Thanks Amit. The moot question is: will a higher price keep all sides happy? Buyers rarely want to pay a high price :)

Anand Kalyanaraman

Hi Chandragupta, the regulation of housing finance companies was shifted from the National Housing Bank to the RBI some time back. Sources say that Carlyle would not have put in money without the PNB brand; it didn't make business sense to them. Even now, it is debatable whether PNBHFL is a government-entity - PNB owns about 33% while the rest is held by private entities including Carlyle that owns about 32%.

Anand Kalyanaraman

Pls see second part of response above.

Anand Kalyanaraman

Hi Vani, in this case, I guess it can be both - Carlyle "couldn't" and also "wouldn't" pay a control premium. "Couldn't" because the new investors may have been against paying a control premium. "Wouldn't" because it may have put Carlyle in a sticky situation, making it tough for it to explain the control premium to the new investors. Hard to say. To the second question, any deal - preferential allotment or rights - would have meant two sets of Carlyle investors QIH and Pluto in PNBHFL. QIH, the older fund, wouldn't invest more since it had already been invested for 6 years, more than its usual investment horizon. So, the money had to come in through a new fund, in this case, Pluto. In the fundraise, QIH's interest would have been 'no heavy discount to market price', while Pluto's interest would have been 'no heavy premium to market price'. So, a Goldilocks price had to be arrived at - neither too high, nor too low. A rights issue would have meant heavy discount to market price and high shareholding dilution of QIH. So, a preferential issue was chosen, say sources, since it would mean lesser shareholding dilution of QIH.

Anand Kalyanaraman

Thanks, Prateek.

Anand Kalyanaraman

Thanks Ajay. Will write more such pieces. The article mentions that ‘As many as 80% of large-cap funds underperformed their benchmarks in 2020.’ This is based on the report below by S&P Dow Jones Indices that has the SPIVA India 2020 results. The document has data for 1,3,5 and 10 years for various fund categories. In the 10-year period, more than 68% of large-caps have underperformed the benchmark index.Below is the link to the document. https://www.asiaindex.co.in/documents/news/Press%20Release%20SPIVA%20India%20Year-End%202020.pdf

Anand Kalyanaraman

Thanks Aakash. I don't think regulations prevent setting up an ELSS passive fund. But I am not sure there is a common ELSS index against which passive funds can benchmark themselves. ELSS funds of different fund houses often have different investment strategies and portfolios; the common factor being the 3-year lock-in. That said, in theory, it should be possible for a fund house to have an ELSS fund that mimics a particular index say, Nifty 50 or Nifty 100 or such. Investor education will matter. Also, actively managed funds get better income for fund houses, compared with passive funds. ELSS funds anyway have demand from investors due to their tax-breaks; so, fund houses may fund it lucrative to continue with active funds in this category. Many years back, in 2001, Franklin Templeton Mutual Fund launched such a fund Franklin India Index Tax Fund but eventually merged it with Franklin India Index Fund in 2011, as reported in the links below. https://www.valueresearchonline.com/stories/473/index-funds-with-elss-benefit/ https://www.valueresearchonline.com/stories/17696/merger-of-franklin-india-index-tax-into-franklin-india-index-nifty/

Anand Kalyanaraman

Thank you, Chandru. Yes, innovation can take passive investing a long way. Active too will continue, as long as funds, even a few, can continue to outperform the benchmark indices. Interesting times ahead :)

Anand Kalyanaraman

Hi Manu, the document has data for 1,3,5 and 10 years. In the 10-year period, more than 68% of large-caps have underperformed the benchmark index. Of course, this is point-to-point returns. It will be worthwhile to also look at rolling returns over various time frames - 1,3,5, 10, 10+ years.

Anand Kalyanaraman

Thanks Anuja. Will write more on these topics :)

Anand Kalyanaraman

Thanks for the comment Paro. More recent data is available in the report below by S&P Dow Jones Indices. According to it, more than 80% of large-cap funds underperformed their benchmarks in 2020. https://www.asiaindex.co.in/documents/news/Press%20Release%20SPIVA%20India%20Year-End%202020.pdf

Anand Kalyanaraman

Thanks Manu for your insights. The article mentions that ‘As many as 80% of large-cap funds underperformed their benchmarks in 2020.' This is based on the report below by S&P Dow Jones Indices that in recent periods, the under-performance of active funds has gone up. https://www.asiaindex.co.in/documents/news/Press%20Release%20SPIVA%20India%20Year-End%202020.pdf

Anand Kalyanaraman