78% of listings in FY21 have seen first-day gains; here's what is driving the IPO story

Equities remained buoyant throughout the week but domestic bourses witnessed some pressure on March 12. The main reason it remained afloat was the third round of stimulus passed by the Biden administration.

Even the US Fed chair Jerome Powell has expressed no intention of changing its approach towards large-scale bond purchases or raising interest rates.

Akin to the US, the European Central Bank too announced that its bond buying programme which would significantly pick up pace in the coming quarters. These actions by Central Banks and Governments of major economies are intended to tackle the apprehensions with regards to slowdown in economic activities.

Major economies have repeatedly vowed to use infinite fire-power in the form of low cost credit money aka cheap money to expedite the economic recovery process.

It isn’t the first time that low-cost source of money are leading to expensive equity valuations. In the past bull markets too, liquidity tailwinds have always been a big catalyst to boost equity returns.

All this liquidity is visible in the primary markets too. Historically, Indian bull markets have witnessed over 80 public issues while in bear markets, the numbers drop. Hence, the ongoing enthusiasm in primary markets through IPOs, FPOs and OFS is in harmony with the current bull market rally.

Retail investors are the most excited lot subscribing to these IPOs for listing gains and nearly 78% of total stock listings in FY21 have witnessed first-day gains, the highest in at least three years. Investors must be cautious as during such times, even poor-quality issues tend to get mind-boggling subscriptions. It is safer to judge on basis of one’s own risk appetite and liquidity requirements before holding on to these companies for the long term.

Event of the Week

Gross SIP contributions in February saw a 6.6% MoM sequential decline as per AMFI data whereas inflows into direct equities continued to increase. It seems retail investors are resorting to direct investments in cyclical, real estate stocks and commoditised bets by slowly and steadily redeeming the lower return mutual funds. There is infact a slight shift in behaviour as retail investors are channelizing their monies towards higher return generating assets. This shift is also clearly substantiated by the rise in number of demat accounts opened recently. Going ahead, it would be quite interesting to see if retail investors continue to redeem their funds to invest directly in equities, decrease SIPs and behave contrary to their past behaviour pattern when they use to redeem during bear markets.

Technical Outlook

Nifty50 index closed the week on a neutral note after experiencing selling pressure around its all-time highs. The index is now contained within a narrow range of 14850 to 15270. Market breadth also remained very choppy throughout the week. Bulls and bears seem to be in a tug of war for the short-term directional move. Break of the said range on either side will dictate the trend in the short term. However, on a larger picture markets still remain deviated on the upside and a break below the recent lows of 14470 will trigger short-term weakness. Until then we suggest traders maintain a neutral to a negative outlook.

Expectations for the week

As we approach the end of this roller-coaster year, markets are expected to remain rangebound especially because of the focus on tax planning and portfolio rejig. Lack of any relevant trigger in the markets could also keep bourses in a tight range. Individual themes such as PSUs could continue to play out if there is news on disinvestments and sector rotation could be witnessed in search for higher returns. Investors are advised to continue to ride the bull wave and avoid aggressive investments in overvalued stocks.

(The writer is head of equity research at Samco Securities. Views expressed are personal)