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Market outlook: IPO party is far from over! But Nifty shows weaknesses

Last week Indian stocks started weakly reflecting nervous global signals, but profit bookings didn’t last long as sentiment reversed in the second half of the week. Aside from excessive valuations and concerns about inflation, the street was all about IPOs and how subscription levels hit the roof despite inappropriately valued certain companies.

“Carpe diem” seems to be the investor’s motto. It is amusing, however, that bank and financial institution stocks have shown the same, if not greater, interest in the primary market than retail customers in the recent past. The fact is, they nearly doubled their IPO investments and we’re only halfway through the year! In 2021, their investments in primary issues have so far reached a four-year high.

The story doesn’t end there. The PFRDA is considering allowing pension funds to expand their investment spectrum in order to invest in suitable initial public offerings and similar primary issues using certain predefined criteria. This has certainly shown that the IPO party is far from over, at a time when the economy is flooded with liquidity and the “mother” of all IPOs is yet to come.

With huge investments in young unicorns and interest in initial public offerings, India appears to be moving towards a private market platform soon, just like US Nasdaq Private Market, the platform for pre-IPO stock trading and private equity transactions . Now this market in the US requires investors to meet certain wealth criteria. Hence, it may be a while before this idea appeals to the masses of our country who are currently trading pre-IPO stocks in the gray market. But there is no doubt that we are moving in that direction.

Event of the week
While first quarter results are underway, some leading financial firms have suffered a slowdown in performance due to an increase in bad assets and provisions. What investors should be aware of is that the weaker, smaller players will definitely have a hard time being stronger on the other side unless the leaders of the banking and NBFC space are spared the effects of the second wave of Covid. These developments were the result of the lifting of the moratorium period.

If no third wave appears, at least the Largecap pack may not have any significant pain. A third wave can at best delay its growth, but it will certainly not derail it completely. Therefore, when making corrections, investors should only target the fundamentally stronger financial companies.

Technical outlook

Nifty50 ended the week in the red. However, it is still in the consolidation area. It remained quite volatile throughout the week, testing the crucial support at 15,650 to bounce back quickly. Bank Nifty also found a cushion at the 34,300 level. The market breadth is showing bullish signs, but trading volumes are drying up. Many European indices and emerging market indices are underperforming or have recently hit a deeper low. The outlook remains bullish as long as we trade above the 15,600 level. Any break below the mentioned support signals weakness in the short term.

Expectations of the week

IPOs will continue to be the highlight of the market in the coming week, with two new issues hitting the streets. Bank Nifty could remain in focus as private banks release their quarterly results. The FOMC is expected to meet in the US and all eyes will be on its loan schedule and guidance on future interest rates.

Indian stock exchanges will take all of these factors into account and make headlines on news. Traders should be extremely calculated in their moves, while investors should stick with their quality portfolio. Nifty50 closed the week at 15,856, down 0.42%.

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