Wealth is being created in the market today, not just for equity investors who have had a good run since after the pandemic bottom in March last year, but also by business owners and private investors who have raked in big moolah from primary market exits, for themselves and their sponsors, respectively.
According to Prime Database, about Rs 107,000 crore has already been raised via IPOs in the current fiscal, and there are another Rs 50,000 crore worth of IPOs that have received SEBI approval, and another Rs 67,000 crore worth awaiting the nod. Given the recent trend of IPOs seeing significant chunks of the IPO portions being offer for sales (OFSs) by existing investors, it wouldn’t be amiss to assume almost half these proceeds have found their ways to pre-IPO shareholders. And that’s a very hefty sum.
What’s also heartening to note, is that private investors aren’t just taking the money from exits and pulling these funds out of the country. The investments by Private Equity & Venture Capital investors has likely topped $50 billion (over Rs 3.6 lakh crore) in calendar 2021. And the healthy exits offered to many investee companies has likely given them more confidence to invest in India.
The combined effect of all these factors is leading to many Indians and many in India Inc sitting on tons of liquidity. And even if we see some foreign portfolio money outflows from time to time, this “real money” is here to stay, at least for some time, and that has implications for the economy and markets.
THE WEALTH EFFECT
Individual promoters and other early domestic investors who have fully or partially exited from many of the listed businesses are bound to be sitting on a very healthy amount of liquidity. Needless to say, while this may boost consumption a little, it is extremely unlikely that a large share of this can be consumed. Hence, this money will mostly find itself into fixed income bearing products, equities and very likely real estate, besides into new businesses in a lesser number of case. Some of this money could also go into cryptos and NFTs (non-fungible tokens).
And among these asset options, debt yields are very poor and unattractive, while equities are a little frothy. The one large asset class that hasn’t seen any significant value change for the past many years, and one with significant absorption capacity is real estate.
Given the immediate risks associated with the liquid debt and equity markets in light of a possible faster Federal Reserve taper and rate hike action, real estate could be a relatively safe haven for resident investors in India, even as foreign portfolio investors rebalance exposures by upping exposure to China in the emerging markets basket.
In his recent GREED & fear report, Jefferies’ Chris Wood points to the nascent pick-up in China as a possible factor to consider when allocating funds. “This outlook of incremental easing and a pickup in China’s so-called credit impulse is one reason why GREED & fear has been a little Overweight China in the Asia Pacific ex-Japan portfolio since 21 October.
The other reason is that China should prove defensive in any Wall Street originated tapering/tightening scare which has started to hit markets of late, for the simple reason that China has already tightened policy as reflected in the continuing strength of the renminbi against the dollar in stark contrast to most other currencies.”
And while Jefferies maintains a positive stance on India within Asia, one striking element of this is its bullishness on the property market. In his earlier report, Chris Wood argued: “GREED & fear continues to take a constructive view on the residential property cycle in India, which is why there continues to be a 17% allocation to property stocks in GREED & fear’s India long-only equity portfolio.”
DIVERSIFY TO GROW
The fundamental principle of risk-management in any portfolio is adequate diversification. And given how things stand today, there are risks in debt and equities accentuated by likely policy actions. To safeguard your investments, now might be a good time to diversify your portfolio by adding other assets like real estate, for one. You could also consider alternate, but not risk-free new assets like cryptos or NFTs, if you understand them. I don’t, so wouldn’t wager any advice on their prospects good or bad.
Stay safe, stay invested.
(Edited by : Aditi Gautam)
First Published: IST