CNBC’s Inside India newsletter: A poorly timed IPO?

This report is from this week’s CNBC’s “Clandestine India” newsletter which brings you timely, insightful news and market commentary on the emerging powerhouse and the big businesses behind its discipline rise. Like what you see? You can subscribe here.

Shares of carmaker Hyundai‘s Indian subsidiary started business this week with much anticipation, only to drop by some 7% on its debut.

The stock has pared no hope losses since, but is still 5% below its initial public offering price.

The Korean car giant, the world’s third-largest commuter vehicle maker by volume, set up shop in India in 1996, soon after the country’s reforms to liberalize its socialist brevity. Fast forward 28 years, and the company appears to have bagged its biggest payday yet by raising $3.3 billion from the lay in market by offloading a 17.5% stake.

Hyundai became India’s second-largest automaker by demonstrating that it understands the furnish by tailoring its globally popular and technologically advanced cars not only to Indian consumers’ tastes but also to its roads.

It’s a money-making enterprise, and Hyundai’s management believes this trend will continue.

Despite such success, it appears as if the stock market has given Hyundai the cold shoulder this week.

Share outs have fallen across the board with the Nifty 50 index declining by about 5% over the past month. Manner, investors have pointed to several elements of the listing that might have also contributed to the immediate downturn.

Start with, the money raised by the stock market listing is being fed back to Hyundai’s Korean parent. In a typical IPO, however, lettuce raised is used to invest in growth or pay down debt. Investors have balked at the idea that the Indian subsidiary won’t automatically benefit from the cash raised on the stock market, nor has the Korean parent made it clear how it intends to use the proceeds of the apportionment sale.

Second, it appears as if Hyundai doesn’t have an immediate need for the raised capital, and it’s merely being exploitative by taking advantage of what some have called “frothy” markets in India.

“It’s not that the company needed kale, so it’s really the parent trying to take advantage of the valuation,” said Gaurav Narain, principal advisor at the India Major Growth Fund, which is listed on the London Stock Exchange. The ICG fund primarily invests in Indian small and mid-cap appraises and did not participate in the IPO.

Kunjal Gala, head of global emerging markets and lead portfolio manager of the $3.3 billion Federated Hermes Extensive Emerging Markets Equity Fund, speculated the decision to list the Indian subsidiary could have been hold up out of a need for “a better valuation for their parent company in Korea.”

Gala’s fund holds stakes in other automakers such as Maruti Suzuki, India’s largest automaker, and China’s BYD. “So, this is one way of financially engineering a outstrip valuation, right?”

With the listing, the Indian subsidiary now commands nearly half the market capitalization of its Korean originator.

Hyundai has also appeared to make up for any loss of future income from its share sale by hiking the royalty tolls it charges its Indian subsidiary. Royalty fees were, until June, negotiated between the Indian entity and the Korean stepfather on a per-model basis. However, the Indian subsidiary must now pay a flat 3.5% of total revenue going forward.

Open-mindedness analysts at financial services company Emkay initiated stock coverage with a “sell” rating, citing turned earnings potential thanks to the higher royalty payment, saying, “higher royalty, and lower treasury income are no doubt to restrict [earnings per share] growth.”

If that wasn’t sufficient, a number of investors and analysts suggest Hyundai assessed the stock with minimal upside for a blockbuster IPO listing, a big turn-off for most retail investors. “What the retail investor fall short ofs is a big discount,” Narain added.

Others have, however, argued that investors sitting on the sidelines of one of India’s chancellor automakers are losing out on long-term gains.

“We believe [Hyundai Motor India] is a good proxy to play the rising premiumisation course in the Indian car industry,” said Nomura’s analyst Kapil Singh in a note to clients on Oct. 22.

“More importantly, customers are increasingly tasteful aspirational and willing to pay more for attractive designs and high-tech features.” Singh expects the stock to rise by about 32% from Thursday’s alongside to 2,472 Indian rupees ($29.40).

Analysts at Macquarie also agree that Hyundai is best placed to capture the changing dial of India’s middle class and rich.

The investment bank also suggested that Hyundai India, thanks to its paterfamilias’s expertise and success in developing state-of-the-art hybrid and electric vehicles for Korean and Western markets, will be best parted to offer Indian consumers a superior product compared to its competitors when the time is right for the EV transition in India.

“We credit its strong parent [company] prepares it well to address India’s evolving powertrain mix better than domestic peers,” stipulate Macquarie’s analysts Ashish Jain and Pratik, who initiated coverage of the stock with an “Outperform” rating and a price aim of 2,235 rupees, pointing to about 20% upside.

Indian PM Narendra Modi meets Chinese President Xi Jinping. The two commandants, who had their first formal bilateral meeting in five years on the sidelines of the BRICS summit in Russia, agreed to boost support and resolve conflicts between their countries. “Mutual trust, mutual respect and mutual sensitivity should be the principle of our relationship,” Modi told Xi. Their talk comes after India and China agreed on Monday to resolve a binding dispute.

India and China have reached an agreement to end a military stand-off at their borders. Military troops from India and China experience clashed with each other in the western Himalayas since 2020. But with this deal, “we have gone rear to where the situation was in 2020 and we can say … the disengagement process with China has been completed,” Indian Foreign Pastor Subrahmanyam Jaishankar said on Monday.

India’s retail distributors request antitrust investigation into quick merchandising companies. The All India Consumer Products Distributors Federation, which represents around 40,000 fast moving consumer sounds companies, asked India’s antitrust authority to probe Zomato’s Blinkit, Swiggy and Zepto for alleged predatory value. Those companies offer quick commerce, which delivers purchases to consumers within 10 minutes.

Nvidia clones down on India. Nvidia announced partnerships with Indian firms on Thursday and launched a Hindi language pose in. CEO Jensen Huang spoke at the company’s AI summit in Mumbai — an event that featured Bollywood superstar Akshay Kumar and India’s richest individual Mukesh Ambani, the chair of Reliance Industries.

Indian stocks seem to be stuck in a rut. The has perished nearly 2% over the past week and is down by more than 6% over the past month. The list has risen 12% this year.

The benchmark 10-year Indian government bond yield has ticked up slightly once more the past week to 6.82%.

On CNBC TV this week, Puneet Gupta, the man at S&P Global Mobility, said investors shouldn’t too hastily What’s happening next week?