Following a surge in worldwide IPO activity in recent months, Indian markets have continued to rise to new highs. A big number of retail investors are interested in applying for the shares, especially given how well some previous IPOs fared at first. In 2021, 63 companies in India raised a total of $1.19 trillion through IPOs, more than four times the amount raised in 2020. (26,628 crore). Along with the boost, the market has become more unpredictable and people are reminded of earlier lessons about ‘greed and fear’ in a variety of ways. Among the wave of IPOs and investment opportunities, there are a few things one should bear in mind before being a part of it. Sanjay Jain Jyoti trading parts knowledge with new investors and shares what to keep in mind while doing the IPO business.
Paytm, India’s largest IPO, came on the stock exchanges at a 9 per cent discount from its offer price, with the stock touching the lower circuit on its first day of trading. It has a market capitalization of Rs 18,300 crore. It ultimately cost Rs 1,560, which was 27.40 per cent less than the offer price. The fresh issue accounted for Rs 8,300 crore of the overall issuance, while the offer for sale accounted for Rs 10,000 crore. Zomato’s stock also touched an all-time low on the NSE on February 15, trading at Rs 75.75 per share, significantly below its IPO issue price of Rs 76.
Also, the recent sell-off in new generation enterprises like Zomato is due to macroeconomics including economic growth rates, interest rates, unemployment, international trade, inflation, and global instability. The stock dropped about 35 per cent, reducing its market capitalization from over Rs. 133,000 crores to around Rs. 65,000 crores. Paytm, Nykaa, and Policybazaar, among others, have all seen significant price drops in recent months. In the case of Zomato, lower-than-expected December-quarter profits have also contributed to the current share price decline.
Investors continue to make the same mistakes, and the last IPO wave was no exception. First and foremost, many successful investors including Warren Buffett, advocate investing in a ‘circle of competence’, or a topic area that corresponds to a person’s talents or knowledge. It claims that an investor who understands the underlying business is better equipped to make investment decisions. Investors, on the other hand, frequently misinterpret this to signify familiarity. When the new-age enterprises were sold to the general public via an initial public offering (IPO), many people mistook the familiarity factor. As a client, you have the right to express your opinion on the quality of the goods and services. However, this does not imply that a client comprehends the company’s business model, margins, profitability, future growth, and valuations.
Sanjay Jain of Jyoti trading suggests, “Don’t forget to read the prospectus for the issue before applying for an IPO in India. This document offers extensive information about the company’s financials, market performance, and the goal of the IPO in India. The prospectus can be found on the company’s website or on the SEBI website. Also, see if the promoter or the company is involved in any substantial litigation. At all costs, stay away from repeat offenders.”
Furthermore, he informs that while listing profits are appealing, if the firm is fundamentally good and short-term, the share price will continue to rise long after the company’s initial public offering in India. And, the most important as well as challenging pointer to keep in mind for ordinary investors is looking at the valuation of the company. This approach is highly technical, yet it is a little biased because investment bankers evaluate management and earnings before determining the ultimate offer price. Sanjay Jain Jyoti Trading says, “Compare the IPO’s valuation in India with that of a listed peer on the secondary market to make things easier. If the IPO is for a new company, use metrics like the price-to-earnings ratio, price-to-book ratio, and return on equity to evaluate it.”
Therefore, investors should be knowledgeable about the firm and industry in which they wish to invest. They’ll have a big advantage when it comes to valuing the company and agreeing on a purchase price. Different people have different perspectives pertaining to various industries. The key is to figure out which ones they do comprehend and when they are in their comfort zone.