Mohit Ralhan, Managing Partner and Chief Investment Officer at TIW Private Equity said the successful IPO of Zomato has indicated the maturing of India's startup ecosystem and is likely to open the floodgates for many more such IPOs of Indian unicorns.
2021 can be a new record year and 2022 is expected to be even bigger, he told Moneycontrol's Sunil Shankar Matkar, in an interview.
"As far as LIC IPO is concerned, it is likely to happen in 2022 since the government has indicated that it is looking to divest National Fertilizer, Mishra Dhatu Nigam and Rashtriya Chemical & Fertilizers before the IPO of LIC," he said.
Q: Do we really need to worry if the Federal Reserve starts tapering of bond purchases sooner than later? Do you expect the sharp rally in US bond yields this time?
The start of tapering will depend upon the strengthening of US economy. Do we need to worry that the US economy will strengthen sooner than later? Not really. The strengthening of economy is extremely desirable for long term sustainability of the markets and the start of tapering will signal just that.
Tapering indicates the slowing of purchase rather than reversing of purchase. What it means is that the balance sheet of Fed will still continue to grow and the economy stimulus will still continue albeit at a slower pace. But it will surely impact the demand of treasury securities and therefore it's prices will decrease, increasing their yield. The sharpness of rally in the US Bonds Yield in the markets will depend more upon the communications by Fed, rather than actual tapering. The actual tapering is expected to be gradual and in multiple phases but with the impact of taper tantrum still afresh in Investor's mind, there is likely to be an overreaction and therefore the initial rally may be sharp. But it may not be sustainable.
Another factor to look at is on the supply side. The supply of treasury securities is expected to reduce in 2022 as there is likely to be lower issuance given the fact that the financing requirement of government is expected to reduce significantly in 2022.
Q: Lot of companies lined up for fund raising via IPOs in the primary market. Do you expect the record fundraising via IPOs in 2021 and is there any possibility of LIC and NSE IPOs this year?
India is already a startup hub with 37 unicorns and a thriving startup ecosystem with innovative entrepreneurs, venture capital investors, incubators and accelerators along with a high number of engineering graduates and increasing internet penetration. The successful IPO of Zomato has indicated the maturing of India’s startup ecosystem and is likely to open the floodgates for many more such IPOs of Indian unicorns. 2021 can be a new record year and 2022 is expected to be even bigger.
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As far as LIC IPO is concerned, it is likely to happen in 2022 since the government has indicated that it is looking to divest National Fertilizer, Mishra Dhatu Nigam and Rashtriya Chemical & Fertilizers before the IPO of LIC. The NSE IPO finally may happen in 2021 as the approval from SEBI is expected.
Q: Also the majority of IPOs are getting fully subscribed either in the initial hour of opening or on the first day of opening? What are factors driving such optimism and why retail investors are so excited about every issue?
The Indian market is in a bull phase and over last 12-15 months, stock market has given significant returns to investors. The commentary on Indian economy growth has turned positive and in general investors are quite optimistic about the future growth. Also, the IPOs of companies like Zomato and PayTM were long awaited. These are well known brands and retail investors are comfortable owning shares of market leaders.
Q: Among the IPOs launched so far or getting launched in coming months, have you spotted any wealth creating ideas?
In a bull market like the current one, the potential of listing gains remains high but it doesn't result in wealth creation which is a long-term impact of buying good companies at great prices. The flip side of bull market is the massive oversubscription to IPOs which makes sure that the allotment to a single retail investor remain on the lower side. The lower allocation will not result in any meaningful wealth creation unless one buys the stock subsequently from the public markets, and therefore the subsequent entry price is very critical. There are a few good names like Laxmi Organics, Nazara Technologies, Zomato and Glenmark Life Sciences but current prices seem high.
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?
Till date in the month of July, FIIs have been net seller, selling around Rs 19,000 crore worth of stocks, while DIIs have bought around Rs 15,000 crore worth of stocks. The selling by FIIs depends significantly on their views on Indian market in comparison to other global markets and their allocations to Indian markets may increase or decrease. Therefore, their investing activity in India basically indicates their view on India's relative position on the risk-return matrix in comparison to other countries. On, the other hand the investing behavior of DIIs are driven by their view on the growth of Indian economy and investment opportunities in India alone. DIIs, being a net buyer is a vote of confidence on the Indian market. It is also driven by retail investors, increasingly participating in the market through their investments in mutual funds.
Q: Majority of experts consistently say about the risk of a third Covid wave. Do you agree and what are other risks that one has to consider before investing in equity now?
With vaccination drive in full swing, the third wave is not likely to disrupt economic activity disproportionately. Even if there is a short-term surge in Covid-19 case, it will get controlled as both government and public around the world continue to get better equipped to handle the pandemic. It's the effect of learning curve. The long-term structural trend of Indian economy is extremely positive and we see any correction as buying opportunity.
Q: The market continued its fresh record high journey in the second half of 2021. What are driving factors for the market - is it FOMO, TINA, or plain liquidity?
It is likely to be the start of multiyear bull cycle as India moves towards becoming a $5 trillion economy. The market is surely getting additional impetus by availability of high liquidity and there is likely to be a short-term correction, when the liquidity tapers off, but it should be seen as a buying opportunity, since the underlying long term economic factors remain strong.
Q: Do you think it is the time to be cautious considering the outperformance of midcap and smallcaps over large caps? What should investors do now?
If the price – value equation makes sense then a long-term investor should not get perturbed by the past price performance. Retail investors who are investing through mutual fund route should continue with their SIP plan. As far as sophisticated investors are concerned, who likes to invest by themselves, there is no dearth of good opportunities.
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