Below is the Views On IPO Frenzy A Global Phenomena - Weekly article by Ms. Nirali Shah, Senior Research Analyst, Samco Securities
IPO Frenzy A Global Phenomena
Mr. Market during the week kept its momentum going with active participation from small & midcaps due to SEBI’s circular which caused the resurgence in buying interest. The circular created a buzz by changing portfolio allocation rules for multi cap mutual funds to allocate atleast 25% in large, mid and smallcaps each by February 2021. Such tweaking of allocation rules by SEBI appeared as a harbinger for sharp and abrupt buying interest in quality small & midcap businesses. Post the announcement, handful of quality small & midcap stocks witnessed buoyancy which was signaled in their weekly price gain. If Mr. Market’s collective wisdom were to be believed, investors should take account of such worthy small & midcap names and look to enter on declines.
At the extreme west, NYSE saw the biggest software IPO this year, Snowflake. On hitting Wall Street, the IPO immediately began soaring 150+%. This IPO also marks a rare foray by the ‘Oracle of Omaha’ himself into the world of tech startups. Such frenzied listing for a company which is not yet profitable, even though sales are growing rapidly, is a clear sign of hysteria. During the ‘The Dot-com bubble’ era 20 years ago, a similar style of frenzy was witnessed. And a similar situation now hints towards a bubble in making in the world of listed tech startups. Taking a holistic view, broader markets are still considered to be lagging and offer value not only in the US but also in India.
Event of the Week
US Federal Reserve’s Chairman Jerome Powell indicated that until the US economy heals from the aftermath of the COVID-19 pandemic and until the US inflation rises above its 2% target, interest rates would be kept near zero for at least three years. Deriving analogy from the Fed’s stance, it can be assumed that ground level economies across the globe would atleast take two-three years to recover from the pain of the global pandemic. And this may keep the disconnect between markets and economy for some more time.
Nifty50 index closed on a negative note and traded in a very narrow range during the week. Pharma and IT sectors strongly participated to the index while the financial service space underperformed. BankNifty closed in red and fell over 2% this entire week. Nifty is currently trading in an overbought zone which is in sync with the global indices and minor fractures in the form of corrections may continue. We therefore maintain a cautious stance on the market and suggest traders remain watchful of key levels. The immediate support and resistances are now placed at 11200 and 11630 respectively.
Expectations for the Week
The IPO season seems to be driving the sentiment on D-Street and the party won’t stop since there are already prominent names like Computer Age Management Services (CAMS), UTI Asset Management Company, Angel Broking to name a few lined up who have already received nod from SEBI to access the primary market. Market participants in general are always excited to subscribe to IPOs for listing gains and this frenzy of subscribing to IPOs just for listing gains will die down once the liquidity dries up. And this will spiral down on to the overall market sentiment. Until then, investors are advised to follow a bottom-up approach by tilting their trading bets towards strong momentum stocks from the Pharma and IT sectors and for investments wait for a correction. Nifty50 closed the week at 11505, up by 0.4%.
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