stock market: A slowdown in private equity space will trigger more

August and early part of September have been more than satisfactory for everybody. Nothing has changed in terms of the big picture on the Fed, locally and also on the medical front. If at all, on the medical front, things have slipped slightly and yet markets have registered double digit gains, why?
One of the key things has been the continued retail participation and that has given the edge to the market that whenever there is some pressure on sales coming from institutions or mutual funds in some order, it has been lapped up by the retail public. This is a very peculiar timeframe that we have seen and there has been no major institutional presence in the market in terms of incremental investment.

There has been a churn of course. Retail has picked up the stocks directly. They are not going through mutual funds or anybody else. So between PMS as well as retail funds, that is where the big pickup is taking place and it is important because most retail public are now trying to build back equity into their portfolio.

It was primarily real estate, fixed income and now we are seeing that systematically, retail is building up equity and that is being a good base which is true for India, the US and everywhere. Institutional action is more in the private space; retail action is more in the secondary space.

The historical benchmark is that when there is activity in the IPO market, it is dangerous; when there is participation by retail folks, it is dangerous and when we have both, it is time to get out! Somehow the historical logic has not translated into reality this time. Why is that?
The history of the last three years has shown that buy on dips has been a very good strategy for most retail public and the biggest example of course was March ’20 when the selloff happened and the recovery after that. So the recent historical memory shows that buying on dips is a very good idea, given the fact that the retail public in India is largely underinvested on equities. If you go around and talk to people, their equity portfolio would not be only 5% of their net worth or maybe maximum 10% of the net worth; so there is a large gap in the equity portfolio.

Also, the real action in the space is coming from the private equity space. The valuation of private equity space far exceeds anything in the space of the secondary listed market and therefore till that thing does not disappear, this market will remain robust. The real trigger for the correction would happen only and only if we see a dramatic slowing down or valuations slowdown in terms of the private equity space. A slowdown in the private equity space will trigger a more reasonable pricing in the market….