New Delhi, May 29 (IANS): It is not just the weak listing of Life Insurance Corporation of India (LIC) on the exchanges but some of the new-age cash guzzler businesses that have dented the retail investors' sentiments in the IPO market, said Siddarth Bhamre, Head of Research of Religare Broking on being queried why has the craze for the IPOs seemed to have subsided what were the underlying reasons.
Notably, in the recent months, share prices of new-age startups such as Zomato, Nykaa and Paytm among few others have caused a huge wealth destruction for investors at large.
"Also market overall has been in correction mode, so you won't get great listing gains in such markets as the frenzy is missing. Capital raising exercise is very interesting. Most of the management do assess the market sentiments and then hit the markets with their IPOs," Bhamre told IANS.
That said, sooner or later the markets will see bullish sentiments returning and so will a host of IPOs as it's a cycle linked to the equity market and no good or bad listings of a particular stock has managed to change the behaviour, he added.
On LIC's outlook, Bhamre said the outlook is positive.
Post listing, the correction is a good opportunity to accumulate LIC stocks and it is the cheapest in a space which has high growth prospects. Low free float won't let the stock correct for a prolonged period.
Below are some excerpts from the interview:
Q. Looking at the current high volatility in equity markets, what is your take on how FIIs/FPIs behave as far as their investment in India is concerned?
A. There are a lot of moving parts in decision making when it comes to capital allocation. One of the most important factors for FIIs/FPIs is strength in dollar against the currency of the country where they are investing. Strengthening dollar doesn't help their investments and hence they prefer to be in dollar denominated assets during such times. Most of the equity markets are correcting and India is no different. This current selling due to inflation fears may not continue for long.
Q. Do you see the equity market already bottoming out, or are there any chances of major correction going ahead in the near-term?
A. Valuations of our markets were stretched and after the recent correction we are moving towards a fair value zone. But markets never trade at a fair value for long. Most of the time, they trade above fair value and in extraordinary scenarios like in 2008 and 2020, they went below fair value. 2022 won't be an extraordinary year. We are in a scenario like what it was in 2011; correction but not crisis. Further pain cannot be ruled out as we are still dealing with all the challenges that we all have been talking about since the past few months.
Q. In such a highly volatile situation, which are the safe assets to hedge one's portfolio, especially for retail investors with shallow pockets?
A. We at Religare Broking believe that the traditional approach won't fetch the desired results. Firstly, safe assets are not safer because of inflation. Five per cent FDs is no match to 7-8 per cent inflation, gold is no more trading at attractive levels, real estate is not liquid and the price trajectory is not very encouraging. So equity is the asset class to be in.
Again hiding in equity with traditionally considered defensive sectors like IT, pharma and FMCG will not be a hedge, as most of them are still not very attractive when it comes to the valuation. However there are spaces like auto, cement, and selected banking space, where investments can be done from a medium to long term perspective.
Q. How will commodity-led inflation dent investors' sentiment? Looking at the government's latest measures, how much time will it take, if at all, for CPI to return to the RBI tolerance band of 2-6 per cent?
A. Sentiments are already sour and hence there is such correction in the markets. I don't think even the government can say when inflation will come down but their efforts suggest that controlling inflation is a number one priority of both the government and RBI for now. Important aspect to note is that building a significant rate hike by the RBI in our estimation may not be a correct assessment of the situation. This inflation is supply led and in such cases as bottle neck issues get resolved, inflation starts falling sharply. Governments have a larger role to play in supply led inflation and we are seeing measures are underway.
Q. With depleting forex reserves, how difficult would it be for RBI to defend a sharp or runaway depreciation of rupee. What are the other ammunition available with the central bank? What is your support and resistance for the rupee in the next one month or so?
A. To be fair to RBI, our currency has been quite stable and has been depreciating steadily and there are no sharp corrections. For any currency lack of volatility is a major sign of stability and rupee has met these criteria in the recent past. It makes a great headline that the rupee is at an all-time low, but this heading comes every year or two, and lately every few months, irrespective of the forex reserves and equity scenario. Trade deficit is the key reason for the depreciation of the rupee over a long period of time, but that's a separate topic.