Sonam Srivastava, Co-founder, Wright Research, says Paytm’s negative listing should be a wake-up call for companies to justify valuation because the market can punish them.
In the worst IPO listing day performance in India in recent memory, Paytm operator One 97 Communications’ stock tanked 27 percent to Rs 1,560 from the issue price of Rs 2,150 on November 18. One 97 Communications’ Rs 18,300-crore IPO was the country’s biggest even as some investors questioned its valuation.
Srivastava, a quantitative investment management and trading professional, thinks India’s growth story is intact. In an interview to Moneycontrol’s Sunil Shankar Matkar, she says India’s Q2FY22 GDP is expected to be in the 7-9 percent range. Edited excerpts:
More than Rs 36,000 crore have been raised through IPOs in November. Do you see the primary market taking a break, especially after Paytm’s disappointing market debut? Which initial public offerings, other than LIC, are expected in the coming months?
India has raised more than $ 10 billion in funds from the public markets this year, which has been the highest in the last 20 years. However, in the week gone by, we have had the only major disappointment in IPO flows which was Paytm. Paytm has been severely criticized for its sky-high valuations, and the listing has seen a nasty sentiment. This negative listing should be a wake-up call for companies filing for IPOs to justify valuations because the markets can punish them. People speculate a break in the IPO lineup and instability in the whole tech industry post Paytm listing.
The broader market is also going through a drawdown after recent downgrades of Indian markets by global investment banks. IPOs, in theory, work best when the secondary market has a strong sentiment, so maybe the deal flow would become more robust when the market recovers from the correction.
Irrespective of that, many companies have already filed their IPO papers and some big startup names are considering listing. Of course, LIC is also the big one that everyone is waiting for, but other exciting companies that we can expect to list soon are NSE (Rs 10,000 crore), Pharmeasy (Rs 6,500 crore) and Delhivery (Rs 7,500 crore) among those that have filed, and other big ones that can apply are Ola and Byju’s. So I would expect the next year to also be robust for IPOs and have equal, if not higher, fund raised via IPOs next year compared to this year.
The IT story is expected to remain solid but is it time to reduce exposure to the segment as the number of positive surprises has diminished?
India’s IT story is exceptional. With software companies in India having substantial global client books, the sector has had a very consistent momentum this year, especially in the midcap space.
The last two earning seasons were quite exceptional for IT, even though the last month has been volatile for the IT sector. There have been concerns about analysts’ tightening margins, attrition, and plateauing of earnings growth in the industry.
We have bet big on midcap IT stocks like Mindtree, Persistent Systems, Mphasis, L&T Infotech and Tata Elexi throughout this year. They have delivered exceptionally well, and we continue to remain positive. IT could also outperform if correction persists in Indian markets against growing global markets because the IT sector gets a lot of business overseas.
What do you expect from Q2FY22 GDP figures likely to be announced at the end of this month?
The India Q2FY22 GDP is expected to be in the 7-9 percent range. The Reserve Bank of India has projected FY22 GDP to be 9.5 percent, whereas the Q1 FY22 GDP growth rate came at 20.1 percent due to a low base effect. There has been a pick-up in economic activity in the industrial and services sector last quarter after the pandemic subsided and government spending has been high while demand has also been robust. As a result, the rating agency ICRA has projected a 7.9 percent growth rate for the last quarter.
After hitting record highs in October, the market has been consolidating in a range. Do you think the consolidation will continue till the year ends?
The Nifty has corrected 5 percent already from the historic high of 18,604. Agencies like CLSA and Goldman Sachs are all downgrading India to overvalued. India has been a significant outperformer this year in comparison to the global markets. In the absence of any stimulus from the government, valuations have become a little too rich. The rate of tapering of stimulus by the US Fed is also a looming worry.
We are fairly assured of the long, strong term prospects of the Indian economy but we cannot rule out that the drawdown might extend. India has not given a 10 percent or more correction for a long time now and some may call it overdue.
The timing of the correction is tough to speculate, and however long it lasts, it will present a good buying opportunity and rebound will come quick. Good GDP numbers and a robust macro situation could boost the market sooner rather than later.
Some analysts are saying auto is not out of the woods yet due to the chip shortage. Should one start buying the sector?
Auto sales had the worst festive season in a decade, as sales dipped 18 percent year-on-year. While the demand has started to pick up, post-pandemic automakers have struggled to supply due to a chip shortage. It is projected that the growth will slow down 11-13 percent due to the drought this year. There is the additional pressure of rising commodity prices and oil prices for the sector.
Looking at the technicals, we saw auto gain momentum in the last couple of months and the electric vehicle theme being received in the best way.
While the sector has concrete roadblocks, we can look at it positively as post-pandemic cheer will come into the consumer discretionary sector. Auto manufacturers are also focusing on inventory rationalisation and schemes to attract customers.
What is your take on the real estate space which has had a stellar run in the last few months amid hope of recovery and improving demand?
Real estate has picked up price momentum and demand momentum both. There is a massive demand for property post-pandemic in metros and Tier 2 cities. October was the best month for real estate demand, and Mumbai posted a 10-year best property registration. There is also growth in new project launches, which is a great indicator. Low-interest rates and ease in stamp duty have also spurred demand.
There are concerns about rising material costs but the need for real estate in homeownership and commercial real estate has been robust and is projected to improve. We think of real estate as an excellent long-term bet and have added some recently to our portfolios.
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