Monsoon madness in market

There is no other way to describe the investor interest in current stock markets but to call it monsoon madness. Month to date FPIs pumped out Rs 819 crore while being net sellers from April onwards. DIIs, on the other hand, were net buyers to the tune of nearly forty thousand crores for the same period, and the staggering success of loss-making company IPOs like Zomato sealed retail interest.

IPOs (including Draft Red Herring Prospectuses) are hitting eye-popping mid-twenties with more on the cards, not in the least so-called mid-techs. Meanwhile, in a parallel universe, i.e., the start-up world, fintechs are gushing forth like it’s an early Diwali, multi-million dollar fundraising series xxx is passe.

Just in case these thirty-somethings generating billion-dollar paydays gets your goat, your neighbour, Mrs Sharma is incessantly bragging about to be hitting one stock pick after another for a six.

And all this euphoria even as India may be limping to normalcy.

On the other hand, countries from Israel to the US are wilting under the fourth wave with sputtering growth rates. Evil twins, hunger & inflation are running riot, and central banks (ours included) have said they are comfortable with inflation and high liquidity.

In this piece, we are not going to discuss why this dichotomy exists because the only explanation seems to be liquidity – brought on by last year’s credit restructuring mandates and President Biden’s trillion-dollar cheques. Instead, we’re going to look at what does matter and if it’s possible to weatherproof your money within prevailing equity market insanity.

Warren Buffet’s most quoted words were never truer - it is wise for investors to be “fearful when others are greedy, and greedy when others are fearful” – now everyone is greedy.

Volatility remains high-signalling restiveness, and erstwhile citadels of growth wiped out crores in the mid-market correction towards the end of last week. So, the question remains what is it investors should do? Looking at other parts of financial markets, most other asset classes have languished (except commodities). These include Gold, Real Assets, and Bonds.

With the Delta variant threatening to disrupt supply chains all over again with considerable impact on both economic recovery and consumption may need to look at booking profits (which leads to reinvestment risk) or to hedge.

For the ‘long-only (read those who stay away from shorting) it may well be worthwhile to start looking at real assets. In particular, yield generating real assets, which are at their nadir having suffered a double whammy in the form of WFH and general economic slowdown. These are currently available at attractive yields, and as the country heads into the economic recovery, are likely to result in substantial cap rate compression i.e., capital growth.

Currently, available are some real estate investment trusts as well as InVits. Investors are, however, strongly advised to be choosy about where they invest as all investments are not equal and all issuers are not capable. Somethings to watch for are firstly a separation between the manager and the erstwhile owner – if these two entities are related parties, there may not be much preventing the parent from influencing managers operations. Secondly, an experienced manager is of paramount importance while international experience or parentage is a significant advantage.

The pandemic is far from over, and we are yet to see years of disruption. So, mask up, maintain social distancing, avoid closed air-conditioned spaces and stick to your asset allocation.

P.S. The Ever Given is travelling back through the Suez Canal.

(The author is a Partner at Infinity Alternatives and you can find him on Twitter @anubhavary)