👑 All hail the new king

Meme stocks still going strong, India's startup scene is booming, and some more updates.

the mesha tribe

Jun 03, 2021

Hey 👋

Welcome to In The Loop➰

A newsletter that brings you the latest news from finance, business, and tech straight to your inbox. Sign up below 👇

Read Time: 990 words, 4:57 minutes.

There’s so much to cover today so let’s get started.

First up,

Market Snapshot 📈

Sensex: 52,232.43 (+0.74%) ↑

Nifty 50: 15,690.35 (+0.73%) ↑

Dow Jones: 34,600.38 (+0.073%) ↑

Nasdaq 100: 13,675.79 (+0.16%) ↑

Bitcoin: $39,038.37

Top Stories 📰

1. Meet the new king of meme stocks: AMC 🤴

It seems that meme stock mania is here to stay.

The shares of AMC Entertainment Holdings Ltd. rallied as much as 3,000% this year, pushing its market capitalization to soar past the $30 billion mark. The movie theatre chain's stocks nearly doubled yesterday, rallying almost 95% and closing at a record high at $62.55.

This growing retail frenzy has made AMC more valuable than half of the companies in the S&P 500 Index despite bringing in a fraction of their revenues. Meanwhile, GameStop rose 13% to $282.24, bringing its market capitalization to almost $20 billion. Other meme stocks like BlackBerry and Bed Bath & Beyond also reported some gains.

Celebrating its recent surge, AMC announced a program called AMC Investor Connect that will reward its investors with special screenings and free popcorn. "After all, these people are the owners of AMC, and I work for them,” CEO Aron Adam said. Around 3.2 million retail investors hold more than 80% of AMC's stocks.

Despite these gains, professional strategists advised investors against AMC, saying its latest rallies are devoid of fundamental analysis. "When the music stops, this stock is going to fall hard in my opinion," Miller Tabak strategist Matt Maley told Yahoo.

Why it matters? AMC's journey so far has been quite unusual: the company was on the verge of bankruptcy just a few months ago after the pandemic shut down its operations. But now, owing to the massive rally, the company was able to bolster its finances by raising $230 million from hedge fund Mudrick Capital Management.

2. Orchid Pharma faces a big reality check 😲

Things are about to get very, very real.

Shares of Orchid Pharma, a Chennai-based pharmaceutical company that recently exited bankruptcy proceedings, witnessed a jaw-dropping 7,700% surge in the last seven months after a SEBI proposal led to a shortage in its stocks.

What did SEBI say? In December, SEBI moved to raise the minimum free-float requirement for businesses relisting after undergoing the corporate insolvency resolution process (CIRP) to 12 months instead of the previous 18 months. It also mandated a minimum 10% public float for post CIRP firms.

Where did it all go wrong? In 2017, Orchid Pharma was forced to file for bankruptcy by Lakshmi Vilas Bank after it failed to pay back Rs. 50 crore loan. The company relisted in November 2020 and was later acquired by Dhanuka Laboratories after a three-year-long legal battle.

What's happening now? To comply with the regulatory requirements, the new owners of Orchid — Dhanuka Laboratories — will have to divest 98% of its stake in the company and boost the minimum public float to 10%.

Since most of Dhanuka's stake locked in with founders and lenders, only 2,000 shares are available for trading in the market...and they're the ones driving the growth. Since November, these stocks rose by the daily limit about 100 times. They're currently trading at Rs. 1,415 per share.

Why it matters? Orchid is among several other companies in India that posted brilliant gains after exiting insolvency procedures. Bafna Pharmaceuticals, Alok Industries, and Ruchi Soya Industries also reported a similar share-price trajectory. Some market watchers say that such rallies are potentially risky for investors who don't typically have solid fundamentals.

3. India's burgeoning startup scene 🔥

It’s been a fascinating year for Indian startups.

While the country struggles to deal with the second wave of coronavirus pandemic, its startup ecosystem is witnessing an unprecedented inflow of investments from big players. The world's second largest internet market raised total investments of $7.8 billion in the first four months alone, signalling a massive growth trajectory to international investors.

But this is just the beginning. According to TechCrunch, more than 70 early-stage startups are engaged in advanced negotiation stages to raise anywhere from a few million dollars to $100 million.

Sequoia Capital India plans to invest in more than 24 Indian startups. The country's most prolific investor is already in talks with the bookkeeping app Register Book, SaaS platform BambooBox, makeup app Vah Vah, and email marketing software provider MailModo.

Lightspeed India Partners is in talks with agritech startup Vegrow, edtech startup Kalaam Labs, and 100ms, a company that helps developers add video conferencing features to their apps.

GSV plans to invest in the eponymous tutor app Filo and is in talks with BrightCHAMPS — a startup that built a coding and math platform for kids — to raise nearly $70 million with Tiger Global.

Why it matters? While the growing investments are good news for the overall startup economy, some small investors and micro funds have expressed concerns, saying that high profile investors are increasingly making it difficult for them to source new deals. Additionally, as big players increasingly offer 'optionality checks' to startups, it becomes challenging for seed VCs / micro VCs to raise to participate in early rounds.