Daily Voice | This fund manager explains what to look for in 5 IPOs opening next week

Do you think Tata Technologies is available at reasonable valuations? The company sold shares to TPG in the pre-IPO placement at a price of Rs 401 and not the issue price band is Rs 475-500 per share?

It is quite intriguing to observe the dynamics at play in Tata Technologies' recent IPO pricing in comparison to its pre-IPO stake sale. Tata Technologies' IPO pricing, set between Rs 475 to Rs 500 per share, significantly exceeds the Rs 401.8 price of its pre-IPO placement, indicating strong confidence in its market potential and future growth. This strategy elevates the company's valuation from Rs 16,300 crore during the stake sale to a post-issue market capitalization of Rs 20,283 crore.

Also read: Tata Technologies to reduce revenue share dependence on Tata Motors, group cos: CEO Warren Harris

Notably, despite this premium, Tata Technologies will enter the market with a price-to-earnings ratio lower than peers like KPIT Technologies, Tata Elxsi, and L&T Technology Services, potentially making it an attractive investment. The company's impressive 34% revenue growth and 18.6% operational profitability, along with the backing of investors like TPG Rise Climate SF Pte and Ratan Tata Endowment Foundation, further bolster investor confidence in its prospects. The company backed by the Tata name might just be able to convince investors on the valuation front.

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What is your take on Flair Writing Industries, Gandhar Oil Refinery, IREDA, and Fedbank Financial Services IPOs? Are you taking exposure to any of them?

Flair Writing Industries enters the market with a strong brand presence in the stationary sector. Given the consistent demand in education and office supplies, its IPO seems promising for long-term growth. However, investors should be mindful of the competitive landscape and digitalization trends impacting the traditional stationery market.

Gandhar Oil Refinery's IPO in the oil refining sector is intriguing. The company's diversification into personal care and healthcare products is a strategic move, potentially cushioning it against the volatile oil market. However, the sector's sensitivity to global economic shifts and stringent environmental regulations could impact its long-term growth trajectory.

Also read: Gandhar Oil Refinery IPO: 10 things to know before subscribing to the Rs 500-crore issue

IREDA's focus on renewable energy financing is timely, aligning with the global shift towards sustainable energy. As the first government-run company IPO since LIC, it carries a certain credibility. The renewable energy sector's growth potential is significant, but it's also subject to policy changes and technological advancements, which could influence IREDA's performance.

Fedbank Financial Services targets a niche in the NBFC space, focusing on MSMEs and emerging sectors. This specialization could be advantageous, but the NBFC sector is highly competitive and subject to regulatory risks. Investors should weigh these factors against the company's growth potential and strategic positioning within the Federal Bank's ecosystem.

Also read: IREDA IPO: 10 things to know before subscribing to Rs 2,150 crore issue

Do you see a bigger risk to the earnings of NBFCs after an increase in risk weight on consumer credit exposure by RBI?

The RBI's decision to increase the risk weight on consumer credit exposure for NBFCs is a prudent step towards ensuring financial stability, but it does bring significant challenges for these institutions. This increase from 100 percent to 125 percent means NBFCs are now required to hold more capital against their consumer credit exposures. This change will likely lead to a tightening of capital available for lending, which is a critical aspect of NBFC operations.

Consequently, we might see a squeeze in profit margins for these institutions as they grapple with higher capital requirements and potentially increased borrowing costs.

Also read: Bajaj Finance in double trouble from RBI’s risk-weight norms, product ban

This move could also lead to a reduction in lending activities, particularly in the consumer credit segment, impacting the growth trajectory of NBFCs. Smaller NBFCs, in particular, might find it more challenging to adapt to these changes due to existing capital adequacy challenges.

In the short term, we could see NBFCs increasing interest rates on consumer loans to maintain profitability, which might reduce the demand for such loans. However, it's important to note that while these measures pose immediate operational challenges, they are aimed at enhancing the long-term stability of the financial system by encouraging more prudent lending practices.

Overall, the impact of this decision will vary across NBFCs, depending on their individual risk profiles and business models.

Also read: RBI's post-Diwali retail loan dampener – will higher risk weights hurt spending?

Do you think the global concerns receded and the market looks fairly strong fundamentally now?

