IPO Frenzy and Learnings

The internet method has made applying for shares in initial public offerings (IPOs) easier. Getting an allotment, on the other hand, is a matter of luck.
A market trend can be a two-edged sword. Some people benefit from trends, while others may lose money because of them. The recent investor craze in India's primary or Initial Public Offering (IPO) market is a case in point

Applying for shares in IPOs has become simple because of the computerized cycle. Nonetheless, getting a portion is karma and numerous financial backers have been looking on the web for available resources to work on their odds of getting distribution in a 'decent IPO'. Commonly financial backers wind up contributing low quality stocks.

Let us consider a resent example of a Multinational Technology company PAYTM where it expected to be India’s biggest public issue of 18,300 crore by its parent organization one97 communication when they opened the subscription. The price band was fixed at ₹2,080-2,150 per share where ₹ 8,235 crores shares were for open investors.

The public issue involves issuance of new value shares worth ₹8,300 crore and Offer available to be purchased (OFS) by existing investors to the tune of ₹10,000 crore. The giant technology company has planed for a fresh issue of ₹8,300 crore to grow its business line and acquire new range of customers. The rest of ₹10,000 crore were for the corporate investors those who have already invested into the giant startup, so that they can secure their invested funds and make sure that their invested money is nowhere, but it is secured with themselves.

The practice of 10,000 crore of OFS done by Paytm is a kind of fraud as its OFS was secured by its investors and the rest investments done by the retail investors of ₹ 12,900 per lot were at risk as the IPO window opened at a 29% downfall in its day 1 of listing. If we also take a recent example of Zomato one of an Indian multinational restaurant aggregator and food delivery company, they just offered an OFS of ₹ 750 crores to its investors and ₹ 7500 crores of fresh issue shares to the retail investors. This showed a positive jump in the listing of Zomato at the stock exchanges. company. The stock rose as much as 5% percent to its day's high of Rs 5,626 per share on the BSE.

PAYTM has a high liquidity and if we see then PAYTM is using the external source of money to perform its business.
Right Horizons provides a stock picking framework, investors should go through these frameworks before investing into IPO or current listed stocks
Investors should see

  • Sustainable Business Model- Where a business should have minimal negative impact or potentially a positive effect
  • Track Record of Strong Profitability- Where the business performed in the past should be profitable
  • Shareholders Friendly management with execution capability- The performance should be not biased oriented.

The bottom line (Profit) is the true hardcore reality of the market where subscription should not go for the company those who are offering OFS or just dumping their ideas.