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: A hawkish 35bps hike
The RBI’s Monetary Policy Committee (MPC) expectedly decided to hike the policy repo rate by another 35 bps to 6.25%, while maintaining focus on withdrawal of accommodation. This has translated into a cumulative hike of 225bps on the repo rate since May’22. Notably, while this was the first dissent on the rate hike action itself, the dissent on the stance has widened. High and sticky core inflation with persisting upside risks, coupled with a resilient domestic economy, was the key reason behind the hawkish rate hike action today. While the MPC acknowledged moderation in inflationary pressures and retained their FY23 forecast at 6.7% (up 10bps for H2), it reiterated the need for continued calibrated monetary policy action to ease pressures on core inflation and keep inflation expectations anchored, thereby dashing any hopes of a pause for now. GDP growth forecast for FY23 was downgraded further from 7.0% to 6.8%, citing adverse spill overs from global economic slowdown on India’s exports and overall economic activity.
Overall, while the quantum of rate hike and decision to keep the stance unchanged was in line with market expectations, the commentary was mildly hawkish. Contrary to providing hints of a pause in the next review, the MPC remained cautious and reiterated its commitment to continue to fight the battle against inflation. This, along with resilient economic activity in the light of global headwinds, leaves the room open for further rate hikes. Domestic growth-inflation dynamics apart, the FOMC’s guidance on future rate hikes would also have a bearing on RBI’s policy stance. This may keep bond yields under pressure.
Latest Market Report
India Ownership Tracker June 2022
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 June 2022. We note the following key takeaways from our analysis.
- Government share (promoter and non-promoter) rose by a steep 158bps QoQ—the highest sequential jump in eight years—to a 10-quarter high of 7.5% in the NSE listed universe. This was on account of the LIC issue in May 2022, excluding which Government share remained broadly steady.
- Total promoter share in the NSE-listed space inched up for the second quarter in a row by a 83bps QoQ to eight-year high of 51.6% in the June quarter, aided by higher Government (led by LIC) and foreign promoter share, partly offset by a sharp dip in private Indian promoter ownership. Promoter ownership in the Nifty 50 Index, however, fell marginally to 43% and remained broadly steady at 50.1% in the Nifty 500 companies.
- FII (Foreign Institutional Investor) ownership declined by a steep 65bps, 38bps and 77bps QoQ in Nifty 50, Nifty 500 and NSE-listed universe to decadal lows 24.8%, 19.8% and 18.4% respectively in the June quarter, marking the sixth consecutive quarter to record a dip. This is partly attributed to huge foreign capital outflows during the last few quarters in the wake of protracted geopolitical tensions, China slowdown and tighter global financial conditions. That said, recent strong buying by FIIs (US$8bn+ in Q2FY23 thus far, as on September 19th, 2022) should help recoup some loss in FII ownership seen over the last few quarters.
- DMFs (Domestic Mutual Funds) stake inched up for the fifth quarter in a row by 50bps, 38bps and 23bps to all-time high of 9.4%, 8.4% and 7.9% in the Nifty 50, Nifty 500 and NSE listed companies respectively. This is primarily attributed to consistent buying by DMFs, aided by strong retail participation through the SIP route. The share of Banks, Financial Institutions, and Insurance companies, also inched up for the second quarter in a row.
- While retail ownership in the NSE listed stock fell by a modest 15bps QoQ to 9.5%, it remained broadly steady at near 15-year high of 8.6% and 9% in Nifty 50 and Nifty 500 Index respectively. Notably, the drop in retail share in the listed stock excluding Nifty 500 companies was the steepest in last 26 quarters.
- FIIs broadly maintained their sector exposure3 in the quarter gone with an outsized OW4 bet on Financials, albeit incrementally less so, strengthened positive stance on Energy and Utilities, and sustained cautious view on India’s consumption as well as investment themes.
- DMFs retained an OW position on Financials, turned incrementally bullish on Consumer Discretionary at the expense of strengthened negative stance on Consumer Staples and Utilities, and maintained positive bias on Industrials, and Healthcare.
While broad-based selling by FIIs have led to a reduced market concentration, DMFs portfolio has turned incrementally more concentrated, as reflected in a sequential jump in their allocation to Nifty 50 companies in the June quarter.