IPO supply to limit market gains, says Axis MF CIO; expects earnings recovery in large cap firms

The Indian equity market is currently in a delicate balance: buoyed by supportive macroeconomic factors and resilient corporate earnings; but simultaneously constrained by a substantial supply of IPOs and share sales, said Ashish Gupta, Chief Investment Officer at Axis AMC. In an interview with CNBC TV18, Gupta said that while fundamentals are improving, the sheer volume of upcoming initial public offerings and stake sales is likely to keep market gains moderate.

“Just in the last 90 days, more than Rs 16,000 crore of IPOs have happened. Over the next one month, another Rs 30,000 crore of IPOs are slated to come to the market,” he said. This is further compounded by non-IPO supply, with an estimated $30 billion (~Rs 2.7 lakh crore) worth of stakes in recently listed companies becoming free from lock-in periods over the next six months. This continuous supply pressure offsets the strength seen in domestic and systematic investment plan (SIP) flows, capping the market's potential for a sharp rally.

Looking ahead, India's relative underperformance against global peers, a theme of the current year, is likely to reverse, said Gupta. While many global markets have surged 25-35 percent in dollar terms, Indian equities have delivered more modest returns. However, he cautioned that achieving significant absolute outperformance next year would be challenging due to prevailing valuations and the supply overhang. “Big gains in the market look unlikely,” he said.

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Despite the headwinds, there are bullish signals from the domestic economy, such as the recent policy actions from the regulators and the government. “We have seen a lot more affirmative action from the regulators, RBI, SEBI, as well as the government… there is much more of a sense of urgency in the government to take action to support the economy,” he said.

Gupta cited reforms in the goods and services tax (GST), the new labour code, a forthcoming insurance bill, and a push for deregulation and decriminalisation of laws as key positive drivers that will continue to spur the economy and sustain the earnings recovery into next year.

On the monetary policy front, Gupta anticipates a 25-basis-point rate cut from the Reserve Bank of India (RBI) in its December meeting, noting that the probability remains high despite recent volatility in the rupee. He suggested that without currency pressures, a 50-basis-point cut might have been a possibility. The key aspects to monitor in the policy statement will be the RBI's stance on liquidity management and the demand-supply dynamics for long-duration government bonds.