Dalal Street Voice: We expect IPOs worth over $15bn to hit the markets in SAMVAT 2078: Rahul Jain of Edelweiss Wealth

Rahul Jain, President & Head, Personal Wealth, Edelweiss Wealth Management, said by the next Diwali the market would provide investors an opportunity to invest in many new generation companies, new sectors, high-growth companies and market creators.

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Jain has over 14 years of professional experience in driving new business lines profitably and growing existing business lines in an efficient manner. Prior to working for Edelweiss, Rahul was heading the retail broking division of ABN AMRO India and ICICI Bank as Regional Product Manager – Broking.

In an interview with Zeebiz's Kshitij Anand, Jain said that he expects more than $15bn worth of IPOs to hit the markets this Samvat. The investors who would remain elusive from primary markets may miss out on the opportunities to invest in such companies. Edited Excerpts:

Q) What important message you want to give to your readers on Diwali 2021 pertaining to markets, investing and wealth creation or in general?

A) Between this Diwali and previous Diwali, few investment rules or tenets, if they were followed, would have put the investors in a very happy position. First and foremost, follow the asset allocation religiously.

This would help in taking logical investment decisions rather than falling into the trap of greed and fear. In the absence of a sound asset allocation strategy, investors try to time the market, and in a bull market of this sort where corrections are swift and few, a lot of opportunities are lost waiting on the sidelines.

Second, sticking to quality stocks and mutual funds helps in navigating the market volatility with ease as markets tend to reward the quality.

Last but not the least, it pays to review one’s portfolio periodically and weeding out the underperformers.

Q) What are your expectations from Samvat 2078?

A) In the last few years, Indian capex was on the lower side as demand was not good leading to a lower built up in capacity (capex) and consequential leading lower credit off-take in the corporate sector (corporate banking).

Just to put some perspective during FY11-15, the average CAPEX of top 500 companies was Rs 4.4 Trn, while in last 2 years (FY18-20), we have already achieved Rs 6.9 Trn capex. It’s a massive jump and should further continue.

We are hopeful of adding capex due to higher consumer demand. Retail demand in the form of personal loan and others was reasonable and will continue to grow.

We are bullish on the economy, and we believe that the market will continue its bull run. The current corporate numbers being report are showing improvement in demand, despite increase in raw material price, which eventually will stabilise.

Decade high EBITDA margins coupled with the highest ever conversion of Profits into operating cash flow would result in lighter B/S.

As most of the companies have substantially deleveraged its B/S over the last 2 years, their B/S is in great shape. Assuming similar Cash flow from operations and Debt repayments, we expect Rs 9 Tr free cash to be available for Capex in FY22 itself.
 
All these will lead to higher capex as is required by the Market in the form of higher demand.

Q) Which sectors are likely to hog the limelight in Samvat 2078?

A) Generally, when the markets revive, your NPA’s would get reduced and the credit cycle would also revive. This entire credit movement would be routed through the banking system.

Banking will be benefitted in the form of lowering of NPA and strong credit growth as is required.

Also, we believe real estate, as a sector that has not performed over the last 10 years (barring the last 1 year) due to higher prices of RE and higher interest rate, will also benefit.

However, in the current scenario, with the lowering of interest rate, the price of RE being stagnant for the last few years and salaries been increased in the last few years, we think the pent-up demand will lead to increase in demand and this sector would outperform in the next few years. We are already seeing higher demand in the last one year.

Q) It has been crazy SAMVAT 2077 – your big lessons for investors?

A) Make logical investment decisions, don’t fall prey to greed and fear. Avoid timing the market. Implement a smart asset allocation strategy.

There will be swift corrections in this bull market, but don’t let these factors side-line your opportunity to invest.

Q) On the IPO front – many big tickets IPOs are lined up in SAMVAT 2078. How is the IPO activity likely to pan out by next Diwali? What are you advise to your clients with respect to the flurry of IPOs hitting D-Street?

A) By the next Diwali, the market would provide investors an opportunity to invest in many new generation companies, new sectors, high growth companies and market creators.

We expect more than $15bn worth of IPOs to hit the markets this Samvat. The investors who would remain elusive from primary markets may miss on the opportunities to invest in such companies.

While primary issuances can be very lucrative for investors, but our advice always remains, that participants should always keep in mind their due diligence before investing in these companies.

 Like secondary markets, primary markets also have their share of good, bad and ugly companies. Investors should go through the red herring prospectus of the company available on SEBI’s website and understand the company’s business, growth prospects, risks, why is the company tapping the primary markets and so on, before making any decision.

Be it primary markets or secondary markets, the ground rule always remains the same – buy good companies with sound fundamentals at the right price.

Q) Retail investors have become active when it comes to supporting the market or in IPOs. How do you see this change? Although we have only seen a rising tide, what if the tide reverses?

A) It’s not that the retailers have become more active suddenly. If you compare the growth in the number of investors in the secondary market, the primary market witnessed a minor growth.

We believe that the retail participation in IPOs would further increase in the coming issuances, and we may see the number of applications crossing 40L in the upcoming IPOs.

The primary market generally booms in the bull markets when the companies are getting the best valuations.

Our thought process around this is consistent across market cycles – Investors should remain watchful of the companies that they are investing in and be wary of the valuations that a company is asking for.

If the investors are vigilant of these two factors, they will be safe even if the tide turns.

Q) ETFs have also become a popular way of parking money. How do you see this as an investment product for India investors? It is popular in the US and other countries?  

A) ETFs are becoming popular in India as well. So far, non-indexed based diversified funds could outperform the underlying benchmark easily.

However, as our markets mature and become more efficient due to widespread research and information flow and sharing, it is becoming increasingly difficult for fund managers to consistently outperform the benchmarks.

In such a scenario, index-based ETFs are a better alternative. Investors can be assured of returns similar to the underlying index. Moreover, ETFs are low cost and investors can buy it easily using their share trading account.

Q) What would you suggest to investors for SAMVAT 2078 on gold and investing overseas?

A) We believe gold will trend upwards, and always recommend 10% allocation to gold in one’s portfolio from the perspective of diversification. Gold ETFs and SGBs are the preferred ways to hold the precious metal.

It always pays to diversify and de-risk one’s portfolio and investing overseas can be one such approach. We recommend investors to selectively invest in international funds to benefit from the growth in the developed economies.

(Disclaimer: The views/suggestions/advice expressed here in this article are solely by investment experts. Zee Business suggests its readers to consult with their investment advisers before making any financial decision.)