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REITs Adopt a Contrary Game Plan: Invest in IPOs, Sell on the Stock Exchange

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Foreign portfolio investors (REITs) take a contrarian approach to domestic capital markets by selling on the stock exchange and investing in the IPO (initial public offering) market. While REITs have invested over Rs 23,000 crore in IPOs, they have withdrawn approximately Rs 11,000 crore from the stock market due to valuation issues in November so far.

REITs have made net investments of Rs 14,051 crore this month so far, according to data from the National Securities Depository Limited (NSDL). REITs had invested in several IPOs, which hit the primary market this month, indicating their appetite for unicorns being listed on the stock exchange. The REIT’s purchase figure includes the large primary market investment of Rs 23,180 crore during this period. So the actual stock transaction sells for 11,719 crore rupees for November 19, said VK Vijayakumar, chief investment strategist at Geojit Financial Services.

The REIT’s total investment in IPOs is expected to exceed Rs 50,000 crore in calendar year 2021. They had invested Rs 1,570 crore in FSN E-Commerce and Rs 1,400 crore in PB Fintech.

Since the first half of November, REITs have been sellers in banking and even in successful sectors such as IT. The trend indicates that REITs are likely to become sellers with every rise as most foreign brokerage firms have a sell call on India due to concerns about strained valuations. But retail and national institutions can become aggressive buyers if the market drops sharply, he said.

Explain

Watch the unicorns

REITs have made net investments of Rs 14,051 crore in November so far, according to NSDL data. REITs had invested in several IPOs that hit the primary market this month.

According to stock market data, national institutions have so far invested Rs 9,663 crore on the spot market in November. As REITs pull out due to valuation issues, domestic institutions have absorbed stocks sold by REITs.

The important point to note is that the old scenario where REITs representing smart money dictated market trends is over for the present. National institutions full of cash and exuberant retail investors are now in the driver’s seat. That may change if a major trigger causes a significant pullback from current high levels. We are in a period of uncertainty, said an analyst.

Individual investors use the mutual fund route to invest in the stock markets. In the equity and growth category all plans except ELSS and value / contra regimes reported positive flows while in the hybrid category except arbitrage funds and aggressive hybrid funds or Balanced, the remainder comprising mostly balanced benefit and dynamic asset allocation plans reported continued to broad acceptance.

Assets under management in equity and hybrid-focused programs increased by almost a third from April to October to Rs 13.12 lakh crore and Rs 4.76 lakh crore, respectively, as of October 31, from Rs 9.80 lakh crore and Rs 3.57 lakh crore, respectively, as of April 30, said the Association of Mutual Funds of India (Amfi).

Amfi said balanced benefit funds saw the biggest inflow of Rs11,219 crore in October. Much of that money will go into the equity basket.

Going forward, growing inflationary pressure will continue to haunt global markets as rate hike fears pump liquidity out of emerging markets like India, analysts said.

National indices have oscillated with a negative bias throughout weak volatile global markets following inflation concerns. The Sensex finished lower at 59,636.01 last week. The UK’s annual inflation rate was reported at 4.2% in October from 3.1% a month ago, forcing investors to sit on the sidelines. In addition, strong US retail sales data in October, which rose 1.7%, failed to fuel optimism in global markets.

Domestically, India’s WPI in October rose 12.54 percent from 10.66 percent in September due to higher prices for crude oil and manufactured goods. Likewise, India’s retail inflation rose to 4.48 percent from 4.35 percent on the back of soaring food prices. The low listing of India’s largest IPO, Paytm, has further impacted domestic sentiment, an analyst said.

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