied with reduced share in larger companies, incremental investments by DMFs were targeted towards larger companies, leading to an increase in portfolio concentration.