DAILY VOICE | Too many IPOs squeeze out liquidity from market causing correction: Umesh Mehta of Samco

When too many companies line up for IPOs, the liquidity is squeezed out of the market causing major corrections, Umesh Mehta, Head of Research, Samco Group, said in an interview with Moneycontrol’s Kshitij Anand.

Edited excerpts:

Q) Nifty traded mostly in the green in the week gone by and managed to hold on to 11450-11500 levels. What led to the price action on D-Street?

A) The Nifty’s positive momentum during the week can be mainly attributed to the strong buying in the pharma and IT sectors. While they kept the markets buoyant, Bank Nifty remained weak and fell by 2 percent this week.

The Mid and small caps witnessed a renewed buying interest, courtesy SEBI circular. SEBI’s move was to streamline the multi-cap fund category to allocate at least 25 percent to large, mid, and small caps each by February 2021.

And, this succinctly paved the way for this sharp and abrupt buying interest in quality small & midcap businesses.

Q) Which are the important levels that one should track in the coming week amid monthly F&O expiry on September 24?

A) For the entire week, the Nifty traded in a very narrow range. On an immediate basis, levels of 11350 and 11600 have become crucial levels for the coming week.

The index is failing to gain bullish momentum as it is lacking participation from the banking and financial space.

Traders should remain cautious going ahead as any break below 11350 could accelerate the selling pressure that could push the index towards 11000 levels.

Q) What are your view on the upcoming IPO which are scheduled for the week – CAMS, Angel Broking, and Chemcon?

A) After the success of recent IPOs in India such as Rossari Biotech, Happiest Mind Technologies and Snowflake in the US - the upcoming pipeline is also expected to witness a decent response looking at the grey market premiums.

Anecdotally, when such IPOs hit D-Street, the trading mindset of investors makes them subscribe and exit on the listing day itself instead of sticking with the company for longer.

Such profits further increase risk-taking appetite both in primary and secondary markets causing bullish sentiments and when too many companies line up for IPOs, the liquidity is squeezed out of the market causing major corrections.

A) The bullish sentiment in small and mid-caps this week was definitely courtesy SEBI’s latest circular for multi-cap funds. Also, these mid and small-cap companies have underperformed the last entire year and there is definitely value in some specific pockets in certain sectors.

Seeing the rush of inflows it cannot be determined for certain that all of it is the smart money, there could be speculators in it as well given the latest circular.

However, if the up move sustains then the credit can go to smart money and value buying from investors.

Q) In terms of sectors – IT and Healthcare were the top two sectors – is it the currency factor which is adding to the tailwind?

A) IT and Pharma stocks are in limelight with strong growth outlook for the next 2-3 years. IT companies have seen business recovery as clients have resumed investments in technology to drive their business, which has become even more essential due to the pandemic.

On the other hand, Indian Pharma companies are well placed to take on several opportunities arising due to drug shortages and reduced regulatory issues.

The currency factor is one of the tailwinds for both these sectors but it isn’t the only factor. Both these sectors are in a bull run and the industry is expected to grow materially over the next 3 years.

Q) Any short term trading ideas for the coming week?

A) Inventors are advised to follow a stock-specific approach by skewing their portfolio towards strong momentum sectors like Pharma and IT while investors can wait for a correction.

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