The primary market, especially the mainboard IPO seems to be cooling off. We have recently seen the anchor book list of Arisinfra. There is no DII there. Do you think that the mainboard IPO is out of steam?
Pranav Haldea: Well, it is too early to say that. The steam, in fact, has barely started for us to call it to be over. In March, after two years, we did not see a single mainboard IPO and even in April and May, we have seen very small deals. You have not really seen a big-ticket IPO coming to the market. As you rightly said, the pipeline is staggering.
There are about 74 odd companies looking to raise Rs 1.5 lakh crore, holding Sebi approval and another 70 odd companies looking to raise Rs 1 lakh crore waiting for sebi approval. Some of the big deals like HDB and a couple of others are likely to hit the market soon. So, it is still too early to say the steam is gone. Yes, the response to some of the deals in May has been slightly muted. The listing has also not been great, but we need to give this some more time.
As we know, the primary market takes its cue from the secondary market and, of course, there are concerns there, the most major one right now is on geopolitical side with what is happening with Israel and Iran and if that does not throw a spanner in the work, I would expect some larger deals to get launched.
The unlisted space has heated up. Of course, now NSDL and NSE are also bound for IPOs and in the unlisted space also, a lot of action is happening. As for pricing, look at the NSE unlisted price. From May onwards, it has jumped more than 50 odd percent. How do these large companies trading in the unlisted space look like when they come for their IPOs? Do these valuations get questioned or do we see a valuation downturn?
Pranav Haldea: I would not comment on specific IPOs or specific companies in the unlisted space, but I think there is a mixed bag. There have been some multi-baggers in the past few years where investors who bought in the unlisted space made good returns. At the same time, in ‘23-24, there were several deals, wherein investors are still sitting on losses.
So, investors need to tread with caution and it is not necessary that you will make a significant gain once the company lists.There is a very questionable part in the IPO space, the SME IPOs. The surveillance is a little bit off and the sizes are also small. If you look at the investigative work which we have done and there has been an impact by ET Now as well, Are these IPOs good because at times retail gets trapped. What is your view on SME IPOs right now?
Pranav Haldea: This space has seen a lot of action in the last year, year-and-a-half. I was just looking at the data and the average number of retail applications in the SME IPO space was just 297 in CY2020. That means that per SME IPO, only 297 retail investors were applying. This figure has gone up to 1.87 lakh in CY2024, which shows the huge increase in retail interest which is coming to this space. Again, a word of caution – these are very small companies. Their business models are not completely tested. As far as liquidity and trading is concerned, it is very shallow. There is a lot of volatility in these stocks as well. So, yes, while some of them do end up becoming multi-baggers, there are several IPOs where investors are sitting on significant losses as well. So, investors need to tread with extreme caution in this space.
For an investor, is the current IPO market good to start applying? There was euphoria two years back, but now it seems like it is all about the wait and watch. What would your advice be to a newbie retail investor who is currently entering the markets?
Pranav Haldea: My advice to a newbie investor would be first to go through the mutual fund route if he is entering the market for the first time. If one is slightly more adventurous and is willing to take a bit more risk, then look at the 2500 already listed companies where there have been significant disclosures, there is a track record which you can study.
If you have an appetite for more risk, you can look at the IPO market and even within the IPO market, it is very important to introspect and figure out whether you are coming in for a listing gain or coming in for the long. If you are coming in for the listing gain, then you may apply to all IPOs. In bullish markets, typically all IPOs give a good listing pop and then you should exit on the listing day because you really came in only as a listing pop investor.
On the other hand, of course, if you are coming in for the long haul, then you need to do the hard work. You need to study the offer document, understand the company, the promoters, the governance, its business model, its financials, and then take a call to invest.
There is a lot of interest in MNC IPOs, especially with the valuations which the Indian markets offer and everyone is looking at the LG Electronics IPO. Of course, the size is expected to be roughly around Rs 14,000 to 16,000 odd crore as per reports. How attractive is the MNC space looking like, especially for listings in India and what will be the way forward?
Pranav Haldea: A lot of these MNCs which are looking at listings have essentially become like Indian companies. They have been in the ecosystem for a long time. These are consumer companies, extremely familiar to the Indian space. I would imagine from a governance standpoint as well, there would not really be much of a challenge. Given the demographics of India, a lot of these companies are poised to grow exponentially in the years to come.
So, with every IPO, for an investor there are two things to look at: One, the kind of company which is coming in and Two, the valuation. So, a very good company could be coming in with an IPO, but the valuation may be stretched. Again, that makes for a poor investment. We need to look up IPOs where the company is good and the valuation is also good.
I track the new-age tech companies. The class of 2025 has a lot of new-age tech IPOs, of course, on a higher side, and the IPO sizes are also larger. How does this pan out and this time will it be higher valuations or will it be lower valuations because there is a correction? We have seen the class of 2021, 2022 and the market perception. But this time, the path to profitability is important. How do you see the class of 2025, the new-age tech companies coming to bourses?
Pranav Haldea: As far as the valuations are concerned, my view has always been that valuation is an art, and not a science. Apart from the closing price on the day of listing, when can one really make an assessment and say that the IPO was overpriced or underpriced or fairly priced? The reason is very simple that on the day of listing the share becomes available for trading for a wider set of investors, domestic, foreign, retail, institutional, long, short, there are no restrictions which are there at the time of IPO. Hence we can say that on the day of listing, some kind of price discovery happens and where the share ends at the end of the day can give us a sense of how the IPO was priced.
But beyond that, it becomes like any other listed company whose share price will go up and down on the basis of the company’s own performance, how the sector is doing, how the broader market is doing, and how the broader economy is doing. If you are sitting in 2025 and looking at the 2022 IPOs and doing an analysis of how many of them are above issue price, how many are below issue price, it is an exercise in futility and the data also shows this some of them have performed very well since 2022, while some have failed to even reach the issue price.
So, it is a very selective process and with every IPO. My advice would only be to look at each of these companies, study the company, and also look at the valuation. We cannot pass a generic statement there. There are some very interesting business models out there. The only drawback as far as retail investors are concerned is that there may not necessarily be a peer group company with which they can compare the valuation, in which case, investors should follow the cues of QIPs.
By
