Russia’s invasion of Ukraine has spoiled the sentiment of the stock market. Rakesh Singh, CEO, Fisdom Stock Broking says, “Given the government’s stand on LIC and the way it has committed to launch its IPO within this financial year, this is likely to happen.” It is not enough to postpone LIC’s IPO.”
However, he also said that if the IPO is launched as planned, he believes that it may face a lot of difficulties in the market. According to various media reports, LIC can launch its IPO in the second week of March.
FIIs have made net sales of Rs 1.8 lakh crore in the last 5 months. Rakesh Singh, who has over two decades of experience in banking and wealth management, said the Russia-Ukraine crisis could become a catalyst and further accelerate the sell-off by foreign investors.
Here are edited excerpts from Moneycontrol’s conversation with Rakesh Singh:
Russia has invaded Ukraine. Do you think the sanctions imposed on Russia by Western countries and select Asian countries could have any effect?
No one can say what effect these restrictions will have on geopolitical tensions. But it is certain that these restrictions will have an adverse effect on global trade and its associated economy. These restrictions can be expected to have far-reaching effects, the impact of which will also reach key areas of India.
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Amidst these geopolitical tensions, oil prices have crossed the $100 per barrel mark. Do you expect it to go up to $120 a barrel soon and can RBI revise its inflation and GDP growth rate estimates due to this?
Looking at the way things are going, the possibility of further hike in oil prices cannot be ruled out. If the nuclear deal with Iran fails and OPEC countries refuse to increase production, oil shortages will worsen and global crude prices will rise further.
Do you expect a sharp increase in fuel prices in India after the assembly elections?
Whether the government will pass on the increase in crude oil prices to consumers or it will bear some of the burden by reducing taxes, it all depends on many factors related to both politics and economy. At the moment I have very little information about this. However, it is expected that the government will bear most of the increase and pass the minor burden on to the consumers.
Given these geopolitical tensions, do you think the Federal Reserve will tighten its monetary policy this year?
Given the current situation, it is not correct to expect that the Federal Reserve will postpone the plan to hike interest rates. It would be more reasonable to expect that the cycle of interest rate hikes would resume, albeit at a slightly slower pace than before. For example, earlier the Federal Reserve was expected to increase interest rates by 0.50 percent. However, only 0.25 per cent increase is expected under the current circumstances.
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The corona epidemic has caused a lot of damage to the economy for the last two years. Do you think Ukraine-Russia tensions now will be a major deterrent to global growth this year?
Many segments of the global economy are yet to recover from the impact of the pandemic. The Ukraine-Russia crisis is certainly not helping the global economic recovery agenda. The early effects of this tension have already been seen in markets around the world. How much impact it will have on the growth of the global economy now will depend on how the US and NATO forces react and what level of sanctions they impose. Global growth prospects have not been completely derailed, but will face challenges from time to time.
When there is a correction or heavy volatility in the market, midcap and smallcap stocks suffer more as compared to largecap. Still the same thing is happening. So, should one be cautious while investing in smallcaps and midcaps and stick to largecaps?
Companies with weak business, financial health and fundamentals are more vulnerable to major events such as the Russia-Ukraine crisis. Such large events force investors to reduce their risk. As a result, low-risk investments tend to withdraw money at a lower rate, but higher-risk investments tend to withdraw money much faster. This generally gives the impression that small and midcaps are more volatile than largecaps.
Do you see the mood of FIIs improving in the coming 3-6 months as they have net sales of over Rs 1.7 lakh crore since October 2021?
Foreign investment tends to come out faster than it is when the economy is adversely positioned and there is geopolitical risk. The Russia-Ukraine crisis has acted as a catalyst, which can be expected to increase selling by foreign investors. However, as the situation calms down, foreign capital can be expected to come back into the Indian markets.
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Which sectors are looking attractive for investment after the current fall in the market and why?
The Indian IT sector is at the beginning of a long-term expansion cycle and is expected to witness strong earnings growth in the coming quarters. Pharmaceuticals is another sector with many companies with strong fundamentals and growth potential. Both these sectors can be seen as a safe bet for a long time. However, at the same time, there is reason to believe that they will play a bigger role as growth contributors in the times to come.
The government has not yet postponed the launch of LIC IPO. Do you think the market collapse due to Ukraine-Russia tensions could be the reason for the delay in the IPO?
Given the way the government has committed to launch LIC’s IPO within this financial year, the chances of its postponement are slim. However, if the IPO is launched as per the plan, it may face a lot of difficulties in the market. I am sure the government will consider all options and consider all risks before going ahead with the IPO. As of now, there is no information other than the IPO expected to be postponed.
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