'Boycott every IPO, QIP issue for a month' - Samir Arora explains his radical idea

Samir Arora of Helios wants India's Mutual Funds to boycott any and every upcoming IPO within the next 30 days, "just for the heck of it". He believes this could help reverse India's prolonged stock market underperformance, that has been plagued by the persistent oversupply of paper.

Arora's pitch, only half in jest, is for mutual fund managers to form an informal bloc — something in the spirit of AMFI, the industry's official association — and simply stop participating in IPOs, QIPs, and placements for a stretch of 30 days.

"We will see the performance of our market, then for 30 days you can sell, then again we'll stop for 30 days or some such thing," Arora said in an interaction with CNBC-TV18 on Wednesday, August 2.

The real drag on Indian equities, according to Arora, is not the foreign investor selling at all. They have been net buyers over the last two months, but the sheer volume of new issuances flooding the market.

Many of them, he says, are put together by bankers pushing companies that don't deserve the valuations they're getting. He predicts many of these newly listed names will be sharply lower within weeks, once the initial listing-day euphoria fades.

August had 15 companies go public, many of which listed at an average premium of 30% versus their issue price.

"They may go up on day one, but 30 days later or one small bear market, we'll see how many of them will be down 30% to 40%," Arora said.

Pressed on whether this is really a volume problem, Arora agrees that's part of it, but adds a second layer: as the IPO cycle matures, weaker companies that were previously unable to go public are now rushing in, a sign, in his reading, of a market nearing its later stages.

"In some good companies, the volume is being accepted for okay, it's part of life. But some of it is now because now I think you're at the tail end. And so, these new IPOs are some of them are really bad. And therefore, that shows that now everybody who was left behind wants to do an IPO," he adds.

Arora notes India already has a built-in corrective: if markets fall, the pipeline of IPOs and placements naturally slows down and gets postponed, since fewer companies want to launch into a falling market.

It's not a formal mechanism, he says, but it does offer some self-correction, echoing what he believes happened at past market peaks in 1999 and 2007, when it was the sheer weight of new supply, not foreign selling, that eventually broke the rally.