‘Oversupply has helped cap valuations in the secondary market’

Supply in the market is a concern, said Hari Shyamsunder, vice president and senior Institutional portfolio manager, India Equities, Templeton Global Investments, Franklin Templeton.

- Dipti Sharma

“It's not just about the aggregate quantity being sold, but the pace at which that supply hits the market, which can cause short-term dislocations.”

The challenge now is the sheer volume of equity, from potential government divestments to promoter and foreign institutional investor (FII) sales, all of which are adding up, he explained. “It (oversupply) has helped cap valuations in the secondary market.”

Edited excerpts:

Supply in the market is a concern. It's not just about the aggregate quantity being sold, but the pace at which that supply hits the market, which can cause short-term dislocations.

For instance, in 2024, more than half of the initial public offerings (IPOs) for the year, in terms of value, occurred between mid-October and mid-December. At the same time, FIIs were also exiting. So, even if domestic inflows look healthy, they don't reflect the near-term churn such concentrated activity can trigger.

That's what can pressure markets; multiple players acting at different times without coordination, leading to short-term volatility. However, if supply comes in an orderly and spaced-out manner, it's manageable.

The challenge now is the sheer supply of equity, from possible government divestments to promoter and FII selling, all adding up at once.

Although we're near all-time highs, don't you think a fall is likely?

I'd flip that and say, if these IPOs hadn't happened, existing stocks would've been much higher. So, despite valuations, IPO activity has, to some extent, helped cool the secondary market. It's a kind of self-corrective mechanism: when supply rises, valuations ease. We've seen that this year too: whenever markets dipped, supply pressure also moderated.

So, is the oversupply actually helping bring some sanity to the market by stabilising valuations?

It has helped cap valuations in the secondary market.