LIC IPO may impact liquidity only in the short-term: Satish Menon of Geojit

The degree of effect on the liquidity will depend on the timing of the LIC offer and trend of domestic and global markets

The Russia-Ukraine stand-off, which has jolted global and domestic equity markets, is expected to neutralise in the near-future. And while this and the US Fed-related concerns have been factored in by the market as of now, SATISH MENON, executive director at Geojit Financial Services told Nikita Vashisht that a further downside is possible if the actual outcome differs from the market's assumptions. Edited excerpts:

How much downside can be expected in the markets from here on? Which sectors look attractive after the correction?

The Russia-Ukraine standoff, which is expected to neutralise in the near future, will determine the short-term trend.  Signs that the US Fed rate hike could start in March could be another important factor. Though both the concerns have been factored in by the market as of now, a further downside could be triggered if the actual outcome differs from market assumptions. The best sectors to invest in are information technology (IT), pharma, consumption, banks, green energy and capital goods, as they are expected to benefit more from the economic recovery.

Is it a good time to diversify into developed markets?  

It makes sense to consider diversified exposure in global markets during this phase of ongoing consolidation. The global economy is expected to thrive in fiscal 2022-23 (FY23) on the back of fiscal expenditure, moderate interest rates and relaxation in supply constraints. The segments that investors can focus on are technology, green energy and banks, which have already gone through some corrections from peak levels.

With oil hovering above $90 a barrel-mark, do you think markets are not fully pricing in steeper/sooner rate hikes by the RBI?

The markets have started factoring high inflation and rate hikes in the future. The Reserve Bank of India (RBI) has forecast moderate inflation in FY23 on the basis of moderate fuel and food cost and a good monsoon. There is a lower possibility of RBI maintaining this optimistic policy outlook over a longer timeframe.

How much impact will the rising oil prices have on FY23 corporate earnings, and to what extent are the markets pricing it in at the current levels?

The impact on corporates will be moderate due to hike in realisation and volume growth. However, the impact would be higher on businesses that are rate sensitive, have high transportation costs and are energy-based.

How are bond markets viewing these developments?

Domestic bond yield was rising with G-sec 10-year yield was inching towards 7 per cent. However, a very dovish policy by RBI in the last meeting changed the trend and moderated the bond yield to sub 6.7 per cent. This level may sustain in the short-term. However, given the upside risk to inflation and public borrowing, the market will trend on the higher side in the future.  

Will LIC IPO pose a threat to secondary market liquidity?

LIC IPO may impact liquidity only in the short-term. Importantly, the degree of effect depends on the timing of the offer and trend of domestic and global markets. Other points are listing gains, IPO funding and valuation demanded.