Changing Investment Arguments

Delisting was the most preferred choice among companies where the promoters held above 76% stake. When a decision had to be made to either delist or lower the promoter stake below 76%, most companies leaned towards delisting. The merits of having a public listing seemed to be inadequate to deter companies from going private. Over the past five years, we had several companies trying to delist and go private. We saw many companies actually go private. Friday’s successful auction of the promoter shares of Blue Dart decisively reversed that trend. The minimum public holding in listed companies had to be at least 24%.The promoters of blue dart, actually chose to reduce their holding and stay listed. The merit of having a listing in a growing market like India will be increasingly preferred by several multinationals and blue chips where the promoters own over 76%. This preference may also be egged on by the fact that globally many companies are going through churn and may find it hard to raise the resources needed to delist. Also, once a company delists, it will find it very difficult to raise money again as shareholders will not be convinced about their commitment to service public shareholding. The manner in which the blue dart shares were absorbed indicates the latent appetite for equity of good companies. More players should be encouraged by the success of the auction of blue dart’s promoter shares through the stock exchanges. Listing is back in vouge.

Invest speak:

Market leadership keeps evolving with time and indices keep churning companies in line with the trend. The changing indices actually play a role in holding investor sentiment up. Non performers tend to be removed and replaced with performing companies. The current indices seem to have been cleansed and repackaged. From 2008 to now, the indices look very different. They look a lot more robust with constituent companies showing superior earnings growth, better business visibility and lower leverage. These three factors should see these companies showing accelerated earnings growth when the economy revives. When an index is reconstituted in the toughest economic circumstances, it inevitably tends to show outperformance in an economic recovery. To the investor, the reconstitution is a signal that the index provides better reliability, greater predictability and much promise. This signal relevance applies when the index is reconstituted in the worst of times. To us, the index is all set for better times and it is time to show greater faith in the markets and the representative index.

Look to invest for a 3-year window and buy companies that you think will flourish.

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