Khushi Thakur, the one renowned for market analysis was recently live about the discussion over constant reduction in newly listed share prices. Since India’s first-ever tech IPO(Initial Public offerings) rush marked a monumental year of exits for global investors in 2021 and its share plummeted 60% from their IPO price, infuriating investors have started fueling concerns among regulators- Paytm’s parent company, one 97 Communications Ltd., raised a record $2.5 billion when it went public in November. Further only a broader decline of tech stocks in India could be witnessed.
The biggest issue ever to list in India, Life Insurance Corporation of India has disappointed Retail investors. The company is the largest insurer in India which launched its IPO in 2022 but has not lived up to its name. Analysts were overwhelmingly recommended to subscribe to the issue. The stock though was down 15 per cent in barely two weeks of listing.
Retail investors losing money in the IPOs bring the concern of most listed startup stocks being overvalued assets. As per January 2023, majority of startup stocks listed over a period of 2 years have faced a fall of 50%-60% from the initial listing price.
On asking how can public benefit from an IPO and make sure to be safe from the ongoing overvalued IPOs trend. Khushi thakur stated "Retail investors needs to be more uncombatic rather than being too aggressive towards new IPOs. I would recommend investors to be more specific with the fundamentals of the company and Be more particular about the red herring prospectus (RHP), which shows revenue and earnings the company has generated. If it uses the cash for its expansion, diversification or activities related to the growth of the company, you can be bullish about the IPO. But, if it uses the cash to re-pay its long-term loan or in other activity which may not lead to the future growth, it is a good idea to stay away from those IPOs".
Later She added "Each investor in a company whether a founder, Venture capitalist, investment banker or Retail investor; everyone has one goal that is to maximize their money. Founders and VCs hold more of Paperwealth and in order to liquidate they need to sell the shares further in an overvalued market, this is when retail investors bids for IPO, institutional investors pull out money and the stock listing price tends to come back at its actual fair value.
As per the law of the land, promoters should have a minimum post-issue stake of 20%. One should scan through the prospectus and check how much is the percentage holding by the promoters post IPO that gives a big clarification about how well the company may operate in future."
Concluding this all she mentioned "The founders liquidating more than a certain value of their shareholdings should be a point of concern for the retail investors".
We hope this gives you a new perspective of reviewing and evaluating IPOs in 2023.
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