IPO Landscape Insights
The Indian IPO market recently witnessed significant activity, with offerings like Groww and Lenskart attracting considerable investor interest. The Groww IPO,
for instance, saw oversubscription 17 times, showcasing strong market enthusiasm. The retail portion was subscribed 9.4 times, NIIs 14.20 times, and QIBs a massive 22.02 times. Lenskart Solutions IPO also garnered substantial interest, receiving bids worth Rs 27,494 crore for 9.97 crore shares, resulting in an overall subscription of 6.86 times. This included 6.5 times for qualified institutional buyers (QIBs), 8.6 times for non-institutional investors (NIIs), and 5.37 times for retail investors, with employees subscribing 3.9 times to their reserved portion. These oversubscriptions reflected a prevailing eagerness among investors.
GMP: A Sentiment Gauge
The Grey Market Premium (GMP) is often mistaken as a sure predictor of IPO success. It represents the price investors are willing to pay above the issue price before the stock is listed. It is driven by market sentiment and is constantly fluctuating. GMP provides a snapshot of the current market mood but does not guarantee the actual value of a stock. Investors should view GMP as an indicator of market sentiment, not a guarantee of future gains. The volatility is clear: both Lenskart and Groww experienced a 75% drop in GMP post-subscription, even with strong oversubscription levels, illustrating the risks of relying on this metric.
Risks of Chasing Hype
A concerning trend has emerged where investors, enticed by the possibility of rapid profits, are heavily investing in unlisted shares before the IPO. Many retail investors are buying shares at inflated prices, hoping for quick gains. The case of HDB Financial Services (HDB) IPO serves as a cautionary tale. Before its issue, HDB’s unlisted shares were trading around Rs 1,225, but the IPO was priced at Rs 740, the stock debuted at Rs 840, offering only modest listing gains. Unlisted shares of Groww once traded as high as Rs 155 before falling nearly 17 per cent to around Rs 127–128, still above the IPO’s upper price band of Rs 100. This disparity between the unlisted share prices and the IPO listing prices has resulted in losses for retail investors.
Focus on Fundamentals
Instead of focusing on GMP, investors are advised to prioritize company fundamentals. This includes assessing the company's valuation, examining the track record of the promoters, and understanding the long-term business prospects. Yash Sedani, Assistant Vice President, Investment Strategy at 1 Finance, pointed out that several recent IPOs have been priced below their last traded prices in the unlisted space, signalling a clear mismatch between grey market valuations and institutional pricing. He advised beginning with valuation when entering the unlisted space. He cautioned against investing in an unlisted stock if it is priced at a premium to comparable listed peers, despite lower liquidity, no exit path, and limited disclosures.
Expert Insights and Advice
Yash Sedani highlighted that the aggressive marketing of unlisted shares to retail investors by intermediaries, coupled with low float and limited price discovery, has inflated valuations in certain cases. He advised that if an unlisted stock is priced at a premium to comparable listed peers, despite lower liquidity, no exit path, and limited disclosures, that is a cause for concern. Additionally, he cautioned against early-stage investor exits before the IPO, as these can signify value exhaustion. In essence, while the IPO market offers exciting opportunities, a cautious, research-driven approach is essential for investors in India, especially given the volatility of the GMP and unlisted share markets.
