Daily Voice | LIC IPO is unlikely to cause any market correction, says Anitha Rangan of Equirus

Market Outlook
Anitha Rangan of Equirus

Anitha Rangan of Equirus

Finally, insurance behemoth LIC has filed preliminary papers to come up with maiden public offer which could be in the range of Rs 70,000-1,00,000 crore. “This will bring a much-needed boost to government finances and infuse the confidence that the government can undertake its capex spending programme early on to fasten the pace of recovery,” feels Anitha Rangan of Equirus.

The LIC public issue will also pave the way for a successful divestment programme for the next year and coming years which is an added positive, she says during an interaction with Moneycontrol.

On the global front, the Ukraine tensions have eased with the pulling out of troops by Russia and as a result the market has rebounded quite sharply. But the risks of inflation and faster tightening by central banks remain which could lead to withdrawal of “surplus” liquidity or “easy” money driving the recent sell off, says the economist at Equirus.

Excerpts from the interaction:

The market rebounded sharply after easing Russia-Ukraine concerns. Do you think the recovery is short-lived and there could be another 10 percent correction from here on?

The market will remain a function of volatility as beyond the geo-political risks there is an overhang of global rate actions and inflation. Overall, faster withdrawal of accommodation will leave its mark. As Fed did not intend this kind of withdrawal, the short-term pain will be felt.

Also read – Mark Mobius sees scope for another 10% correction in Indian market

While it may not be as severe as the ‘taper tantrum’ witnessed in 2013 as (a) we have adequate reserves to defend, and (b) the stimulus was pandemic driven and end of the pandemic was visible and a reversal was expected. It is just that the sudden scale of rise in inflation seems to be hastening the process which is causing the short-term pain. Instead of saying ‘correction’ which means medium-term adjustment in prices, one can think of this as scenario with ‘volatility’ which will always leave pockets of opportunity.

With the easing of Ukraine concerns as Russia pulled back its troops, what are the other risks, going ahead, that one has to be aware of before taking positions in the market?

The key risks even before the geo-political risks surfaced were (a) inflation which is leading to (b) faster unwinding of accommodation by the central banks. Inflation, especially for developed economies, over the last one year has spiralled to a multi-decade high levels (levels not seen in the last 30 – 40 years for the US) predominantly driven by the lingering supply-side shocks of the pandemic and persistent commodity and crude prices. Historically, we have not seen crude and commodity rising together and staying at elevated levels in tandem for a protracted period.

Also read – RBI underestimating inflation, 50 bps hike by Fed not a done deal: Morgan Stanley’s Chetan Ahya

While India’s inflation story is not so bad and our central bank is rather dovish on domestic inflation trajectory risks of global inflation cannot be ignored as it leads to the second risk i.e. of faster unwinding of accommodation.

What this will do is a faster withdrawal of liquidity from the markets. Recall that US alone during the pandemic was pumping $ 120 billion every month and Bank of England buying over a $ 1.2 trillion in aggregate. This is excluding the near to zero rates maintained by developed world. The impact of this unwinding has been felt across markets as this could lead to withdrawal of the ‘surplus’ liquidity or ‘easy’ money driving the recent sell off.

Also inflationary pressures for domestic market will persist and margin pressures could remain for a quarter or two before inflationary pressures recede. Pressure could come on the currency, however RBI has enough reserves to defend the volatility.

Rate actions in the domestic market will follow, once domestic growth sees structural recovery. Overall, while near term volatility is unnerving, all is not lost. Once the global rate hike trajectory firms up, fundamentals will take precedence and flows will return. However, in the interim, one needs to be mindful of the above risks.

In any steep correction from here on, what are the segments/themes one should consider for investment and why?

Also read – Don’t see sharp revision in Nifty earnings estimates for FY22 and FY23 post Q3 numbers: Shibani Kurian of Kotak Mahindra AMC

Any correction makes certain segments or stocks which were attractive look cheap or affordable. Therefore, on a bottom-up approach, it could be an opportunity to accumulate or invest in stocks that have strong fundamentals but were expensive earlier.

In addition, the overlaying theme today can be infrastructure or capex oriented sector in which the government looks to spend. In a volatile environment like this, a systematic investment plan (SIP) should remain the choice of investing for individual investors as it will enable investors to tap the opportunistic lows of the market.

Will LIC trigger a correction in the market in March as it is going to be the biggest ever IPO in the history of Indian capital markets, with likely IPO size of around Rs 70,000-1 lakh crore?

Any IPO is unlikely to case any market correction. Equity market correction or volatility is not a function of IPOs or issuances but rather a dependent on larger economic sentiment and themes of global and domestic growth. If anything a successful launch of an IPO of this scale will only add to the confidence of investors – both domestic and global on the strength of the Indian equity markets.

The timing is well communicated and markets are informed well ahead of this IPO. In addition, this will bring a much need boost to government finances and infuse the confidence that government can undertake its much needed capex spending program early on to fasten the pace of recovery. In addition, this will also pave way for a successful government’s divestment programme for the next year and coming years which is an added positive.

Do you expect another tariff hike by telecom companies in coming period and will there be aggressive bidding for 5G spectrum?

With tariff hikes just announced, another round of hikes in the near term is not very likely. However, over the medium-term one cannot rule of tariff hikes to take care of inflation. In addition, India is one of the lowest telecom tariff regions and this in itself will drive revisions over time.

One does not expect aggressive bidding for 5G spectrum, given that balance sheets of players are already stretched and just recovered. In addition, government will also not expect any fireworks here as in the recent past response to spectrum auctions have been tepid. Overall, expect a level playing field for both the buyer and seller.

Do you think ongoing states elections will have major impact on the market in March?

Markets and economy understand the differences between Centre and state elections. State elections have become a more of regular feature and irrespective of the outcome, it is unlikely to have any major impact. In fact, markets have been rather muted on the expectations or outcomes of the ongoing elections.

As central elections are still a good two years away and with the government just having announced a ‘capex’ and ‘growth’ oriented Budget, the driving focus is on growth revival and managing external risks. That said, a continuation of the ruling party in the state elections could add to the positive sentiment on the ground that execution of projects will be faster in addition to reinforcing the continuity two years down the line.

However, a rejig in the government of the states should not add to a material discomfort to the market.

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