Coming flood of new shares sparks worries of market fall

The stock market is set to face a bout of share supply, at a time of relentless foreign investor selling and persisting concerns around lofty valuations and tariffs.

- Dipti Sharma

The flood of new shares from mega maiden offers, government divestments and selling by promoters and private equity firms—has some market experts worried about whether institutional investors shifting attention to new shares will trigger a market correction.

"Sure, there is an abundant supply of equity," says Pranav Haldea, managing director of PRIME Database Group. Just in initial public offerings (IPOs), 75 companies with valid approvals plan to raise ₹1.16 lakh crore, while another 95 await approval to mop up ₹1.64 lakh crore. Several large ones are yet to file their papers.

"However, I believe that there is no dearth of demand for good-quality paper and attractive valuations."

Rising mutual fund and retail inflows have bolstered Indian markets. That has given confidence to the likes of Tata Capital Ltd to LG Electronics India Pvt. Ltd to line up mega IPOs. There has also been a surge in block deals and qualified institutional placements (QIPs) as promoters and large investors seek to sell at high valuations.

Siddhartha Bhaiya, managing director & chief investment officer (CIO) of Aequitas Investment Consultancy, however, warns the markets are headed for a fall and expects suboptimal returns over the next 3-5 years, citing rampant mis-selling as a key red flag. Too many investors are being mis-sold products at inflated valuations, with risks downplayed.

"The smart money is selling, the dumb money is buying. What we're witnessing is a transfer of wealth from the middle class to the rich."

While bouts of buying may keep sentiment alive in the short term, Bhaiya says an eventual decline could trigger a consumption slowdown, squeezing household incomes and dampening demand.