– Warren Buffet
But such wisdom holds no merit for the new-age equity investors, who are in a hurry to make their first million. India’s IPO mart has been delivering solid returns of late, with some issues doubling investors’ money in debut trade.
But even that’s not enough for the young and the restless, who are rushing to the unofficial market for unlisted shares to try and buy shares of the companies that are in the queue to float their primary issues. The idea is to catch potential multibaggers early at ‘cheaper’ valuations.
However, that’s not a smooth ride. The pre-IPO market is already overheated, and many of the listing-bound candidates have already turned multibaggers, trading at mercurial valuations.
Unlisted shares of Sterlite Power Transmission (SPTL) have soared almost 10 times from Rs 140-150 in April 2021 to trade at Rs 1,450-1,500 now. The company is expected to file draft IPO papers or DRHP this month.
Similarly, unlisted shares of IPO-bound Paytm have surged to an adjusted value of Rs 3,000-3,100 in the unofficial market. That stock was available at Rs 900-950 just three months back. The company has already filed DRHP for a mega IPO of Rs 16,600 crore, which is likely to hit the market within this financial year.
Rajesh Singla, Founder of pre-IPO consultancy firm Planify, said every IPO buzz is making investors rush to the unlisted market, as they do not want to miss any opportunity to make a quick buck.
Since all the stocks are getting listed at hefty premiums, nobody is bothered about financials, said Singla. “The beauty of a bull market is that everything you skip becomes gold,” he said.
Other IPO-bound companies like Mobikwik, Fino Paytech, Lava International, Tamilnad Mercantile Bank and Five Star Finance have all seen their shares soar 100-250 per cent recently on the back of IPO buzz.
Some others like Reliance Retail, Care Health, Anand Rathi Wealth Management and Aarohan Financial Services are trading stable. These scrips are already trading at astronomical valuations after a long runup in the last one year.
Sandip Ginodia, CEO of Altius Investech, says the demand from retail investors tends to increase just ahead of IPOs, but what most of them seems to ignoring is the fact that they face a mandatory one-year lock-in period of post listing in case of such pre-IPO investment.
“The unlisted market should not be a parameter to decide the price band or anticipate gains from IPOs. There are examples like UTI Asset Management Company and MSTC, where the price bands turned out to be much lower than their pre-listing prices,” he pointed out.
In some of the IPOs, companies are demanding lofty valuations, yet the issues have managed to receive blockbuster subscriptions.
“More often than not, merchant bankers track price movements in the unlisted market, which somehow gives them a cushion to lift valuations higher,” Singla said.
So should you buy the shares from an unlisted market in such euphoric times? The answer is a big No, say industry veterans. But if you are a long-term investor, you can have a look at the reasonably valued stocks.
“Long-term investors do not buy stocks merely for listing gains.” Ginodia said. “If you have a high risk appetite and a longer vision for a company, the market is open for you.”
