A Head for Heights? - (5 September 2021)


It was an exceptional week, certainly not for the acrophobiacs. Markets vaulted, so did our favourite piece of paper: the Indian Rupee. How do things look from up so high? Let’s find out:

Asia’s SPACing Out

Beating Hong Kong to the game, Singapore became the first Asian financial center to allow for listings of SPACs, or Special Purpose Acquisition Companies(SPACs) also called “blank cheque companies”. Regulators worldwide have to align with this trend to ensure not to lose listings to US exchanges: in 2021 alone, SPACs formed 70% of the total IPO listings and raised around USD 130 billion. 

SPACs are generally considered a faster and smoother path to going public given lesser regulatory scrutiny compared to that in case of IPO route. Retail investors also quickly get access to high growth companies. Indian unicorns are also closely evaluating SPAC opportunities to go public. In fact, recently an India-focused SPAC raised USD 200 million in an IPO in the US markets.


The number of listings via SPACs seems to be slowing down in the US given increased scrutiny by the US SEC. Greater disclosures have been called for so investors have more information getting in. India, by allowing SPAC listing on IFSC, might have been a late entrant in the space, but it can draw lessons quickly from the evolving SPAC framework around the globe. It needs to mainstream SPACs to ensure Indian investors do not lose access to the best homegrown companies. A holistic approach, which balances the capital raising needs of businesses and also the interests of retail investors is the need of the hour.

Stocked Up, and Up, and Up

Nifty and Sensex saw a ferocious up move. Over 20% of the ~5000 listed stocks were trading at their all time highs. Are things overheated? 

Now, Nifty EPS grew ~14.2% in FY 21, which was the highest in a decade. Post the pandemic, a lot of stocks witnessed earnings upgrades due to infrastructure spending, high liquidity and tech driven efficiencies. Estimating earnings is a function of time horizon. Morgan Housel: “one of the biggest flaws to come out of academic finance is the idea that assets have one rational price in a world where investors have different goals and time horizons. Bubbles happen when the greed blindfolds the investors and their expectation from the markets in the short term rises. And of course, valuations are ignored.”


We need to look beyond the numbers the indices show. There is a real upsurge in earnings, and while we need to walk cautiously, we also need to look to longer horizons to make money. We remain excited about India and the prospects of Indian entrepreneurs and high quality management teams to deliver returns. Stay with your asset allocation: invest, rebalance, repeat!

Volatile Heights

The USA left behind over USD 85 billion worth of military equipment during the hasty exit from Afghanistan. In all, they invested USD 2 trillion in Afghanistan in the past 20 years. In terms of human capital, it trained roughly 4.5 lacs forces, who could not compete against Taliban's 75,000 fighters. Such a huge investment but clearly no return on capital.


What’s left behind aren’t toys: there are humvees, trucks, mine-proof vehicles, armoured carriers, machine guns, helicopters, planes, assault rifles, machine guns and pistols! In leaving, the USA has strengthened the Taliban network in ways that can easily, well, backfire. While this equipment will be used by Taliban to destroy domestic challengers, it can easily be oriented against less friendly neighbours.


While maintaining the status quo may not have been a popular view in domestic politics in the USA, the withdrawal may have a huge destabilizing effect for the region. And the instability can easily spread to neighbouring areas. India has to watch these developments very carefully across its troubled northern borders (Pakistan, China, and now Afghanistan). While these may not derail the India story, there can certainly be major speed bumps.

Thinking Tall Thoughts

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