The fall was because the market probably thought that the budget revenue estimates were too aggressive. And secondly, it fell because of the perceived tax on foreign portfolio investors.
Other than the recent Budget announcements, Shankar Sharma, VC and joint MD at First Global, believes that markets have been concerned about the general slowdown in economic and corporate profit growth. In an interview with Bharadwaj Sharma, he says large companies are lacking conviction to make capital investments. Excerpts:
The recent fall in the market is correction or is the market reading something more?
The fall was because the market probably thought that the budget revenue estimates were too aggressive. And secondly, it fell because of the perceived tax on foreign portfolio investors. Further, the market has any way been concerned about the general slowdown in economic and corporate profit growth. So, it was looking for an excuse to fall.
What is your take on the Budget proposals with regard to raising the public float of listed companies to 35%? Do you think it’s a good idea as the top BSE 500 companies alone would need to sell shares worth Rs 3.17 trillion to meet the proposed public float norm?
I don’t have a very firm opinion on this. I do not think this move is necessary, but there might be something with the finance ministry that I am not privy to. Let’s see whether it actually is approved by the regulator.
When it comes to IPOs, close to half of newly-listed companies have failed to give positive returns and are trading below their issue price. What is the outlook for fresh issues?
I am generally against IPOs. This is because the good ones are already over priced when they hit the market. Hence, they usually have a very long period of under-performance after their going public. The data you are mentioning is absolutely normal for new issuances of equity. This is the way it usually happens unfortunately.
Can India benefit from the trade war? The government proposes to infuse Rs 70,000 crore into PSU banks. Do you think PSU banks will be the biggest beneficiaries of the Budget?
I think India can usually benefit from the trade war if it moves fast enough to capture the shift in global capacities that is going to happen on account of manufacturing shifting from China to other countries. In my opinion, this is a golden opportunity for India. Regarding the decision to infuse capital into public sector banks, I think this is a good move but we have seen similar such moves and announcements in the past. I don’t think it is merely a problem of capital. I think it is more a problem of confidence or the lack of it. Growth in an economy is dependent on how confident people are with borrowers and lenders alike. Speaking to many companies, I get a sense that business people are lacking conviction to make large capital investments. Without risk taking, we cannot get economic growth. The government must encourage risk taking even if it means that mistakes are made.
FPI flows have been falling since last two months. Moreover, they have sold Rs 3,710-crore worth equities since the beginning of this month. Is this likely to continue?
I have no opinion on foreign portfolio investment flows as this is a very very volatile figure and changes practically everyday.
As buybacks get taxed, do you think now companies, especially IT companies, will shift to dividends?
Absolutely, this is going to happen. One of the good effects of buyback is that it would reduce floating stock and there by exert upward pressure on stock prices. The trend will shift away from making stock repurchases.
What is your outlook on the equity market for the rest of 2019? What are the key domestic risks to Indian markets post Budget announcement?
I think there will be no major gains from equity markets for the remaining of the year. At the very best, we can expect some individual stock-related gains and some small cap sectors to do well. But I seriously doubt that we are going to get a broad bull market anytime soon.