Hold your investments till market stabilises

For investors looking to bet on equities through the primary markets, rights issues would be the best route, feels Sanjay Sharma, MD ECM, Deutsche Equities India. In conversation with ET, Mr Sharma said sentiment for initial public offerings was unlikely to revive anytime soon, as investors do not even have the confidence to wait through the time taken for the listing of shares.




In the current environment, do you see any appetite for new issues?

No. Given the ongoing volatility in the market, investors would clearly prefer an option to enter and exit on a regular basis, rather than enter into something and wait for a week or so for it to start trading. If it is an international offering, one needs to wait for a week for the listing of shares, and if it is a domestic offering it may take anywhere between three and four weeks. Given the nervousness in markets around the world, nobody wants to take that risk. The approach of investors is more of a stock-specific call rather than sectoral, index-based or geography. There is cash waiting on the sidelines. And while it may not generate any returns, investors will prefer to sit on it till they see some signs of stability.

Are companies taking a relook at their investment plans?

Yes, in a way. If it is a large company, they are looking at alternate options like rights issuances, where price is not much of an issue. Companies that had large capex plans, are now looking to finance those through the debt route. Then again, in today���s market, even debt is not cheap. In most cases people are comfortable deferring their fund-raising plans, if it does not significantly affect their growth targets. Maybe towards the end of the year there should be some stability. A lot also depends on how the political situation pans out.

What about QIPs, have corporates completely stopped looking at this avenue?

In fact, an ideal product for raising funds in uncertain market conditions is QIP. But given that the Sebi minimum price is based on historic average which in falling markets would be higher than the ruling market price, investors are unlikely to look at this product in the current scenario. In the past, QIPs announced by corporates, on an average Sebi minimum price have traded about 25%-50% over the current market price. Why would somebody want to subscribe to a QIP when he would get the stock much cheaper in the secondary market?

Looking ahead, when do you see a revival in sentiment for public offerings?

Even if some companies are open to looking at the market when current valuations are skinny, I still think volatility is too high. My advice to corporates is to be ready with your plans so you can tap the market whenever it stabilises. The next step comes whether the issuer is willing to dilute at the level where it stabilises. I see some amount of stability by end of this year.

What would your advice be to the common investor?

Wait for the market to stabilise, unless you are getting something really cheap. There is no concept of listing gains now. If you want to look at an equity play, I would say secondary markets is better than primary, where at least you can track your investment. Also if you feel you have made a mistake you can minimise losses unlike the primary market where you necessarily need to take a lock-in period. But remember even then it should be stock-specific and with a long-term view.

What are the investment avenues one could look at in this market?

Rights issuances are good in this market, as no particular investor segment is getting diluted. It is irrelevant talking about pricing in a rights issue. At any price it makes sense. If you don���t get into the issue of Sebi minimum price, than QIPs are a very good bet. Another thing that makes sense is convertibles as well as private placements. Convertibles are like a QIP, but since it is at a premium you can take into account the Sebi minimum price. But the bottleneck there is the availability of credit. For convert is a debt and an equity instrument put together. On the equity side it makes sense as you have higher volatility, higher option value while on the debt side, it is getting difficult. So it makes sense to do a convertible debenture.