1. Don’t invest in IPOs for just listing gains: Edelweiss Securities

Don’t invest in IPOs for just listing gains: Edelweiss Securities

There’s not been a better time for companies to come out with their issues, as investors are lapping up IPOs, some of them even seemingly overvalued.

By: | Published: October 12, 2017 2:17 PM
godrej ipo subscription, Godrej Agrovet Limited, ipo godrej The IPO markets is buzzing with activity, with the bidding for India’s second largest Rs 11,370 crore GIC Re IPO currently underway. (Image:Reuters)

The IPO markets is buzzing with activity, with the bidding for India’s second largest Rs 11,370 crore GIC Re IPO currently underway. In fact, there’s not been a better time for companies to come out with their issues, as investors are lapping up IPOs, some of them even seemingly overvalued. There have been a lot of overvalued IPOs which have been grossly oversubscribed- Prataap Snacks Ltd’s IPO which was priced at more than than 200 times relative to earnings got oversubscribed by 30 times. In an interview to ET Now, Vikas Khemani of Edelweiss Securities says that it’s worrying to investors chasing listing gains.

“The worrying point is that a lot of investors are coming into the IPO markets with the expectation of quick listing pops. Some of them have been right, and they have made money also, but one would never know when it gets into a dangerous territory. It’s definitely a worrying sign to see oversubscription to these levels across categories,” Vikas Khemani, Head, Wholesale Capital Markets told the channel.

In the same interview, Vikas Khemani pointed out,  “Oversubscription reduces the probability of getting allocation and therefore making decent money on the investments. I would strongly discourage investors from going for listing pops.”

He says that the long-term prospects of these businesses which are coming out with IPOs remain promising, and investors must consider them as long-term investments.  “Look at these investments only if you have a time-horizon of 4-5 years. I have no doubt that these are good quality businesses, with a long growth profile ahead of us,” Vikas Khemani said.

The IPO markets is rife with examples of  stupendous listing gains. D-Mart IPO, saw listing gains of more than a 100%. In fact, Ashburton Investments which manages a staggering  $10 billion globally and is also a prominent investor in Infosys said that it was the the valuations that prohibited the company from subscribing. Apart from Avenue Supermarts, companies such as Shankara Building Products, BSE Ltd, Apex Frozen Foods, etc saw blockbuster listings.

Harshil Sethia of BP Wealth told FE Online recently, “Some of the IPO companies are really overvalued. The bubble has to burst sometime.” As for the companies, it appears to be the best time to roll out its IPO.” However, while the IPO overvaluation may cause fear among market participants, companies with good business models will continue to get attractive valuations. Siddharth Purohit of Angel Broking said in a note to FE Online recently, “Companies with strong business model and healthy financials would continue to get good response in the primary market, and hence the IPO market could remain active during the year.”

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