SKS and the IPO

The SKS IPO has been controversial for many reasons. The core issue was if it was ethically right to privately profit from serving the poor. This debate has raged in the front pages of the pink papers and the international press and everything ranging from the methods used, the interest rates charged and the marital status of the promoters have been scrutinised and criticised.

The fact is that the issue was a huge success and heavily oversubscribed. It listed at a premium and closed the first day of trading at a premium of over 10% to issue price. After a long time an Indian IPO generated profits for flippers who borrow and subscribe to IPOs and sell on listing. Needless to say original investors and promoters who cashed out made huge profits. All in all the market has pronounced its verdict and it is indeed OK to profit from the poor.

The fact that the market now views this segment as investment worthy has huge implications. Every investment manager round the globe will now look to allocate a percentage of the portfolio and large capital flows will reduce cost of capital to this segment and the ensuing competition will eventually result in lowering the cost of borrowing to the poor. With over 300 million of our population not having any access to formal credit markets, for productive, consumptive or housing needs the importance of formal capital cannot be overemphasised. Over 1 trillion dollars of capital is required of which at least $250billion has to be in equity form.

So let us not waste our breath debating ethics but laud SKS for unlocking a new source of much needed capital.