Investors would do well studying IPOs independently without giving too much importance to the grey market premium or the buzz in the recently listed IPOs, said Dhiraj Relli, MD & CEO at HDFC Securities. In an interview with Amit Mudgill of BT Markets, Relli said while the possibility of an year-end rally has reduced, one cannot ruled out such outcome. Excerpts:-
First, we saw the IPO euphoria earlier this year. Now, we are into a phase of mid and smallcap rally. Many a time such rallies are seen at the fag-end of a bull run. Is this time different? If yes, then how?
Midcap and smallcap stocks start to do well in the mid-to-late stage of a bull rally. And the IPO market also revives in the same period as investors make good money on listing of previous IPOs and non allottees have a left out feeling even as the grey market becomes hyper active.
In a year when elections are due in the next two-odd quarters, one is not sure as to whether the bull market has already ended. Going by history, markets peaks about a year after the elections.
Investors will do well to study the IPOs independently without giving too much importance to the grey market premium or the buzz in the recently listed IPOs. They should be ready to hold on to the stocks if they don’t give enough returns on listing or list at a discount after getting enough comfort on their medium term prospects.
As far as small and midcap stocks are concerned, investors would do well to do a risk assessment of themselves, decide on allocation percent between large, mid and smallcap stocks and keep doing review/reallocation between these at intervals.
US Fed's 'transitory' inflation narrative did not pan out. Should one read too much into 'higher for longer' narrative? What to you lies ahead as far as Fed rates are concerned and how should investors read it?
Post the outcome of the latest US Fed meet, the Street has got a feel of rates remaining higher for longer as inflation proves to be more stubborn and employment remains stronger than expected. With the latest conflict in the Middle east, crude oil prices and prices of other agri and industrial raw materials may not soften in a hurry.
Post the blowout US jobs report for September, implied yields on contracts tied to the Fed policy rate point to a nearly 50 per cent chance the Fed will lift the benchmark short-term borrowing rate a quarter of a percentage point to the 5.50-5.75 per cent range at its December meeting. Before the jobs report, traders had given a quarter-point rate hike then about a 34 per cent chance. The US Fed could hence keep the rates higher for longer. The Fed rates could stay above 5 per cent, at least for the next three quarters. The current consensus view is that there could be 1-2 rate cuts by end of 2024. Inflation is likely to return to 2 per cent on a sustained basis only by around early or mid-2025.
Crude oil prices are a bit volatile these days. While it is rising on expected lines, could it fuel inflation in India (some relief likely ahead of elections)? How will it impact domestic equities?
India is the world's third-largest importer of crude oil. When oil prices soar, it often leads to higher prices for everything that can trigger inflation and slow down economic growth. It may also lead to prolonged elevated interest rates. Many sectors are already under pressure due to the rising energy costs. Apart from prices, if supply itself comes under pressure, it could be even more negative. In view of the forthcoming elections, final prices of fuels (petrol, diesel etc) may not be revised upwards despite the rise in crude oil prices. To that extent, the impact on inflation may be contained.
Indian markets logically could get negatively impacted by high and rising crude oil prices due to its effect on inflation, and trade deficit. However this effect may not play out on its own. The recent conflict in the Middle East and/or unsatisfactory outcome of forthcoming state elections could compound the negative effect.
Where do you see markets ahead of general elections 2024? There were earlier hopes that one could see a rally in the second half of 2023. Given where we are, at present, do you see such hopes waning?
In a year preceding the elections, Indian markets have done well in 12 months preceding and 12 months following the elections based on data of last 7 elections. While the possibility of a rally in the balance period of 2023 has reduced, one cannot rule this out completely. A relief on the horizon in any one or two issues bothering the markets currently could result in a relief rally.
Many sectors and themes, which were once seen as value plays, have witnessed a solid rally -- PSUs for example. Where do you find value in this market now?
We are still comfortable with the PSU space given the changes seen in their working and performance (including bulging order books). Valuation of some of them may have risen and got ahead of time, but SIP buying or buy-on-dips may still be attempted in select PSU stocks.
Metal and oil & gas space keep throwing value opportunities from time to time and can prove to be a good space to play tactically.
Do you find largecap stocks relatively better placed than midcap and smallcap stocks? What should be the investing strategy?
Having seen a good run up in small and midcap stocks over the past few weeks, logically largecaps may be a little more attractive than the small and midcap stocks which may have become more expensive compared to their historical valuation.
However rather than segmenting stocks as large, mid and smallcaps, one can also look at stock specific approach from time to time and avoid the market cap bias. Developments in these companies may make a largecap avoidable in today’s time while select small/midcap stocks may still be attractive and vice versa. However based on the risk appetite of the investors, a cap may be put on holdings in small and midcap stocks.
Stock exchanges are reportedly mulling increasing stock exchange timings. What is your view?
For a start, the extended hours may be permitted only for F&O trades in indices, while F&O trades in single stocks and cash trades may be taken up later. This step could lead to higher volumes for exchanges and brokers and greater flexibility for investors/traders to trade/hedge their positions based on the direction of trades in the Europe/US markets in the later part of the day which currently has some delayed impact on Indian market. This may lead to lower impact of gap up/gap down openings for traders which has so far been prevalent in India to an extent.
You have recently announced a discount broking app SKY. How has been the initial response? What are you initial targets with regards to the new platform?
The initial response to our newly launched all-in-one Fintech app, HDFC SKY, has been overwhelming. To provide some context on our early progress, we'd like to highlight that the number of customers on-boarding HDFC SKY has experienced a fourfold increase, growing from 400 to 1,600. Additionally, the app has been downloaded over 500,000 times. Our conversion rate has also seen significant improvement, rising from 11 per cent to 26 per cent.
As for our initial targets regarding SKY, they are in line with our broader business plan and objectives. With these promising early results, our focus will likely shift towards continued expansion, user retention, and potentially diversifying the range of services and features offered through the app.
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