Another noticeable trend that has emerged is the flood of IPOs on the SME exchanges. Last two financial years alone have witnessed 311. While this is a welcome sign, Sebi has, of late, been wary of the malpractices in such IPOs. Appropriate action shall lead to better investor confidence.
Regrettably though, IPO investing is increasingly becoming a gamble with most investors looking only for listing gains. Recent Sebi data shows that three out of four HNI investors and two out of three retail investors exit their IPO investment within a month. In a bullish market, when IPOs happen and with huge oversubscriptions, almost all IPOs list at a premium to the offer price. Data of the last two years shows that 74 percent of the IPOs gave positive returns on the listing day. Efforts, though, must be made to educate investors to look at IPOs not merely for speculation but also as a long-term investment asset class in itself.
Going forward, the government should also consider aggressively restarting its disinvestment programme, with the unlisted profit-making CPSEs going for IPOs and the government diluting its stake further in already listed CPSEs.
On another front, despite the initial bad experience with some of the new age technology companies (NATCs), such enterprises are likely to form a lion’s share of IPOs in the future, especially given that most of these companies are backed by PE investors who are looking for exits.
Finally, unlike in the past, the upcoming general election seems to have little impact on the secondary or primary market. To put this in perspective, while the IPO mop-up in the six-month period prior to general elections in the last four election cycles (2004 till 2019) was an abysmal ₹4,308 crore from 20 IPOs cumulatively, this year, already ₹35,456 crore has been raised and a few more IPOs are lined up before the elections.
A word of caution here. As we have seen in the past, it doesn’t take much for sentiment to turn. Even in 2022-23 and 2023-24, despite such buoyant markets, as many as 85 companies looking to raise around ₹1.2 lakh crore let their Sebi approval, which is valid for one year and which is literally the final step before they can launch their IPO, lapse or withdrew their offer document.
To end, an advice for retail investors. IPO investing shall always remain about the quality of the company and the valuation at which it is being offered. Investors would do well to remember that even a great company at an expensive valuation makes for a bad investment.
First Published: Apr 05, 2024, 11:58
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