1. IPO market in a frenzy: Investors lap up IPOs with sky-high valuations

IPO market in a frenzy: Investors lap up IPOs with sky-high valuations

Indian IPO market is rife with examples of overvalued IPOs getting grossly oversubscribed. Prataap Snacks IPO, D-Mart IPO, BSE Ltd IPO are a few examples of frenzied buying in the markets.

By: | Published: September 27, 2017 10:34 AM
Private equity, Private equity investments, Private equity investments jump, Grant Thornton Apart from Avenue Supermarts, companies such as Shankara Building Products, BSE Ltd, Apex Frozen Foods, etc saw blockbuster listing in 2017. (Graphic by Financial Express)

Investors in India seem to be in frenzy, lapping up IPOs with valuations touching the sky. Just yesterday, Prataap Snacks IPO priced at an inexplicable 202 times earnings got oversubscribed by 47 times. D-Mart IPO, which was priced at relatively higher as compared to peers, 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. Jonathan Schiessl the chief investment officer at Ashburton Investments told ET Now last month, “We did a lot of work on that and decided to stay away. The valuation just kept us away.”  Jonathan Schiessl added that he missed the bus on the IPO.  “Sometimes you just need to bite the bullet,” he said in the same conversation.

The IPO markets is rife with examples of frenzied buying. 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 yesterday , “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.

The liquidity in the markets has caused many of the companies to come out with their primary issues. In the nine months so far in 2017, a staggering Rs 38,000 crore have been raised in the primary markets. According to Reuters data, 2017 is expected to be a record-setting year for IPOs, with fund raising predicted to exceed 2010’s high of $8.5 billion. According to S Ramesh  Managing Director and CEO of Kotak Investment Banking, India Inc is set to raise Rs 1 lakh crore in the next 12 months.

Harshil Sethia told FE Online yesterday , “There is a lot of liquidity in the markets, as retail investors are pumping in amounts which is even offsetting the huge FII selloffs. Every company coming out with an IPO is getting a very good valuation.” According to the analyst, 40-50 IPOs are lined up in the IPO pipeline for 2017.

Kotak Institutional Equities too conceded in a research note, “Overall market valuations look palatable but hide super-rich valuations of ‘growth’ stocks and expensive valuations of companies with mediocre business models.”

That said, analysts say companies with strong fundamentals deserve good valuations. In a note to FE Online, Siddharth Purohit, an analyst with Angel Broking said, “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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