The story of late has been about the primary markets. Nykaa is now more expensive than Britannia, BPCL, one-third of . Paytm listing is on Thursday.
Yes, there have been stories of prices going through the roof but there was also a Fino Payment Bank that listed at 6% discount to issue price. So there are disappointments as well. Paytm with one of the biggest issues of recent past at Rs 18,000 crore, barely managed to sail through. So, let us see what happens on listing.
Coming to other points, what is surprising is that in the issues which start trading at a price lower than the offer price or lower than the recent highs, the follow up institutional buying does not come in, Based on whatever one hears in the case of anchor book, almost all the issues have huge demand over subscription and they do not get fully satisfied. But once the issue lists and especially if it lists at a discount, the same institutions who were willing to bid extra in the anchor book, surprisingly do not come to buy. So I do not know why, maybe they were looking for a listing pop in the anchor and since that has not come in, they just let it go, which is quite okay. Ultimately they have to give a return to their investors.
Second, if we look at the valuation of these stocks from the traditional historical benchmarks, methods of valuation factors, there is no way we are going to be able to justify them and so one should not try also. At the same time, what does it mean for retail investors? Should they let go of such issues while subscribing to the IPOs or even post listing? My view is no and till some time back, the Indian regulator, specifically Sebi, did not permit loss-making companies to come in for IPOs. There was a criteria for three years’ profit or dividend track record or things like that.
In such a scenario, some of the Indian platform companies went and listed abroad and gave good returns to the investors of those markets. These are Indian companies which are making money or at least top line growth if not profitability, based on the Indian demand. Why should the foreign investors benefit out of their listing? They should be allowed to list in India and we know our risks. So the regulator allowed it. Now once that is allowed, investors should participate in that. The only thing is that once somebody comes into equity, he knows he is coming into a risky asset class. He has to further identify his risk limit in terms of percentage of exposure and that he should take exposure to such new issues, new IPOs or new listings.
My view is they should not miss out on the valuation and things like that criteria. One will never be able to justify on that criteria if at all one has to look at the newer criteria.
Last point, at some point of time, the market will correct, valuations will correct and these issues also correct. But before that, can they give you 30-40% return or maybe more? Looks like yes. So why should you miss: Identify your risk profile and invest in them.
After a bit of consolidation, IT clearly is back. Are there fresh opportunities here or can one add positions?
Due to the recent run up in the whole sector, both largecaps and midcaps I am not sure if the similar kind of momentum will continue in the short term. But irrespective of that the way growth rate has been coming in the industry, management commentaries talking about the kind of demand and top line growth that will be there.
IT companies will be able to pass on cost pressures, especially employee cost because of high demand and as a result, will be able to maintain margins. Over the medium term, this sector will continue to remain an outperformer. Whether it will remain an outperformer in the short term is difficult to say. But the overall view remains positive given the way growth is likely to come up.
Does the real estate story continue to hold through? Should one buy on dips?
Real estate as a space is likely to continue to outperform. Talking of the price performance of the sector and the stocks, slightly longer term — of six, seven years or so, we have hardly seen an outperformance. Any outperformance has been in the last eight, nine months, at maybe a year.
The way the demand has been coming up, again going by the market checks, management commentaries, visible signs and the supporting environment — housing interest rates at their lowest at 6.5-6.7% and all the financial lending institutions, banks as well as housing finance companies falling over each other to lend. Housing finance is an area which is almost 99% safe. State governments have been supportive; there is a pent up demand and we have seen the way the salaries in the IT industry will extend to other sectors also, creating greater demand.
So any corrections will provide a good opportunity for buys but even if there are no corrections, the sector will continue to going to give returns. Without waiting for corrections, one should start taking part exposure in real estate.
The runup in IT stock prices – both largecap and midcaps was followed by a correction. That has been followed by a mild bounce back. What is the signal market is giving and what would your pecking order be in the IT pack?
It is more of a sectoral rotation. After correcting for the last three or four trading sessions, the market has recovered today which on a very simplistic basis gives an indication that maybe fresh money flow has come into the market. And when money flow comes in, it will look for some sectors and stocks which have either recently underperformed or which are still attractive on a relative valuation. The IT sector has been supported by the good numbers that came in earlier also and are continuing to come in.
Here is a sector which in terms of visibility of future numbers, in terms of an analyst, a market participant or a fund manager being able to predict the growth, there are not as many variables in case of IT sector as are probably there in an infrastructure, oil and gas or international commodity oriented sectors.
The premium of reasonable certainty has to come to this sector and that is where we are continuing to see a continuous rerating over about 18 months. We doubted when the largecap companies moved from 15 PE odd to 20. Now they are at 25 and moving closer to 27-28. That will continue to happen.
In summary, in the immediate short term, there may not be any return but the sector will continue to attract money, report good numbers and will keep getting rerated and remain an outperformer.
In terms of pecking order, not that there has to be any reason, but more because of my consistent looking at their numbers in largecaps, I like TCS. One can keep arguing about valuations but the stock does not underperform any of the largecap companies which are valued lower than that. It is more or less in line or has generally outperformed other stocks. Among midcap companies, Persistent is one of the companies that I like.
Where within the entire reopen/consumption trade or discretionary spends do you find opportunity still?
We have been seeing good interest coming in in the short term in airlines, But somehow I do not get as much comfort in airlines within consumption because while the number of passengers flying has gone up and is likely to continue to go up because of the opening, festival season and the wedding season, prices of crude, one of the biggest expenses for airlines, has been continuously going up and is likely to continue to go up.
On petrol and diesel, the government has given relief but the government has not given any such relief on ATF or aviation turbine fuel which is consumed by the airlines. So despite recent market interest, it could probably be a short term trade and is not my area of interest.
Consumer durable can be good in the medium term. It may not perform in the short term. It is something that I like within consumption. The demand is likely to continue to go up, given the way the secondary market checks and festival demand has been there.
The commodity price rise pass-on was an issue in September and could remain an issue in December but post that, either it will get passed on or hopefully we will see some cooling off in the commodity prices. So consumer durables within the broader consumption space is something that I feel will be an outperformer in the medium term; not airlines, not multiplexes, probably not even FMCG.
