Darshan Engineer of Karma Capital Advisors says IREDA, Fedbank, Gandhar, Flair are interesting companies, each from a different sector.
"Recent IPO boom is a confluence of several factors. In recent times, we have seen an advent of PE (private equity) backed companies from new-age sectors coming to the market," said Darshan Engineer, Portfolio Manager at Karma Capital Advisors, in an interview with Moneycontrol.
At the same time, the IPOs have also been by smaller companies from traditional sectors. So, depending on multiple reasons, he expects this IPO boom to continue for several years, not just this quarter.
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Tata Technologies is among the leading companies in the engineering research and design sector which has seen a boom in recent years. Darshan, who has more than 13 years of experience in research and fund management, said, "We don’t see any reason why it will not do well. In fact, the subscription figures for this IPO speak for itself."
Q: Do you think the valuations of chemical companies are at lowest levels in many years? Does it mean a buying opportunity?
Chemical companies listed in India have had a great run in the past due to a strong growing external addressable market which led to a period of strong sales and earnings growth. Consequently, several larger companies in the sector got re-rated and now trade at much higher multiples compared to their own past.
In the last several quarters though, they have also faced challenges relating to slow demand, lower margins, etc. As a result, earnings growth story is getting pushed out further into the future and some of them have gone through a time correction while valuation multiples remain rich. Hence, we would not say that their valuations are at the lowest levels for the sector, although there may be stock-specific opportunities.
Q: Do you think the Indian equity markets will hit new highs if the US Federal Reserve hints about ending the rate hike cycle in the last policy meeting of 2023?
The US Federal Reserve is quite vocal about ensuring that inflation comes under control. Till that time, we don’t think they will even hint about a pause in the rate hike cycle. When they do indicate it, it would mean that the USA would be in a recession leading to a slowdown in demand.
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But since markets are forward-looking, they would take it positively. We can expect a bounce thereafter which should obviously also pull up Indian equity markets further, which in any case, is close to its all-time highs. We also have other factors such as elections which can play a role in the same.
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Q: Do you see the current IPO boom continuing till the last quarter of the current financial year?
India is blessed to have so many new companies getting listed over the years. It makes our market richer in terms of breadth of sectors. Recent IPO boom is a confluence of several factors. During good times, many companies come to the market to take advantage of the positivity and vice-versa. In recent times, we have seen an advent of PE (private equity) backed companies from new-age sectors coming to the market.
At the same time, there have also been smaller companies from traditional sectors also. So, depending on multiple reasons, I expect this IPO boom to continue for several years, not just this quarter.
Q: As a portfolio manager, are you taking exposure to Tata Technologies? In general, what is your take on the first IPO from Tata Group in nearly 20 years?
As a fund house, we do not comment on our portfolio actions relating to specific companies. Tata Technologies is among the leading companies in the engineering research and design sector which has seen a boom in recent years. Other listed companies in the sector have had a great run for the last several quarters, both in terms of business and share prices.
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While there are company-specific factors to each company’s growth and business profile and their valuation multiples, we don’t see any reason why it will not do well. In fact, the subscription figures for this IPO speak for themselves.
Q: Your take on other IPOs like IREDA, Fedbank Financial Service, Flair Writing Industries, and Gandhar Oil Refinery..
As I said earlier about the IPO boom, the more the number of companies in a sector, the better the understanding of the sector and the more the choice for investors. All of them are interesting companies, each from a different sector.
I think all of them are finding their desired investor base as reflected in the subscription figures.
Q: Do you think the rural markets are still weak and the pressure may continue for some more time?
Yes, the rural markets remain weak as indicated by various macro indicators such as the weaker monsoons, agri-inputs, entry-level 2-wheeler and 4-wheeler demand, etc. Fortunately, over the last many years, the reliance on agriculture has reduced as far as rural income is concerned. They have also smartly diversified their income streams over the years.
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Because of the high inflation, people at the bottom-half of the wealth/income pyramid in India, cutting across rural and urban areas, have resorted to down-trading in basic goods and services, and have cut down on their discretionary spending.
Further, there has also been a shift in spending from goods to services post-COVID. All of this has led to lesser growth for certain consumption-facing sectors such as consumer durables, FMCG, etc. All eyes would now be on Rabi season and election-related spending as they tend to boost consumption spending.
Q: Do you see any kind of risk to the equity markets from the elections taking place in the next one year?
Election year tends to see a slowdown in decision making from the government side which in turn can delay capex spending decisions by private sector. Hence, there can a potentially tough period in terms of new ordering activity for industrial and capital goods sector.
Governments do tend to boost consumption ahead of an election which can be positive for sectors like FMCG, consumer discretionary, media, etc. Overall, I think next 12 months will be interesting for equity markets with a lot of volatility. I think a stable government formation post next elections will calm investor sentiment and focus can then shift back to earnings.
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Q: Will the run up continue in midcap and smallcaps for yet another year?
Small and midcaps have had a great run in CY2023, especially after April 2023. There have been multiple reasons for the sharp rally and many companies and sectors have got re-rated tremendously. We think that individual stocks in small and midcaps can continue to do well, depending on company/sector specific factors, even if the broader market takes a pause after such a sharp rally.
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.
