The number of companies in the IPO pipeline is increasing rapidly as more companies are filing their prospects with the markets regulator. A handful of these players have even created a buzz in the unlisted space.
According to market experts, investors are rushing to the unlisted space as the benchmark indices are at lifetime highs and recent IPOs have failed to reward investors with a decent listing pop.
Amit Jain, chief strategist of Ashika Group and co-founder of Ashika Wealth Advisory, said investors should buy shares from the unlisted space if they have a long-term horizon for investment. “Unlisted shares have a mandatory lock-in of six months once the share is listed. So, pre-IPO investors can not make an exit on listing. The unlisted market is not investors planning a listing-gain exit.”
Recently, the SEBI notified it was reducing the mandatory lock-in period on pre-IPO shares to six months from one year. The date is calculated from the date of announcement.
Some IPO-bound shares that are heavily traded in unlisted space are Mobikwik, Paytm, Sterlite Power and Technologies, Anand Rathi Wealth Management, Aarohan FInancial, Lava International and Fino Paytech.
The activity in these counters have increased recently as investors are buying these shares at “cheaper” valuations as these would fetch better returns at listing. However, this does not always hold true. In many cases, the price band of an IPO is much lower than the share price commanded in the unlisted market.
For instance, Rakesh Jhunjhunwala-backed Barbeque Nation was trading around Rs 900 before IPO but the price band was fixed at Rs 500. The scrip was trading around Rs 1,150 on Monday.
Similarly, UTI Asset Management Company was trading at a premium valuation of Rs 1,000-1,050 before the IPO announcement. But the company sold its shares in the range of Rs 552-554, which is now around Rs 1,165.
On the contrary, Nazara Technologies, another firm backed by Jhunjhunwala, was trading at just Rs 400 before the IPO but it was sold at Rs 1,100-1,101. It was available at Rs 1,858 on Monday.
Sandip Ginodia, CEO of Kolkata-based Altius Investech, said if the investors have conviction on the business model, management integrity and fair valuations, it makes sense to buy pre-IPO shares. “If the valuations are exorbitant, investors should give a pass as there is a mandatory lock-in period,” he added.
The risk element in IPO-bound players was comparatively less as they would have to fulfil regulatory compliances, said Ginodia. “If the investors are willing to hold the stock for a longer period, it can be a wealth creation bet.”
Investors are flocking to unlisted markets as there is no certainty of getting allotment in the IPO concerned. “In sentiment- and liquidity-driven markets, investors usually have FOMO (fear of missing out), leading them to the unlisted space,” added Jain. “The space is for those who can invest for a long term.”
