With as many as 11 firms set to raise about Rs 21,272 crore in August, the IPO market is witnessing a major spike-but the big question is whether investors should see this as an opportunity or should they remain cautious. Times Now Digital spoke to independent market analyst, Ambareesh Baliga and Feroze Azeez, Joint CEO, Anand Rathi Wealth Limited about the IPO rush, what it indicates and what investors must know. Given below is the full interaction.
Q. Do you think the IPO rush is a sign of strong investor confidence or just firms rushing to tap favourable market conditions?
A. Ambareesh: There is enough liquidity in the markets and it is chasing short term gains on listing. It’s quite clear that only those which have double digit grey market premium are getting oversubscribed heavily. Those who are looking to invest for long term should look at valuation and whether the promoters/merchant bankers have left anything on the table for the investors, otherwise it could be better to wait for the listing and buy it .
A. Feroze: I think it is a bit of both. There is clearly a lot of investor appetite and liquidity in the market, and companies can see that. So naturally, if you are planning an IPO, this is a good time to come to the market.
But investors should also remember that when everyone wants to sell, you have to be a little more careful while buying. A large number of IPOs coming together is definitely a sign of confidence, but it is also a sign that promoters and existing investors believe this is a good time to raise money or monetise part of their holdings.
Q. Are IPO valuations becoming stretched?
A. Feroze: In some cases, yes. I wouldn’t generalise and say every IPO is expensive, because there are good businesses coming to the market as well. But there are certainly cases where a lot of the future growth seems to have already been built into the IPO price. A very good company bought at a very high price can still turn out to be a poor investment. If the company has to deliver almost perfectly for the next three or four years just to justify today’s valuation, then there isn’t much room for disappointment. So I would rather miss an IPO than buy something just because everybody else is applying for it.
Q. What are the red flags that investors must watch out for?
A. Ambareesh: One of the clear red flags would be a sudden improvement in earnings in the last 1-2 years to perk up the