Street Signs: Market on edge, unveiling fund manager strategies, and more

Market on edge: Liquidity crunch casts shadow

In addition to regulatory actions against small and midcaps, tighter liquidity conditions are another headwind that stocks are facing this month. Market observers say advance tax outflows and capital gains-related adjustments will weigh on the markets in the near term.

Any trader with a liability of over Rs 10,000 in the form of capital gains had to pay advance tax this month. Additionally, losses can be set off against capital gains. “Some selling is likely to happen next month, as some traders will be waiting for the next financial year to book profits so that they can avoid paying tax on capital gains,” said an analyst. The National Stock Exchange Nifty 50 last closed at 22,023. Analysts say if the index breaches 21,800 on the downside, it could see another 3 per cent correction.

Unveiling fund manager strategies: Stress test reveals wide variance

Besides the days taken for liquidation, the stress test data has put a spotlight on another key aspect. Results show a wide variance in the investment styles of small and midcap fund managers. The price-to-earnings (P/E) ratio for midcap funds ranged between 21x and 62x. Meanwhile, in the smallcap category, the P/E ratio ranges from 18.6x to 48x. “The results show some fund managers are willing to pay any amount for growth stocks and are not perturbed by valuations. On the other hand, given the concerns around expensive valuations, a few are seeking refuge in stocks that are still offering value,” said an industry observer.

IPO wake-up call: Flops trigger market rethink

Three initial public offerings (IPOs) flopped during their trading debut last week. Gopal Snacks, JG Chemicals, and RK Swamy saw their shares end between 8.6 per cent and 16.5 per cent lower on their listing day amid a selloff in smallcaps on concerns over excessive froth. The poor listing day performance was despite their IPOs garnering encouraging demand.

“For the IPO market, sentiments can change very quickly. Last week’s poor showing has dashed investors’ hopes. The changed reality is that only high-quality issues will be able to hit the markets,” said an investment banker. He said IPO activity will slow down between now and the election results, but secondary market blocks from marquee companies will maintain their momentum.