There's a bit of froth as valuations are a little overbearing; our markets are definitely heated up: Anil Singhvi
The markets and corporate governance expert believes investors are not pricing risk appropriately and will lose big money. Here's why
This week, markets regulator Sebi set the cat among the pigeons when its chairperson, Madhabi Puri Buch, set off the alarm bells with a stark warning of a stock market bubble on account of frothy valuations in some pockets of the equity market. She red-flagged the danger of price manipulation across small and mid-cap stocks.
ICAN Investment Advisors founder and chairman Anil Singhvi, also a noted corporate governance veteran and the former managing director and CEO of Ambuja Cements, highlighted major risks for retail investors in current times of market exuberance. In a candid conversation on Forbes India Pathbreakers in January, Singhvi said, “Investors are not pricing risk appropriately, and they will lose. They’ll lose big money, no doubt about it.” In part two of the conversation Singhvi explains his concerns and lists the key risks retail investors need to be wary of in current times. Edited excerpts:
In times of exuberance: Investors beware
This is the first time I’m seeing that bank deposit rates are 8 percent plus, yet the hunger of the people, who are providing capital, is chasing larger returns without realising the risk. In my 40 years I have not seen that this—interest rates have gone up to 8 percent and yet fixed deposit is not fashionable and people want to participate in the equity market because, in the last three years, the equity markets have given the kind of returns that it is almost being taken for granted that “while buying equity, I'm not taking any risk”, which according to me is very wrong phenomena. I don't think that capital markets can run and can be bound for providing capital for all sorts of businesses and all sorts of characters, the right issues, and the IPOs. And look at the IPOs, when the IPO opens, it’s up some 2-3 times. You can't have that, there cannot be so much of a mispricing. In fact, often times you see, when the IPO is priced, it is also priced at a much higher rate. But when the market opens up and the IPO is listed, you see the prices have gone up even manifold thereafter. So definitely people are not pricing the risk appropriately, and they will lose. They'll lose big money, no doubt about it.IPOs: Three big risks for retail investors
First and foremost, the business in which you're putting in money. What are the business risks and challenges? Have you understood that? Second, the people who are running the business. And thirdly, are you providing the capital for growth or providing capital for retirement of the debt or taking out some other investors? Often time in IPOs, I see that the local and the not so informed investors are taking the informed investors out. I cannot, I cannot just visualise this, that an informed, very intelligent investor is selling their shares and a completely ill-informed and uninformed investor is buying their shares. That's what is happening. That is where my worry is that he's [retail investor] getting into completely unknown waters. He's wanting to swim, and he's going to drown for sure. I think the wise capital is slightly conservative and unwise capital is euphoric. The wise capital is getting out and unwise capital is getting in. So, I think markets are to that extent… we are creating a bit of a froth. The valuations are a little overbearing and definitely our markets are right now heated up.Also read: Price manipulation in SME IPOs? Sebi may soon tighten norms