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Green investing: is it a bubble?

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So far this year, the cost of battery metals like lithium and cobalt have risen by approximately two-thirds and a third, respectively. Orsted, a wind power producer, has increased in value by more than a third since January 2020. SunRun, a solar company, has tripled in value, while Tesla and Nio, two electric vehicle manufacturers, have increased six-fold and nine-fold, respectively.

With a combined market capitalization of $3.7 trillion, The Economist has assembled a portfolio of companies that stand to benefit from the energy revolution. Since the beginning of 2020, the portfolio has increased by 59%, more than double the increase in the S&P 500, America’s primary equities index. Many investors compare renewable energy today to technology at the millennium’s turn—both in terms of froth and the birth of an industry with significant structural consequences on the economy.

The Economist examines the world’s publicly traded companies, which are primarily owned by the top 100 or so clean-energy investment funds. Since January 2020, the smallest 25% of companies have increased by an average of 152%. Companies that generate a higher percentage of their revenue from green operations, such as electric vehicle manufacturers and fuel-cell manufacturers, have also outperformed.

In the first quarter of this year, global flows into green funds surpassed $178 billion, up from $38 billion in the same period the previous year. Every day, around two new ESG-focused funds are launched. Many of them are putting their money into green stocks like Microsoft and Alibaba. However, just about a tenth of the funds’ assets under management was concentrated on clean-energy companies.

Clean energy investing is “no longer a niche topic,” according to Morgan Stanley’s Jessica Alsford. Each firm was held by an average of 138 sustainable funds at the end of 2020, up from 81 a year earlier. According to Morningstar, the number of non-ESG holdings climbed from 390 to 624.

A changing climate

Clean-energy businesses are now more viable, putting them on par with fossil-fuel businesses. Investors believe that green legislation is here to stay, with the United States, China, and the European Union establishing “net-zero” emissions targets. Pension funds, for example, which own a large number of oil companies, have begun to mitigate this risk by purchasing clean-energy equities.

The Economist examines how the green craze surrounding renewable energy has fueled financial fads. Retail investment has increased, and investors appear to be enthusiastic about emerging sustainable technology. About a quarter of the 800-plus SPACs that have been listed since 2019 have focused on sustainability. 

Renewable-energy companies have a median price-to-earnings ratio of around the same as the S&P 500. Smaller businesses, on the other hand, have a median price-to-earnings ratio that is approximately double that of the wider index. Variations in the maturity of both the underlying technology and the market explain the disparity in valuations. Wind and solar companies began to grow in the 2000s, thanks to government subsidies. The technologies improved with time, and the subsidies diminished.

According to experts, the draw for investors is that one of them could be the next Tesla. The technology is frequently unproven, or the products require subsidies to be competitive, and there are many competing enterprises. Inflation is a source of concern. He believes that if central banks raise interest rates, it will affect renewable energy producers.

If some of the more speculative technologies fail, investors’ enthusiasm may wane, according to Nathan Anderson of Hindenburg Research. He claims that as money has flooded into green businesses, fraud has become “pervasive.” According to Fidelity’s Velislava Dimitrova, if innovations succeed, reducing product prices may counteract demand increases. The claims are “inaccurate,” according to Ormat, a geothermal power provider, and “false and libellous”.

Few believe that the energy revolution will be reversed, even if some companies prove to be duds. Many investors believe that the sector’s prospects as a whole are promising. But it’s worth recalling that, two decades after the dot-com crisis, tech companies account for 38% of the S&P 500’s market capitalization. If not in the short or medium term, the long-term future surely looks green.

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Paytm celebrates SEBIs nod for India’s largest IPO

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It’s raining IPOs across India, and one of the biggest fintech players has now joined the party. Fintech company Paytm recently received the nod from the Securities and Exchange Board of India (SEBI) for its upcoming Rs. 16,600 crore IPO.

The company is expected to list on the Indian bourses ahead of Diwali. Reports suggest that the company could list by the end of October, as it plans to skip the pre-IPO share sale rounds to fast-track listing.

Ant Group, SoftBank’s Vision Fund, and Berkshire Hathaway are among the company’s supporters. Its operational loss reduced to Rs. 16.55 billion ($221.00 million) in the fiscal year that ended in March 2021, from Rs. 24.68 billion a year earlier. In July, a source told Reuters that Paytm would likely break even in 18 months.

