An Uncertain

IPOs have done exceptionally well over the past few years. It is time to exercise caution

Listing gains of 150-200 per cent in a few trading sessions or a month, even for quality companies such as Avenue Supermarts and CDSL, signal froth

“We are fast. We are approaching the furious. We are at the fag end of the boom,” says U.R. Bhat, Managing Director, Dalton Capital Advisors (India) Pvt Ltd. Prithvi Haldea, Chairman, Prime Database, does not agree, “We are far from any IPO bubble. Valuations of IPOs are sane. Besides, there is never a perfect valuation. If there was, there would be no buyer and no seller.”

Whatever the realty, one thing is sure. The kind of euphoria one is seeing in IPOs means it is time to be cautious and stick with fundamentals of companies rather than go with the flow.

FUNDAMENTALS VS SENTIMENT

“We’ve had two great years in the primary market. This is the third year. I believe the market is a bit overheated. We are ahead of fundamentals. But investors are taking comfort in economic reforms and political stability,” says V. Jaysankar, ED, Kotak Investment Banking.

Strengthening rupee, normal monsoon, narrowing fiscal deficit, low inflation, smooth rollout of GST, steady inflow of foreign capital as well as retail and DII (domestic institutional investor) money have made shares of even average companies winners in the stock market.

FLUSH OF LIQUIDITY

The liquidity rush from DIIs has been a defining factor. While FIIs have pumped in Rs 23,621 crore in Indian equities in the past one year, the figure for DIIs is Rs 78,850 crore. “In the last six months, DIIs have pumped in more money than FIIs, the ratio being 2:1,” says V. Jaysankar. The Dalton MD says the macro picture is fine. “The fundamentals appear reasonably strong. But some large sectors such as banking, pharmaceutical and IT are in a mess. Sentiment is driving markets, and while it is bullish, it is not enough to support the levels of today. On a fundamental basis, 2019/20 numbers are being used to justify valuations. How is that not a sign of froth?”

POST-LISTING GAINS

The listing gains of 150-200 per cent in a few trading sessions or a month, even for quality companies such as Avenue Supermarts and CDSL, signal froth. The wide public participation and high leverage and oversubscription are all signals that there is a lot to be worried about.

Talk to Sharad Poddar (name changed), a Gujaratbased retail investor, and you’d know why experts are

Equity investors have of late been getting a rush of adrenaline with every new stock on the block. This is because the rush of investors for initial public offers, or IPOs, means huge gains for those lucky enough to be allotted the shares. Since January this year, 12 companies have come out with IPOs, which have given an average return of 51 per cent, according to Prime Database. Of these, the eight that listed in the first quarter of the financial year gave an average return of 40 per cent. These include CDSL and AU Small Finance Bank. But D-Street is divided over whether these returns are justified or a build-up to a future bubble.