The invasion of Ukraine by Russia has dampened market sentiment. But “given the government's asserted stance and commitment to completing the LIC IPO within the financial year, the probability of a deferment seems to be on the lower side,” says Rakesh Singh, CEO of Fisdom Stock Broking.
Having said that, if the IPO is launched as planned, he believes it will be sailing on extremely rough seas.
Media reports have indicated that LIC could launch its IPO in the second week of March.
On FII outflows, which have been significant in the last five months, with net selling at Rs 1.8 lakh crore, Singh, who has two decades of experience in banking and wealth management, says the Russia-Ukraine standoff can be a catalyst and accelerate the outflow of foreign capital.
Edited excerpts from an interaction with Moneycontrol follow:
Russia has attacked Ukraine. Do you think the sanctions imposed by Western countries, and select Asian nations, could have any impact?
While the jury is out on whether such sanctions will have the desired effect on the geopolitical stress, it is almost definite that the sanctions will have an adverse effect on global trade and associated economics. Sanctions within the realm of possibilities can be expected to have far-reaching ripple effects with consequences reaching key sectors in India as well.
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Amid these geopolitical tensions, oil prices have gone past the $100/barrel mark. Do you expect prices to cross $120 a barrel soon and as a result, can the Reserve Bank of India revise its inflation forecast and GDP growth estimates?
Considering the way things are going, a further increase in oil prices is not off the table. If the critical Iran nuclear deal falls through and OPEC does not ramp up production, the shortage could accentuate further, leading to a further uptick in crude oil prices globally.
Do you expect the Indian government to pass on oil price spike with a steep hike in fuel prices after the State elections?
The decision on whether the government would pass higher prices directly to consumers or absorb some shocks through revised excise duties is contingent upon quite a number of variables related to both politics and economics. Today, we have very little information to work with. However, the expected base case is that the government will absorb the spike to a degree just about tolerable by national accounts.
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Especially after these intensified geopolitical tensions, do you expect faster policy tightening by the Federal Reserve in 2022?
In light of developing scenarios, it would be too aggressive to expect a suspension in the rate hike plan of action. It would be fair to expect the rate hike cycle to kick off while going a tad gentle on the steepness. For instance, there is now an increased probability of a 25 bps rate hike versus the previous expectation of a 50 bps hike.
After Covid hurting economies for the last two years, do you think the Ukraine-Russia tensions will be a major hindrance for global growth in the year ahead?
Many segments of the global economy are still reeling under pressure from blows dealt by the pandemic. The Ukraine-Russia standoff is definitely not helping the global economic recovery agenda. While the first impact is already being felt across global markets, the reaction by the US and NATO along with the extent of highly probable sanctions will determine the quantum of impact on global growth prospects. Global growth prospects may not be entirely derailed, but will face intermittent challenges.
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When the market corrects and turns volatile, midcaps and smallcaps are hit harder than largecaps. The same is happening now. So, should one be cautious while investing in smallcap and midcaps and stick to largecaps?
Organisations with relatively weaker financial, business and fundamental strengths are more sensitive to force majeure events like the Russia-Ukraine standoff. Such events create a risk-off environment where capital flies towards less risky assets fast and away from riskier assets faster. This typically leads to a perception that small and midcaps are more volatile than largecaps.
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Do you see the FII mood improving in the coming 3-6 months as they have net sold more than Rs 1.7 lakh crore since October 2021?
Foreign capital has a tendency to leave faster than enter in the event of adverse macroeconomic and geopolitical risks materialising. The Russia-Ukraine standoff can be expected to play catalyst and accentuate the outflow of foreign capital. However, as the situation de-escalates and diffuses, foreign capital can be expected to find its way back into Indian markets, especially into opportunities created by event-led displacement.
In the current market correction, which are the sectors looking attractive for investment, and why?
The Indian IT sector, as a whole, is at an early point in a multi-year expansion cycle with a strong promise of earnings expansion in the coming quarters. Pharmaceuticals is another sector offering many companies with continually strengthening fundamentals. Considering the macroeconomic environment, depreciating currency environment and export orientation in both sectors, there's quite a handful working in favour of the sectors. Both sectors have been viewed as a defensive play for long, but there is enough reason to believe that they will play a larger role as a growth contributor in the period ahead.
So far, the government has not deferred its LIC IPO launch plan. Do you think the Ukraine-Russia conflict-led brutal fall could delay the IPO?
Given the government's asserted stance and commitment to completing the LIC IPO within the financial year, the probability of a deferment seems to be on the lower side. Having said that, if the IPO is launched as planned, it will be sailing on extremely rough seas. I am sure that the government will weigh all options and consider all risks before going ahead with the IPO. So far, there is no information except hopes expressed for a deferment of the IPO.
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