India is headed for a record amount of money to be raised in IPOs this year. And while it shows positive signals for the country’s economic growth prospects, it has still failed to amuse one of the top financial services firm UBS Research, which thinks Indian equity markets are trading fairly above their fair market value.
“It’s a great year, specifically in the context of the last 4-5 years. The year-on-year numbers look good and the absolute dollar amount also looks quite good,” Gautam Chhaochharia, Head of India Research, UBS, said in an interview to Bloomberg television today, referring to the amount of money the companies are expected to raise this year through initial public offers for sale of shares. However, Gautam Chhaochharia was quick to point out that it’s still not same pace and scale if you look at it as percentage of market cap, percentage of flows and percentage of GDP, as we saw in 2007, or in 2010.
A Bloomberg news report quoted ICICI Securities’ Investment Banking Head Ajay Saraf as saying that total fundraising via IPOs could rise to Rs 50,000 crore this year. The previous record is Rs 36,300 crore worth of IPO money raised in the year 2010, the Bloomberg news report said. This year has seen high profile IPOs such as that of BSE Ltd — the first stock exchange to get listed in India — HUDCO, Cochin Shipyard, CDSL, D-Mart, among others. Going further, five insurance companies are expected to collectively raise up to Rs 40,000 crore before the end of 2017.
UBS Research’s Gautam Chhaochharia says that the record IPOs this year is positive for the economy, as this is the way the financial markets feed into the real economy. “Any capital raising is an early sign and a welcome sign for growth outlook for longer term,” Gautam Chhaochharia said in the interview.
However, at the same time, he said that, from the near term perspective of the next one year, Indian stock markets look overvalued, and are not reflecting the Indian economy and its fundamentals. “The risk-reward at these levels is definitely unattractive,” Gautam Chhaochharia said, adding, “Our fair value for the market implies a downside of about 10% from the current levels.” Further, he said that Indian stock markets could see earnings disappointment and macro growth recovery disappointment. “That view has not changed and we will see that continuing for the next 6-12 months,” he added.
Indian stock markets have rallied of late, with the benchmark indices surging as much as over 17% so far this year. While this has brought some cheer to the market participants, it has also led to some concerns over valuations and sustainability of the gains in the near term.