Paytm is aiming for a valuation of Rs 1.47-1.78 lakh crore in its upcoming IPO. Previously, Aswath Damodaran, a US-based valuation specialist who is also a finance professor at New York University’s Stern School of Business, valued the firm’s unlisted shares at Rs 2,950 each.

Several first-generation Indian businesses are planning to list on local stock exchanges, following in the footsteps of food delivery company Zomato, which made a successful stock market debut in July and is backed by China’s Ant Group.

Launched a decade ago as a platform for mobile recharging, Paytm grew quickly after ride-hailing firm Uber listed it as a quick payment option. Its use swelled further in 2016 when a ban on high-value currency banknotes boosted digital payments.

Paytm has since branched out into services including insurance and gold sales, movie and flight ticketing, and bank deposits and remittances.

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After Zomato, six more companies eye IPO

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As many as six companies—Nykaa, Adani Wilmar and Star Health & Allied Insurance, Penna Cement Industries, Latent View Analytics and Sigachi Industries—have received clearance from the Securities and Exchange Board of India (SEBI) to launch Initial Public Offerings (IPOs).

According to a Monday update from the capital markets regulator, these six companies submitted preliminary IPO papers with SEBI between May and August and received its “observations” or approval to float the IPOs between October 11 and October 14.

FSN E-Commerce Ventures Ltd’s IPO, which runs Nykaa, includes a fresh issue of equity shares worth Rs. 525 crore and an Offer For Sale (OFS) of 43,111,670 equity shares by a promoter and existing shareholders.

The promoter and promoter group Safecrop Investments India LLP, Konark Trust, MMPL Trust, and existing investors Apis Growth 6 Ltd, Mio IV Star, University of Notre Dame Du Lac, Mio Star, ROC Capital Pty Ltd, Venkatasamy Jagannathan, Sai Satish, and Berjis Minoo Desai are among those selling shares through the offer for sale.

Star Health, the country’s largest private health insurance, is owned by a group of investors led by Westbridge Capital and Rakesh Jhunjhunwala.

According to the Draft Red Herring Prospectus (DRHP), Penna Cement’s IPO will include a fresh offering of equity shares totaling Rs. 1,300 crore and a promoter offer for sale of up to Rs. 250 crore. The IPO of Latent View Analytics also includes a new issue of equity shares at Rs. 474 crore. It also has a promoter and current owners offering to sell equity shares for Rs. 126 crore.

Adugudi Viswanathan Venkatraman, the company’s promoter, will sell shares worth Rs. 60.14 crore, Ramesh Hariharan, a shareholder, will sell shares worth Rs. 35 crore, and Gopinath Koteeswaran, a shareholder, will shelve off shares worth Rs. 23.52 crore, among others.

Sigachi Industries, a cellulose-based excipient company, will see its IPO sell up to 76.95 lakh equity shares.

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Cryptocurrency: increasingly the currency of choice for new India

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Cryptocurrencies took the world by storm when they first emerged in 2009. With no government backing these digital currencies, and no single user having complete authority over them, Crypto has seen a decent rise in the number of its owners. From Elon Musk to Bill Gates, all have spoken about the ‘future’ of currency.  

Recently, BrokerChoose, a broker discovery and comparison website stated in its annual proliferation index that India has the biggest number of cryptocurrency users in the world, with 10.07 crore users. The United States is next, with 2.74 million crypto owners, followed by Russia (1.74 million), and Nigeria (1.30 million).  

The increasing trade volumes and valuations of Crypto exchanges in India is another testimonial to the exponential rise of this virtual currency in the country. The report by Mint states that the Crypto exchange platform CoinSwitch Kuber has 11 million users, whereas WazirX stands at 8.3 million. Within one year of its incorporation in June 2020, CoinSwitch Kuber entered the unicorn club with a valuation of $1.9 billion. Prior to this, just two months earlier, crypto exchange platform CoinDCX became the first crypto unicorn in India with a valuation of $1.1 billion.  

Despite the country’s uncertain future, the cryptocurrency fever continues to grow among the public. The Reserve Bank of India banned cryptocurrency trading in 2018, but the prohibition was eventually overturned by the Supreme Court. In February of this year, the Indian government proposed the Cryptocurrency and Regulation of Official Digital Currency Bill, 2021, which would prohibit the use of private cryptocurrencies in the country. However, the bill has yet to be introduced in Parliament. 

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