As a record number of public issues is expected to hit the Indian capital markets this year, investors will become selective going ahead as not all companies will offer strong listing gains, says ICICI Securities investment banking head Ajay Saraf.
He, however, believes that factors are conducive for more investors – especially retail – to come to the stock markets and chase returns at a time when interest rates are very low across the globe, including India.
“Ultra-low interest rates across the globe including India where post-tax returns are like 3.5% means that people want to chase yields and take a bit more risk and that in a way has fuelled a lot of retail participation not just in India but also across the globe as central banks world over cut rates,” said Saraf.
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The investment banker – a CA and ICWA by qualification – further believes that while retail investors are being attracted to the primary market due to a combination of factors like low interest rates and good listing gains, the investor behaviour could see some correction as not all companies will see a similar kind of listing on the bourses.
“I would think that some of that behaviour will get corrected when you will not see so much of good listings because good listings cannot happen all the time. Some not so good listing will make the retail investor a bit more selective about where they want to put their money. You have to be focusing on quality and bet a bit choosy. So that discipline will have to come back,” said Saraf, who has been associated with the ICICI group for nearly two decades.
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Saraf, however, believes that while companies from the online or digital segment may well be new for the Indian stock markets, there is enough appetite for such firms as institutional investors understand these businesses and the Indian retail investor has also become more mature.
“These are companies whose valuation framework may be new to India but globally there is a well-established history of last 3-4 years of how these companies are valued and are creating wealth for investors,” he said while adding that the same pricing and valuation model is being followed in India.
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“Institutional investors understand this business much better, and I think they will lead the way in such IPOs and given a successful track record of such companies globally, there will be a wave in India as well. We expect 8-10 such companies going public in the next six months,” he added.
Incidentally, ICICI Securities is one of the investment bankers in some of the prominent digital companies coming to the market in the near term, including PayTM, Nykaa, Mobikwik and PolicyBazaar among others.
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