Excess liquidity driving IPO frenzy: Deepak Shenoy

As long as liquidity remains, markets are going to be a little astounding but pretty much upward, says Deepak Shenoy, Founder, Capital Mind.

Equity markets are certainly very hot right now. Is it all about fundamentals and company specific or should we look at the larger trend?
I may be speaking just for myself here but I do not think fundamentals are really the driving force. It is a lot of money that has been printed which has to find a place to be. If you think about how it has trickled down even to us. we have not been able to spend money on the stuff that we normally otherwise spend on travel, restaurants, malls. A lot of that money is just going to get saved. But you cannot save it anywhere that gives you additional returns because fixed deposit rates have fallen to 4.5% and even liquid funds are giving 3.5%. So where does the money go? It goes to equities. It is happening worldwide and that is why money chases anything that has a pulse. Sometimes, even if it does not have a pulse. Jet Airways goes up in these times. I really think it is the function of liquidity and as long as liquidity remains, markets are going to be a little astounding but pretty much upward.

Are you expecting the IPO frenzy to continue in 2021?
Liquidity is strong. What we saw in the frenzies of 2007 and perhaps 1999 is that sometimes stocks run up too much. There was a set of stocks in the US in 1974 or 1973 which everybody considered the 50 best stocks. They contain names that are now bankrupt but at that time nobody thought that they would ever go down. In two years they were down 80% and these are the names that you probably will know now as large pharma names in the US and so on.

So sometimes things change dramatically and perhaps valuations also change but right now when liquidity is swarming the world, the US is going to print about $2.8 trillion next year. Out of that, even if 1% were to find its way to India -- that is $28 billion -- that is more than roughly 200,000 crore. It is three times the amount of money that FIIs took away in March and caused a 30% drop. I do not believe that this wave of liquidity is stopping anytime soon. I do not know what will happen to take it away but until that happens, I will say that this rally will sustain.

I do not know whether it will always remain with the stocks we have or the new IPOs will come but some of these IPOs are so small -- Rs 200 crore, Rs 400 crore and retail will always want a piece of these and they will go up 100x or 50x and will be wildly successful. Until liquidity remains, the desire for the new company will always be attractive.