Nirali Shah, Head of Equity Research, Samco Securities, said that the current IPO euphoria is nothing short of a Diwali celebration of IPOs and the mania doesn’t end here.
In an interview to Moneycontrol’s Kshitij Anand, Shah said that companies are getting listed left right and centre and listing gains is entirely dependent on the sentiment rather than fundamentals. Edited excerpts:
Q) A historical week for Indian markets as Nifty surpassed 16000 to hit fresh record highs. What led to the price action?
A) Indian markets usually mirror global indices especially the US but this time around Nifty took the lead in breaking out of its consolidation phase while Dow Jones and S&P 500 stood trading within the same range.
A number of factors backed the rally, the primary being the macro data. Be it the development in earnings growth as witnessed by the result season or GST collection or PMI numbers, all scream expansion for now and foreign institutional investors jumped in on the opportunity to buy into Indian equities.
Q) What are your views on broader markets that have hit fresh highs in August? Additionally, small & midcaps have outperformed benchmark indices by a wide margin. How should investors play this theme?
A) Small and midcaps have been ripe investment candidates for over a year now and rightly so, this kind of behaviour is expected from broader indices in a bull market.
But, this exceptional growth and build-up have happened too fast and in certain companies, the earnings growth is yet to catch on.
Investors must book profits from the dubious companies which have risen only on fluff and remain invested only in the fundamentally strong ones whose books actually provide the safety cushion in case markets corrects due to expensive valuations.
Q) Four IPOs will hit D-Street in the coming week – Car Trade, Nuvoco, Chemplast Sanmar, and Aptus value Housing. If investors want to invest in just 1 IPO which one would be a better bet for the long term and which one will you pick for listing gains?
A) The current IPO euphoria is nothing short of a Diwali celebration of IPOs and the mania doesn’t end here. Companies are getting listed left right and centre and listing gains is entirely dependent on the sentiment rather than fundamentals.
From the four IPOs in the coming week, if one had to be picked for listing gains my vote would go to Car Trade. Firstly, it is a one-stop-shop for the entire automotive transaction value-chain and the first listed player in India in this space.
It has managed to build a scalable and profitable business model and there is room for a number of untapped opportunities in this space that could benefit Car Trade if it plays its cards correctly post listing.
From a valuation perspective, it does seem overpriced but the hype around it is real which makes it a good listing gains candidate.
Q) The month of July closed with marginal gains but August started off on a flying note. Where do you see markets heading in August – important levels, and events to watch out for. Will August be a month of new high or a market top?
A) Nifty’s breakout is expected to sustain at least till support levels of 16,150 isn’t broken. There seems to be a good chance that markets may continue to move higher towards levels of 16,500 with no immediate resistance in sight.
But, traders mustn’t get too confident because at elevated levels maintaining caution at every step is more prudent.
Q) Although a lot has been written on Vodafone, but from a retail investor perspective – there is still plenty of demand for the stock. A) What should investors do who are holding the stock, B) What would you advise traders – or has Vodafone become a trading play and investors deploy only that money which they can afford to lose?
A) Once upon a time telecom giant, Vodafone Idea has been on a rollercoaster ride since the AGR issues started and Reliance Jio came into the forefront.
The stock has proven to be a value destroyer for long-term investors but at the same time it has been at the centre of speculation and a favourite of traders.
Even then, it would be best for both investors and traders to avoid this stock as it faces a liability of Rs. 50,400 Cr. and there is still no clear plan for revival or payment of dues. Until there is clarity on its going concern, staying away from it would be best.
Q) Your top trading ideas for the next 3-4 weeks?
A) FMCG as a theme hasn’t been at the forefront of the current rally but things seem to be changing now as its earnings, this time around, are showing good signs of recovery.
Majority of the companies have reported robust volume growth and gross margins have remained resilient despite high input cost inflation.
This shows that the second wave wasn’t as disastrous as the first one and the post wave demand for health and hygiene products among households has in fact increased.
In addition, In-home consumption has also sustained which is a good sign for FMCG players like Dabur, Marico, Emami and HUL.
Q) What is your view on the RBI policy and how will it impact markets? Can we say that rates have bottomed out? And, how will the commentary impact banking stocks?
A) The RBI policy continues to remain balanced and shows no signs of aggression as it remains on heels to ensure adequate liquidity within the economy.
The rates have definitely hit rock bottom but given that policy support is the need of the hour, the accommodative stance might continue for a couple of more months.
But, it cannot go on forever and if things don’t go as planned, RBI may initiate policy normalization starting with a gradual drainage of liquidity followed by marginal hikes in the reverse repo and repo rates.
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