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Wealth is being created in the market today, not only for equity investors who have had a good run since the pandemic trough in March of last year, but also for business owners and private investors. who raked in big moolahs out of the primary market, for themselves and their sponsors, respectively.
According to Prime Database, around 107,000 crore rupees has already been raised through IPOs during the current fiscal year, and there is another 50,000 crore worth of IPOs that have received the approval from SEBI, and another Rs 67,000 crore value pending nod. Given the recent trend in IPOs to see significant portions of IPO shares offered for sale (OFS) by existing investors, it would be worth assuming that nearly half of these proceeds were routed to the pre-IPO shareholders. And it is a very large sum.
What’s also encouraging to note is that private investors aren’t just taking the money from the outflows and pulling those funds out of the country. Investments by private equity and venture capital investors have likely exceeded $ 50 billion (over Rs 3.6 lakh crore) during the 2021 timeline. And the healthy exits offered to many issuers have likely given them more confidence to invest in India.
The combined effect of all these factors leads many Indians and many Indians to be sitting on tons of cash. And while we do see outflows from foreign wallets every now and then, that “real money†is here to stay, at least for a while, and this has implications for the economy and the markets.
THE WEALTH EFFECT
Individual promoters and other first domestic investors who have fully or partially withdrawn from most listed companies are required to have a very good amount of liquidity. Needless to say, while this may boost consumption a bit, it is extremely unlikely that much of it could be consumed. Therefore, this money will mostly end up in fixed income products, stocks and most likely real estate, as well as new businesses in a lesser number of cases. Some of this money could also be invested in cryptos and NFTs (non-fungible tokens).
And among these asset options, debt yields are very low and unattractive, while stocks are a bit foamy. Real estate is the only major asset class that has not experienced a significant change in value in recent years and that has significant absorptive capacity.
Given the immediate risks associated with liquidity in debt and equity markets in light of a possible faster Federal Reserve cut and rate hike, real estate could be a relatively safe haven for investors. investors resident in India, although foreign portfolio investors rebalance their exposures by increasing their exposure. to China in the basket of emerging markets.
In his recent report on CREDIT and Fear, Chris Wood of Jefferies indicates that the nascent recovery in China is a possible factor to consider when allocating funds. “This prospect of gradual easing and resumption of China’s so-called credit boost is one of the reasons CREDIT and Fear have slightly overweighted China in the Asia-Pacific ex-Japan portfolio since the 21st. October.
The other reason is that China should be defensive in the face of any downside or tightening scares triggered by Wall Street that has started hitting markets lately, for the simple reason that China has already tightened its policies, as evidenced by the continued strength of the renminbi against the dollar in stark contrast to most other currencies.
And while Jefferies maintains a positive stance on India in Asia, a striking element is his optimism in the real estate market. In his previous report, Chris Wood stated: “Greed and fear continue to take a constructive view of the residential real estate cycle in India, which is why there continues to be a 17% allocation to real estate stocks. in the long term actions of greed and fear in India. wallet.”
DIVERSIFY TO GROW
The fundamental principle of risk management in any portfolio is adequate diversification. And given the current situation, debt and equity risks are heightened by likely policy actions. To protect your investments, maybe now is the time to diversify your portfolio by adding other assets like real estate, for example. You can also consider new alternative assets, but not without risk, like cryptos or NFTs, if you understand them. I don’t, so I wouldn’t bet any advice on their outlook, good or bad.
Stay safe, stay invested.
(Edited by : Aditi Gautam)
First publication: STI
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