Hemang Jani, Head of Equity Strategy – Broking & Distribution, Motilal Oswal Financial Services says that after the much-awaited LIC’s bearish list on domestic exchanges, there is a possibility that companies may wait for equity markets to settle down in case of volatility and start their initial public offerings. Offerings (IPOs) may postpone the plan for some time.
He also cited the importance of global cues and developments on investor sentiment, especially in the US.
After seeing the performance of LIC, many market participants feel that the IPO craze seems to be waning at the moment.
Jani told IANS that the demand for companies with differentiated and niche business models remains good irrespective of market conditions, however, both promoters and investment bankers can now look at more reasonable pricing of their IPO offerings There could be some upside for retail investors.
Here are some excerpts from his interview.
Question: In view of the current high volatility in equity markets, what is your view on how FIIs/FPIs behave with respect to their investments in India?
Answer: FIIs have been selling continuously since October 2021. He has since sold stocks worth around Rs 3.23 lakh crore. In anticipation of a US Fed rate hike and bond tapering (reducing excess liquidity from the system), foreign institutional investors (FIIs) began selling stocks from emerging markets.
In this month too, he has sold equity worth Rs 51,800 crore in India.
On the other hand, domestic institutional investors (DIIs) have supported the markets as they have been net buyers on a month to month basis since April 2021. He has bought shares worth 2.96 lakh crores since April 2021. This is the reason for the increase in retail participation in India mainly through the mutual fund route.
Question: Do you see that the equity market is already coming down from the bottom or is there any possibility of a major correction in the near future?
Answer: Equity markets across the world have improved in the last 6-8 months. The US, European and Indian indices have fallen in the range of 7-15 per cent from their respective peaks. Rising inflation and interest rates across the globe, higher crude oil and other commodity prices, multi-year high dollar index, weak corporate earnings and supply chain disruptions due to lockdown are some of the factors that are driving the recovery in world markets.
The US Fed and RBI will further increase interest rates to curb inflation.
In the coming meetings, the market has somewhat eased further rate hikes by the US Fed by 50 basis points. This could lead to some more volatility/consolidation in the equity markets, but we do not expect a sharp drop from current market levels.
Any unfavorable geopolitical news across the globe may further depress the equity markets. From here a big improvement can happen only when America is in the grip of recession.
Question: In such a highly volatile situation, what are the safe assets to hedge one’s portfolio, especially for retail investors with low pockets?
Answer: In volatile markets, it is better to keep some cash in the portfolio, which acts as the safest haven. Depending on the size of the portfolio and risk appetite of the individual, it is advisable to have a cash component of 10-25 per cent in the portfolio. One can deploy cash at lower levels once the market stabilizes.
Question: Your near-to-medium term outlook on LIC?
Answer: Given the weak market sentiment, its share price has remained weak since its listing.
The pandemic has hit the insurance sector in the last 2 years, leading to a drop in earnings, while some private companies have started showing improvement in numbers, we await its performance over the next few quarters before making any outlook. Would like Apart from this, the volatility in share prices will also depend on the government’s plan to reduce its stake in future.
Question: How will commodity-based inflation affect investor sentiment? How long will it take for the CPI to return to the RBI’s tolerance band of 2-6 per cent, given the latest government measures?
Answer: Historically we have seen equity markets take a break in the short to medium term with rising inflation and interest rates. Equities have seen some correction as selling intensified in sensitive sectors like metals, real estate, commodities etc.
This generally leads to some disappointment as far as investor sentiment is concerned in the short to medium term, as it becomes difficult to make money during these volatile times.
RBI has taken steps to check inflation by raising interest rates. In addition, the government has taken several steps to contain inflation by increasing export duties on steel and steel products, restricting exports of sugar and wheat to cool food prices. This will certainly help in containing inflation in the next few months. Also a normal monsoon should go a long way in cooling down food inflation.
Question: With the reduction in forex reserves, how difficult would it be for RBI to hedge against a sharp or rapid depreciation of the rupee. What other ammunition is available with the central bank? What is your support and resistance for the rupee in the next one or two months?
Answer: The US dollar made an all-time high of 77.9 against the Indian rupee this month. If the US Dollar moves above 77.9, it would be a fresh breakout which may move towards 78.5 levels and cause more selling in the equities.
For the next one month, support for Rupee is near 76.8 level and resistance is near 78.5 level.
Disclaimer: This is a news published directly from IANS News Feed. With this, the News Nation team has not done any editing of any kind. In such a situation, any responsibility regarding the related news will be of the news agency itself.
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