Mahantesh Sabarad on factors that fed IPO frenzy in 2020

By Nayantara Rai

FY21 remains quite exciting both for the primary as well as secondary markets because we will have quality coming to the fore for investors hunting for stocks, says Mahantesh Sabarad, Head, Retail Research, SBICAP Securities

The IPOs of 2020 have been scrumptious with the newest ones -- Burger King and Mrs Bector’s having been in the green. How is 2021 looking like for the primary markets? The government will soon come out with guidelines for start-ups listing, secondary listing, overseas listings.
The moot point here is that we have had an unexpectedly strong primary market and some of these companies that have been brought to the market have been high quality kind of companies or unique in terms of their presence because we have had companies which do not have comparable peers in the market.

Look at Route Mobile. It is in cloud services and there are very few listed entities which can be compared with Route Mobile. Some time ago, we had IRCTC which has a virtual monopoly in the space that they are in. And of course we have had companies like Burger King, Mrs Bector’s coming in. I would reckon these are quality companies that have been coming into the market and despite the Covid, the markets have been resilient. We can clearly see a V-shaped recovery when you look at the chart. This recovery comes from the fact that the economy has been quite resilient and that resilience comes from the fact that despite the dire consequences being painted in terms of the economy, lesser and lesser contractions are being forecast as we go forward.

FY21 therefore remains quite exciting both for the primary as well as secondary markets because we will have quality coming to the fore for investors hunting for stocks.

But right now, there is so much money chasing the equity markets that it is not necessarily all about the fundamentals. There was this conviction that several midcap darlings and stocks would actually start delisting, but that did not happen. Do you see the IPO continue in the New Year?
One point I would like to make here that the liquidity that we are seeing coming into the market is chasing only a few stocks and I will bring that to the point that I made about quality. You still have a lot of midcap, small cap stocks that have not yet come to their earlier peaks, though the Nifty and some of the other indices are also at all time highs. This clearly shows that the liquidity in the market is chasing only a few sets of stocks which they believe are either delivering quality or have a high potential for growth.

So we should not forget the fact that liquidity is not chasing low quality stocks, it is not chasing a Vodafone for example. It is chasing those companies where they believe the growth potential is very high and that is why the IPO market or the primary market is also booming because the kind of companies which are coming through the IPO route have no comparables and therefore they are unique or they have exceptionally high balance sheet strength and comfortable growth ahead. Chemcon is one of them. It is going to triple its growth in terms of sales. So liquidity is reaching for quality and that is why we are seeing that the majority of the quality companies within the larger index are moving up.