DAILY VOICE | Recent IPO activity points to ample liquidity, investor sentiment: Prasanna Pathak of Taurus MF

© Kshitij Anand
DAILY VOICE | Recent IPO activity points to ample liquidity, investor sentiment: Prasanna Pathak of Taurus MF

The type of responses that we have seen in recent IPOs point towards not only ample liquidity in the system but more importantly towards investor sentiment, Prasanna Pathak, Head of Equity, Taurus Mutual Fund, said in an interview with Moneycontrol’s Kshitij Anand.

Edited excerpts:

Q) US Fed plans to keep interest rates low for a long time. What is the kind of impact it will have on emerging markets like India as well as the currency?

A) The plan to keep the interest rates low for a long time, indicates that the US Fed is skeptical of demand revival in the economy and hence the revival of inflation in the short to medium term.

Though this does point to a weak economic recovery. The low-interest rates coupled with the central bank’s balance-sheet expansion augurs well for the global liquidity.

Also, the weakening of the dollar index, as seen recently, is generally good for commodities and emerging economies like India in terms of flows.

However, one must be mindful that the extravaganza of lower interest rates coupled with monetary and fiscal expansion cannot continue for long. It has to reverse at some point. The question is when!

Q) It looks like it is raining IPOs — we saw bumper responses for both Route Mobile as well as Happiest Minds. There are many more IPOs lined up such as Angel Broking, CAMS etc. Does it look like the lull of IPOs is ending? What are your views? Any IPO which you are particularly excited about?

A) There was already a long list of IPO’s lined up prior to the March 2020 crash. It has taken, 5-6 months for investor sentiments to revive.

Hence, the stuck IPO’s as well as fresh ones are now coming out together to take advantage of the improved sentiments.

The type of responses that we have seen in recent IPO’s points towards not only ample liquidity in the system but more importantly investor sentiments.  Hence, investors must prefer to be cautious and very selective.

Though I am not a big IPO fan, it does sometimes provide fresh avenues/ sectors for investments.

Q)  Market seems to be walking on a tight rose as geopolitical concerns as well as COVID-19 cases are not coming down, but yes there is some hope of a vaccine but that too is still some months away. Are we nearing the peak – we could have a touch and go moment with 12K and then fall?

A) Despite the poor macros and significant earnings drop, we are within 10 percent of the pre-COVID highs. Even the pre-COVID highs were questionable based on earnings and macros.

Thanks to the surge in global liquidity, balance-sheet expansion by central banks and stimulus measures by governments.

Since the markets tend to discount the future, it can be argued that Mr. Market is expecting a quick earnings revival, speedy approvals for vaccines, and strong global liquidity.

So, it will be interesting to see how things pan out in the next 3-6 months. The markets are ignoring many negative news and risks recently. But then, like it is said – ‘In the short-run, the Market Is a Voting Machine, but in the long-run, a Market Is a Weighing Machine’.

Q) One space which will still remain popular even if Sensex, and Nifty falls and that would be small & midcaps. Do you think the smart money or has it already started rotating towards quality small & midcaps? Any stocks that are on your radar?

A) The midcap/small-cap stocks were in a bear phase since Jan. 2018. The midcap/ small-cap stocks seem to have come out of the bear phase.  They have started outperforming large-cap peers.

So, in that sense, one may say that money has started rotating in the mid-cap/small-cap space. The recent changes by SEBI regarding the Multicap category of Mutual Funds should ensure further flows in these categories at-least in the short to medium term. Stocks in sectors like IT, Pharma, Chemicals, and Agriculture looks interesting

Q) The 50% rally in the Sensex, and Nifty was largely led by roughly 10 stocks while the rest of the market suffered and that is why there was no jubilation among the investment community. Now, when the tide reverses could these stocks face selling pressure and investors should at best book profits? What are your views?

A) It is difficult to say if the large-cap stocks will reverse the trend. However, there is a possibility that they may underperform vis-à-vis small/midcap stocks in the short to medium term.

Q) So we keep on talking about quality small & midcaps. How do you define quality?

A) The definition will vary from person to person and the purpose. For us, from a stock selection perspective, quality stock is a stock with a large opportunity size, leadership positioning, growth visibility, management bandwidth/execution capability, balance-sheet strength, ability to generate cash-flows, good corporate governance and reasonable valuations.

Q)  Warren Buffett, the man who pioneered buy and hold investing, just made quite a fast billion bucks from a type of investment he once mocked. It looks like value investing is also changing with time and Warren Buffett is leading it even at the age of 90. What are your views?    

A) Things are changing at a fast pace. Technology is a big disruptor. The industry dynamics, the supply-chain, service-delivery model, and consumer habits and preferences are fast evolving.

Technology has become a big enabler for the same.  The recent pandemic seems to have drastically accelerated the process.  Amazon, Google, Facebook, Netflix, Apple success stories reinforce the new paradigm:  1) that technology is a big disruptor as well as an enabler and 2) that winner takes it all.

In the new age of technology, markets tend to quickly become monopolistic/ duopolistic. Hence, in an industry with big opportunity size, investors have recently started looking more at market-share gains rather than cash-flows. Mr. Buffett’s recent investment needs to be looked into this context.

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