How to make money in IPOs in an inflated market? Top fund manager explains

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Updated: October 22, 2017 9:48:30 AM

Even as the IPO markets is buzzing with activity, Sunil Singhania, Global Head of Equities at Reliance Capital shares a few tips to benefit from the primary market issuances.

Primary markets, IPOs“If the IPO is priced to perfection, listing gains cannot be made,” says Sunil Singhania of Reliance Capital. (Image:Reuters)

The IPO markets are buzzing with activity even as India is headed for a record amount of money to be raised in the primary markets this year. According to an EY report, IPO volume in the first nine months of the year 2017 has already exceeded the full-year totals for 2016. As per the report, the country could far exceed the initial expected target of $5 billion in proceeds this year with the emergence of larger listings. At such a time, how to benefit from the primary markets?

Sunil Singhania of Reliance Capital has a few tips. In an interview to BTVi, the Global Head – Equities, Reliance Capital Ltd, said, “There is definitely opportunity in new sectors, and that is where the IPOs come in. If the IPO is priced to perfection, listing gains cannot be made. At the same time, if the new sector has long-term potential, then there is a case for money to be invested. Like Life Insurance Companies, the IPOs are not cheap, but there is merit in saying that in 10 years time, they will be 3-4 times of what they are today.”

But what to do if the valuations are not cheap? “A smart investor can look at companies in the same sector as the IPO and find companies which have a much more reasonable valuation. Animal Feeds company got listed, simultaneously other animal feed companies got re-rated, so that’s also an opportunity,” Sunil Singhania explained in the same interview. Godrej Agrovet Ltd the agri-business unit of Godrej Industries Ltd, which listed on the bourses on Monday, started off first trade at Rs 615.60 on the National Stock Exchange, a whopping premium of 34% percent over its issue price of Rs 460 per share.

IPOs has been a heavily discussed topic in the markets of late, with many experts come up with diverse viewpoints. Mohnish Pabrai, a leading US-based investor told ET Now last week, “There is a very simple rule of investing I follow, which is, never ever invest in any IPOs. So first off all an IPO is a company selling shares into the market. The company controls the timing, the company controls the story… These are auction-driven entities basically tend to give us a pricing that goes to extremes.” He instead suggests giving money to professionals, saying that investing in IPOs is going to hurt more than it is going to help.

Basant Maheshwari, Author & Portfolio Fund Manager, Basant Maheshwari Wealth Advisers LLP, says that IPOs will offer new ideas in Samvat 2074. In an interview to ET Now, Basant Maheshwari said, “ At the moment, we don’t have any new ideas. We’re waiting for the IPO pipeline. New ideas will come from the IPO markets. The IPO stocks over the last one year has been fabulous.”

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