IPO party is far from over; here’s why

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Markets started on a weak note imitating agitated global cues but it did not last long as sentiments took a U-turn by the latter half of the week. Despite concerns on stretched valuations and inflation, the Street currently seems to be obsessed with IPOs and how the subscriptions have hit the roof at pricey multiples. ‘Seize the present day opportunity’ appears to be the axiom guiding retail participants. But what is startling is that off late banks and financial institutions have gained equal if not more interest than retail participants in primary issues.

They have nearly doubled their investments in IPOs reaching four-year highs and we are only over halfway through the year! The excitement does not end here, the PFRDA is mulling over permitting pension funds to broaden their investment spectrum to invest in eligible IPOs and similar primary issues with certain predefined criteria. This unequivocally depicts that the IPO party is far from being over, given our economy is flushed with liquidity and as the “father” of all IPOs is yet to come.

With a flurry of excitement around new aged unicorns and interest garnered in IPOs, it appears India is moving towards a Private Market platform just as the Nasdaq Private Market in the US, which is a venue for trading in pre-IPO shares as well as transactions of private company shares. This market in the US requires participants to meet certain wealth criteria; hence it might take a while before this idea appeals to the masses of our country, who currently transact in pre-IPO shares through the grey market. But without a doubt this space has definitely turned up the heat for Indian investors.

What should investors watch out for?

With the first quarter results being announced, leading financial companies witnessed stress as the second wave led to a rise in bad assets and provisions. If the second wave ended up hitting even the most venerable names in the industry, then the weaker smaller players will definitely have a long way to go before coming out stronger on the other side. This is the first such impact on financials after the moratorium period. Now, unless the third wave arises, the largecap clan might sail unharmed without significant pain going ahead. Even if the third wave hits, it may only delay not derail their growth as companies are much better prepared to deal with these situations. Hence, investors should seek out companies with resilient balance sheets and fundamental strength on corrections.

Technical outlook

Nifty50 index closed in red for the week however the index is still trading within the consolidation range. This entire week the index remained quite volatile and tested the crucial support of 15,650 to bounce quickly. BankNifty index also found cushion at 34,300 levels. Market breadth shows bullish signs but trading volumes are drying up. Many European and emerging market indices are underperforming or have made a lower bottom recently. The outlook remains bullish as long as we trade above 15600 levels. Any break below the said support will signal weakness in the short term.

Expectations for week ahead

IPOs continue to steal the limelight over the coming week as two new IPOs hit D-Street. Bank Nifty could remain in focus as private banks report their quarterly numbers. Later next week, the FOMC will meet in the US. Accordingly, the markets will closely look at their borrowing plan and guidance towards interest rates moving forward. Indian bourses will take account of all these factors and deliver whipsaws on any developments. Traders should be extremely cautious with their moves while investors should sit tight on their quality portfolio. Nifty50 closed the week at 15856.05, down by 0.42%.

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