The IPO market is roaring. The Indian primary market is heading towards the highest money collected in any financial year if this pace continues. As per Prime Database, Rs. 37,000 crore has been raised in the first four months of the current year compared to Rs 74,000 crore raised in the FY21. The highest ever collected amount is Rs 99,000 crore in FY2018. But the pipeline of IPO is very strong and big daddy LIC is likely to hit the market by the last quarter of FY2022. This could make it the best year for IPO.

But what deserves a special mention is Zomato IPO that raised Rs 9,400 crore and set the standard for other new tech companies to tap the market. When Zomato came out with an IPO, there was debate about its pricing and rich valuations. Once Zomato was listed at a substantial premium, arguments vanished, and now research reports suggest further upside. Zomato IPO is the paradigm shift for the Indian stock market to evaluate the company. The market is willing to pay a rich premium irrespective of losses, provided the company can grow.

Zomato success encourages other tech lead companies like Poilcybazaar, Nykaa, Paytm, Mobikwik, Fino Payments and CarTrade to come out with an IPO. In the next 3-5 years, some of these companies would be part of the Sensex and Nifty. This is going to reduce the weightage of the old economy stocks in the main indices. Zomato success is transforming the new investment style.

Buyers Beware
But the way the number of IPOs are coming and the valuation they are commanding gives a feeling that there is excess in the IPO market. Companies are asking for rich premiums and post listing moving further up. The last couple of IPOs like Tatva Chintan, G R Infra Projects and Chintan Science are trading at least 70 per cent premium to their offer price. This does suggest that there is excess in the IPO market. Based on the past trend, this kind of trend can’t sustain. I strongly recommend that you may decide to exit whenever you are making good gains on the IPO. You may get enough opportunities to buy the same at the lower levels.

June results-input cost pressure
Many prominent companies have declared their June numbers. Companies who did not meet the expectation they were hammered. A good one has been equally appreciated, like Sun Pharma. But this quarter is a very peculiar one. One can’t compare with YOY (June 2020) as most of the country was under lockdown last June, impacting financials severally. We can’t compare with QoQ as March is normally a strong quarter among all four quarters. June 2021 had its share of problems due to the second wave, forcing many states to announce local lockdown.
One common theme is that many companies in the June quarter did see an impact on the margins as input cost went up, but they could not pass on the price hike to the end customers.
Despite margin pressures, most companies project a brighter outlook, giving much more comfort to the stock market.
Commodity companies are having an extremely good time, be it steel, cement or textiles. They are all reporting very good numbers.

Valuations are rich
Based on the results that have been declared Indian stock market continues to trade at a premium to its historical valuation. TTM price to earnings is at rich 30x. Everyone hopes that the next three-quarters of India Inc would be extremely strong and could push down valuations. FPIs have been selling on the Indian market, while DIIs have the highest money in July for 2021. Retail investors love this rally, and hence they are parking more and more funds to the equity, helping the market to surge.

Monsoon to be normal
After a lull in the first half of July, Monsoon is picking up pace. A revised estimate from IMD for August and September suggests that the monsoon would be a positive side of the normal. This could help the rural economy that did see the impact of Covid. A strong rural economy helps India Inc to report strong growth. The government of India is also aware that we need a strong rural economy, hence putting more money through MNREGA and higher MSP price. Good monsoon also helps in stemming inflation.

Metal sector back in the limelight
July was another month where Indices continued its upward journey. Mid and small caps continued to be the favourite of the retail investors as many of them touched 52 weeks high. But star performer was the metal sector. Most of the metal companies did extremely well in July. In 2021 Metal has emerged as the best performing sector while Banks and Finance are struggling to gain investors attention. IT is another sector attracting investors confidence as commentary from almost all major IT companies is extremely positive. The banking sector is worried as many banks have seen their NPAs rising, especially on the retail side. Two quarters in a row NPAs level of the banks are on the rise making the sector less favourite among the investors.

Watch out for Cement and IT sectors.
As I mentioned in the past, there are few pockets where bubbles are being formed. But the overall market continues to remain in the bull zone. Hence instead of taking money out of the market, I would recommend remaining stock specific. This market continues to offer good opportunities, provided you have a minimum 3-5 years time horizon. There are a couple of sectors that look promising based on the results are IT and cement. We have plenty of Mojo stocks from these two sectors and other sectors too. You can pick and chose mojo stocks as per your preferences.