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New-age cash guzzler cos dented retail investors' confidence in IPO market: Religare Broking
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IANS | 30 May, 2022
It is not just the weak listing of Life Insurance Corporation of India
(LIC) on the exchanges but some of the new-age cash guzzler businesses
that have dented the retail investors' sentiments in the IPO market,
said Siddarth Bhamre, Head of Research of Religare Broking on being
queried why has the craze for the IPOs seemed to have subsided what were
the underlying reasons.
Notably, in the recent months,
share prices of new-age startups such as Zomato, Nykaa and Paytm among
few others have caused a huge wealth destruction for investors at large.
"Also
market overall has been in correction mode, so you won't get great
listing gains in such markets as the frenzy is missing. Capital raising
exercise is very interesting. Most of the management do assess the
market sentiments and then hit the markets with their IPOs," Bhamre told
IANS.
That said, sooner or later the markets will see bullish
sentiments returning and so will a host of IPOs as it's a cycle linked
to the equity market and no good or bad listings of a particular stock
has managed to change the behaviour, he added.
On LIC's outlook, Bhamre said the outlook is positive.
Post
listing, the correction is a good opportunity to accumulate LIC stocks
and it is the cheapest in a space which has high growth prospects. Low
free float won't let the stock correct for a prolonged period.
Below are some excerpts from the interview:
Q.
Looking at the current high volatility in equity markets, what is your
take on how FIIs/FPIs behave as far as their investment in India is
concerned?
A. There are a lot of moving parts in decision making
when it comes to capital allocation. One of the most important factors
for FIIs/FPIs is strength in dollar against the currency of the country
where they are investing. Strengthening dollar doesn't help their
investments and hence they prefer to be in dollar denominated assets
during such times. Most of the equity markets are correcting and India
is no different. This current selling due to inflation fears may not
continue for long.
Q. Do you see the equity market already
bottoming out, or are there any chances of major correction going ahead
in the near-term?
A. Valuations of our markets were stretched and
after the recent correction we are moving towards a fair value zone.
But markets never trade at a fair value for long. Most of the time, they
trade above fair value and in extraordinary scenarios like in 2008 and
2020, they went below fair value. 2022 won't be an extraordinary year.
We are in a scenario like what it was in 2011; correction but not
crisis. Further pain cannot be ruled out as we are still dealing with
all the challenges that we all have been talking about since the past
few months.
Q. In such a highly volatile situation, which are the
safe assets to hedge one's portfolio, especially for retail investors
with shallow pockets?
A. We at Religare Broking believe that the
traditional approach won't fetch the desired results. Firstly, safe
assets are not safer because of inflation. Five per cent FDs is no match
to 7-8 per cent inflation, gold is no more trading at attractive
levels, real estate is not liquid and the price trajectory is not very
encouraging. So equity is the asset class to be in.
Again hiding
in equity with traditionally considered defensive sectors like IT,
pharma and FMCG will not be a hedge, as most of them are still not very
attractive when it comes to the valuation. However there are spaces like
auto, cement, and selected banking space, where investments can be done
from a medium to long term perspective.
Q. How will
commodity-led inflation dent investors' sentiment? Looking at the
government's latest measures, how much time will it take, if at all, for
CPI to return to the RBI tolerance band of 2-6 per cent?
A.
Sentiments are already sour and hence there is such correction in the
markets. I don't think even the government can say when inflation will
come down but their efforts suggest that controlling inflation is a
number one priority of both the government and RBI for now. Important
aspect to note is that building a significant rate hike by the RBI in
our estimation may not be a correct assessment of the situation. This
inflation is supply led and in such cases as bottle neck issues get
resolved, inflation starts falling sharply. Governments have a larger
role to play in supply led inflation and we are seeing measures are
underway.
Q. With depleting forex reserves, how difficult would
it be for RBI to defend a sharp or runaway depreciation of rupee. What
are the other ammunition available with the central bank? What is your
support and resistance for the rupee in the next one month or so?
A.
To be fair to RBI, our currency has been quite stable and has been
depreciating steadily and there are no sharp corrections. For any
currency lack of volatility is a major sign of stability and rupee has
met these criteria in the recent past. It makes a great headline that
the rupee is at an all-time low, but this heading comes every year or
two, and lately every few months, irrespective of the forex reserves and
equity scenario. Trade deficit is the key reason for the depreciation
of the rupee over a long period of time, but that's a separate topic.
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Customs Exchange Rates |
Currency |
Import |
Export |
US Dollar
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66.20
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64.50 |
UK Pound
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87.50
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84.65 |
Euro
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78.25
|
75.65 |
Japanese
Yen |
58.85 |
56.85 |
As on 13 Aug, 2022 |
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