Dear Readers,

Many companies have underperformed right from day one of listing and have never even managed to reclaim their IPO price band. The Reliance Power IPO was my biggest lesson — in fact, my first real brush with the markets. It was touted as Asia’s largest IPO at the time, and expectations were sky-high. Reliance Power even used Mumbai’s iconic dabbawalas to deliver IPO application forms, attracting a wave of first-time investors. It was subscribed over 70 times in 2008.


But here’s the catch — most investors didn’t get the shares or the refunds. It took months, sometimes years. Some made money. Many didn’t. That story continues today. Not all the retail investors who invested in the IPO gained. Few of them did, but many of them lost.

18 years on, we are in the middle of another IPO frenzy. But will it fetch value for investors? Will it add value to the economy and stock market as a whole? Or it will just help promoters a great exit? Here is my view.


Newspapers, television, websites, mobile apps — all flooded with IPO ads. Brokerage firms and analysts are buried deep in DRHPs, trying to decode them and produce sharp reports. Lead managers, merchant bankers, promoters — they’re out there hosting roadshows and pushing hard for oversubscription.

India’s IPO market is buzzing. What should one buy? Which has potential? Will it list higher or lower? These are the questions filling Dalal Street and countless WhatsApp groups created just to discuss IPOs.

Over 70 companies have SEBI approval this year. They plan to raise up to Rs 2 lakh crore. While names like HDB Financial (an HDFC Bank arm) and Kalpataru are the current favourites among investors, heavyweight names may follow — Tata Capital, National Stock Exchange, LG Electronics, Manipal Hospitals, ICICI Prudential AMC. Even new-age firms like PhonePe and Lenskart are gearing up to hit the markets.


India’s IPO rally

2024 saw strong IPO activity — 317 companies raised about Rs 1.8 lakh crore from the capital markets. The year the momentum is stronger and we may see the 2024 record broken. But here’s the real question — are these IPOs creating real value?

Take the case of banking IPOs.

Over the past decade, most Indian banking stocks that listed through IPOs have failed to deliver long-term returns, with over 90 percent underperforming or trading below issue price. Only a handful have managed to beat the Nifty Bank index.

Are they truly building long-term, sustainable businesses, or is this just a short-term game?

India remains the fastest-growing major economy, with growth prospects higher than most global peers. From Goldman Sachs to Morgan Stanley, from the World Bank to the IMF — everyone has bet on India’s potential.

Meanwhile, domestic investors have overtaken foreign ones, and we’re witnessing a visible investment boom. India is in wealth-creation mode. Despite war, oil shocks, and rupee depreciation, the market is moving forward. Family offices and institutions are also aggressively deploying capital in emerging companies.

The stars have aligned — and businesses across engineering, healthcare, finance, even in Tier-II towns — are now hoping for a big-bang listing.


But where’s the value?

Let’s take a look at some recent IPOs. One of the most talked-about was Tata Tele Services. Its price band was Rs 450–500. It listed at Rs 1,200 — a phenomenal premium. But one year later, the shares are trading at almost half that.

The same story holds for many others — including Swiggy.

So, where’s the value?

One market expert told me — “Promoters are shrewd; they sell a great story. But we don’t always know the reality.” A lot of the IPO rally is driven by FOMO — Fear of Missing Out. One ant follows another. And many first-time investors are entering IPOs without context.

The real reason for this IPO rush? The ecosystem is flooded with cash. And the biggest eye is on mutual funds, especially with booming SIP inflows. Promoters are betting that mutual funds will be net buyers.


Observations and questions

Why are FIIs selling, even when India offers better returns than their home markets? Are they seeing something we aren’t? Are they sensing risks we’re ignoring?

Are promoters planning to invest the IPO funds into business expansion, or are they just seeking an exit?

Let’s not forget: IPOs were meant to fund business growth. Entrepreneurs with vision and ambition came to capital markets to build something big — with shareholders who believed in them.

But today? It’s become a “de fatafat, le fatafat” game, in ace investor Rakesh Jhujhunwala's term

Retail investors — don’t get carried away. Think ten times before investing — especially if you're borrowing to do it. Explore other financial instruments. Always remember: the IPO price is often the price at which the promoter is willing to exit.

Promoters too need to think beyond listing-day highs. As Pranav Haldea, MD, Prime Database said at our event, “An IPO is a lifetime event. Once it’s done, it’s done.” Every company must approach it with that level of seriousness.


The valuation puzzle

Retail investors struggle with valuations. Why is company A priced at Rs 800, while company B with better fundamentals is priced at Rs 300?

SEBI doesn’t set the price band. Merchant bankers do — and they’re incentivised to extract the highest valuation. This blurred line allows greedy promoters and commission-hungry managers to push inflated IPOs, leaving investors exposed.

As Rakesh Jhunjhunwala had summed up: “Dil hai ke maanta nahi, market hai ke rukta nahi.”

Please share your feedback, suggestions if any. You can reach me on amol.dethe@timesinternet.in and follow me on LinkedIn at ETBFSI Digest.

As usual, I am adding here the top 5 stories of the week, trust you will find them meaningful.

1. RBI wants FinTechs to explore ULI; over 50 lenders already onboarded
2. IFSCA can’t copy India’s model as we compete with Dubai, London, Singapore, says ED Ramakrishnan
3. Small Finance Bank Chiefs eye secured lending, profitability after RBI PSL cut
4. VCs say the funding spring has begun but what makes a FinTech fund-worthy today?
5. How RBI's AI-driven platform aims to curb digital payment frauds
   

Happy Reading
Amol Dethe,
Editor,
ETBFSI

(Editor's note is a column written by Amol Dethe, Editor, ETBFSI. Click here to read more of his articles exploring several buzzing topics)

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