The recent easing of inflation in the US and a global decline in commodity prices have positively impacted the economy, reducing global recession fears and potentially influencing the US Federal Reserve's rate hike trajectory. This shift offers the Indian central bank more room to manoeuvre in balancing growth and inflation.

The Q2 results in India have been strong, especially in sectors like oil & gas, real estate, and consumer goods, showcasing the resilience of Indian businesses amidst global uncertainties. This robust performance has been a key factor in the buoyant rally of the Indian stock market, further boosted by increased global investor interest due to India's stable macroeconomic environment and growth prospects.

However, risks loom. Potential further rate hikes by the US Federal Reserve, volatility in commodity prices, geopolitical tensions such as the conflict in Israel, and persistent supply chain disruptions could reignite inflationary pressures and affect market stability. While the Indian market is currently strong, driven by easing inflation and solid corporate earnings, investors should remain vigilant of the potential impacts of global economic and geopolitical factors on market dynamics.

Do you expect the Nifty50 to be beyond the 21,000 mark by December-end?

Predicting the Nifty50's trajectory towards the 21,000 mark by December-end hinges on balancing optimistic drivers with potential headwinds. On the upside, India's robust economic growth, buoyed by easing global concerns, sets a strong foundation. The festive season, coupled with a favourable monsoon, could further stimulate consumer spending and rural demand, positively impacting various sectors. These factors, alongside the global shift in investor sentiment towards emerging markets like India, could propel the Nifty50 upwards.

Also read: Opportunity in market correction: MFs added these new midcaps in Oct

However, challenges loom. Global geopolitical tensions and the US's monetary policy, particularly regarding interest rate hikes, remain critical variables. Domestically, the Reserve Bank of India's stance on inflation and interest rates could influence market dynamics. Additionally, the sustainability of corporate earnings growth is crucial.

While the fundamentals appear strong, these potential headwinds warrant a cautious approach. Investors should remain vigilant, as market movements are often unpredictable and influenced by a myriad of factors, both global and local.

Is it the right time to pick IT stocks, given the signs of the rare hike cycle ending?

The potential conclusion of the rate hike cycle offers a complex yet intriguing opportunity for investing in IT stocks. While domestic consumption-linked new-age stocks are currently thriving, global demand for IT services hasn't seen a significant recovery. The IT sector stands to gain from reduced borrowing costs if the rate hike cycle ends, potentially enhancing profitability and spurring growth investments. This scenario could make it an opportune time to invest in IT stocks.

However, it's important to acknowledge the IT sector's vulnerability to global economic fluctuations. Economic downturns in key markets can adversely affect the demand for IT services, and we're not entirely clear of such risks yet. Moreover, currency dynamics, especially the INR-USD exchange rate, significantly influence the earnings of Indian IT companies.

Additionally, investors need to be aware of the competitive landscape and regulatory challenges in crucial markets. Thus, while the IT sector presents potential, especially in a favourable interest rate climate, it's advisable for investors to carefully weigh the sector's volatilities and global interdependencies before making investment decisions.

Do you see a strong rally in the FMCG space, probably next month or from the beginning of next calendar year?

The FMCG sector in India shows promising signs of a rally in the coming months, potentially starting as early as next month or at the onset of the next calendar year. This optimism is primarily driven by a combination of factors. Firstly, the favourable monsoon season is expected to boost agricultural output and rural incomes, which traditionally leads to increased spending on FMCG products.

Rural markets are crucial for FMCG sales, and this uptick in rural demand could significantly propel the sector's growth. Secondly, the festive season in India, a period marked by heightened consumer spending, is on the horizon. This period typically sees a surge in purchases of FMCG products, as households prepare for celebrations.

Additionally, the government spending for the upcoming elections, easing input costs, particularly in global commodity prices, could improve margins for FMCG companies, enhancing profitability and investor sentiment.

However, it's important to remain cognizant of potential economic slowdowns and competitive pressures, which could impact the sector. Overall, the FMCG sector appears well-positioned for growth in the near term, supported by strong underlying demand drivers.

Disclaimer: The views and investment tips expressed by investment experts on Moneycontrol.com are their own and not those of the website or its management. Moneycontrol.com advises users to check with certified experts before taking any investment decisions.