Mihir Vora, Senior Director & Chief Investment Officer at Max Life Insurance believes 2021 is likely to set new records for IPOs in terms of value of funds raised.
It is really a function of retail sentiment which is almost at all-time high. This is healthy as Indian companies are getting capital for growth and balance-sheet strengthening, Vora told Moneycontrol’s Sunil Shankar Matkar, in an interview.
He feels the first principle of investing is preservation of capital and avoiding permanent loss of value. So never compromise on quality of promoter and management just because these are small companies, he advised.
Q: FIIs are consistently selling in the Indian equities, but at the same time, the market is not seeing major selling pressure and has largely been moving in a tight range. What does it indicate and who is supporting the market then?
The past few months have seen local investors including retail investors, mutual funds, insurance and alternate investment funds and portfolio management schemes become more and more active. The starkest change is in the participation of retail investors directly in the market via low-cost brokerages aided by smartphone apps. We are seeing 10 to 15 lakh new Demat accounts being opened every month – a record by any historical benchmark. So the constant flow of new domestic money into equity markets is offsetting foreign selling.
Q: Majority of experts consistently say about the risk of third Covid wave. Do you agree? What are other risks that one has to consider before investing in equity now?
There is a chance that we may have a third Covid wave as seen in other parts of the world. However, with the sero-prevalance statistics that are seen and the increasing vaccination cover especially in the cities, I think that a third wave may be milder than the second wave. Moreover, we are less likely to go for complete lockdowns and that will further limit the economic impact. With the global economy doing well, we are seeing a good pace of return to ‘normalcy’. The end of monsoons should see the ‘busy’ season activities pick up – that will keep market sentiment going for a while.
Q: The market continued its fresh record high journey in second half of 2021. What are driving factors for the market – is it FOMO, TINA, or plain liquidity?
The answers are all in your question! It is all three. Initially, the global liquidity wave drove institutions and individuals towards all financial assets. Equities, bonds, real estate, commodities, cryptocurrencies – all saw buying. As interest rates plummeted, there was the TINA (there is no alternative) factor and retail investors converged on equities, cryptocurrencies etc., chasing returns as bonds and deposits didn’t yield much. Now after stupendous returns from equities, many new investors are chasing the markets due to FOMO (fear of missing out)!
Q: Do you think it is the time to be a cautious considering the outperformance of midcap and smallcaps over largecaps? What should investors do now?
There are many good themes and sectors in the Midcap and Smallcap space e.g. chemicals, capital goods, soft commodities, IT which are doing quite well. So there is still scope for stockpicking. However, the run-up in the past 6 months has been quite sharp and for the first time in over a decade, the mid-cap indices’ valuations are at a premium to largecaps. So this is new territory and there is certainly overvaluation in many pockets.
The relative value is in smaller and smaller stocks where exit can become an issue in case of a market downturn. So investors are well-advised to stay diversified and stick to stocks that they understand. The first principle of investing is preservation of capital and to avoid permanent loss of value – so never compromise on quality of promoter and management just because these are small companies.
Q: Do we really need to worry if the Federal Reserve starts tapering of bond purchases sooner than later? Do you expect the sharply rally in US bond yields, this time?
It really depends on the circumstances under which the Federal Reserve starts tapering. If it is due to sustained growth, then it will not matter except for a few days of knee-jerk reaction. However, if it is due to persistent inflation, then it can lead to weaker sentiment and ‘risk-off’ trades which can lead to foreign investors selling emerging market equities and bonds.
Q: Lot of companies lined up for fund raising via IPOs in the primary market. Do you expect the record fund raising via IPOs in 2021?
Yes 2021 is likely to set new records for IPOs in terms of value of funds raised. It is really a function of retail sentiment which is almost at all-time highs. This is healthy as Indian companies are getting capital for growth and balance-sheet strengthening.
Q: Also majority of IPOs are getting fully subscribed either in initial hour of opening or on the first day of opening? What are factors driving such optimism and why retail investors are so much excited about every issue?
As I mentioned earlier, retail sentiment is near all-time highs. This is reflected in all parts of the market including cash trading, derivatives trading and the IPO market. Moreover, the ‘grey’ market premiums also play a role in this – higher the premium, more the excitement of the retail investors.
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