IPO supply glut is the biggest market headwind, says Axis AMC CIO; strong earnings growth ahead

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At previous close, the Sensex was down -503.63 points (-0.59 percent) at 85,138.27, and the Nifty was down -143.55 points (-0.55 percent) at 26,032.2

Despite a series of positive domestic triggers, including strong GDP figures and a dovish monetary policy, Indian markets have struggled to find upward momentum. According to Ashish Gupta, Chief Investment Officer at Axis AMC, the primary reason for this lack of response is an 'unrelenting supply' of new equity shares flooding the market. In an interview with CNBC TV18, Gupta identified this supply glut as a more significant headwind than outflows from foreign investors.

Gupta detailed that the market is set to witness nearly 100 Initial Public Offerings (IPOs) this year, injecting close to ₹1.8 lakh crore of new paper. He further highlighted that this is compounded by substantial stake sales from private equity firms and promoters, which have amounted to double the primary market issuance over the last two years. For the current calendar year, he estimated the total supply would be north of ₹5.5 lakh crore. He argued this massive supply, equivalent to about $55-60 billion, far outweighs the approximate $18 billion sold by Foreign Institutional Investors (FIIs).

This oversupply has a direct impact on market dynamics. "If the primary market multiple start coming down, that is going to reflect in the secondary market," Gupta explained. The moderated valuations in recent IPOs create an arbitrage situation, pressuring the multiples of similar, already-listed companies. The supply pipeline remains robust, with Gupta noting that about $30 billion worth of pre-IPO shares are set to exit their lock-in period over the next six months, potentially adding to the selling pressure.

Addressing external factors, Gupta suggested that markets might be underestimating the potential for a rollback of US tariffs due to ongoing legal challenges against their imposition. Meanwhile, the widening trade deficit is weighing on the Indian rupee. He pointed out that while export growth remains weak, domestic stimulus has boosted import growth, with non-oil, non-gold imports rising by 12-13%. With FII outflows continuing and net foreign direct investment (FDI) remaining stagnant, the Reserve Bank of India's ability to support the currency is constrained.

However, Gupta ended on a positive note, expressing strong confidence in an earnings recovery for the upcoming fiscal year. He forecast a broad-based earnings growth of 15-16%, driven by sectors such as consumer companies, cement, autos, and financials. "We are looking for stronger nominal GDP growth as well next year… and on back of that, you should see stronger earnings performance," he stated, suggesting that fundamental growth could be the ultimate solution to the market's current challenges.