Worried about IPO share allotment? Here’s some advice for you

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The pandemic induced lockdown has a silver lining, it has infused structural changes in our lifestyle, with technology firms making life simpler and things more accessible. This mainstreaming of digital adoption has made new age unicorns household names. That’s why in 2021 they are leading the IPO rush and consumers are happily investing in public market offerings of firms like Zomato, Nykaa and Paytm. However, on the back of over subscriptions retail investors are often left high and dry at the time of allotment. So, how does one ride on the IPO craze and benefit from the excitement?

Hindustan Times’s Vertika Kanaujia speaks to Amit Khurana, Head of Equities, Dolat Capital Market and poses all the questions that a retail investor would seek answers to.

Ques: There is a big IPO rush this season. Which one are you most excited about?

Amit Khurana: The excitement is high for all of them, considering these are unique businesses that have come up in the last few years and possess a huge brand recall. Having said that, considering the market perspective, the excitement is highest for Nykaa. It’s one of the rare unicorns which is profitable and has a strong brand recall. Paytm is another big offering that has attracted a lot of interest, led by HNIs and institutional investors.

Ques 2) What is your view of Nykaa IPO with an 82 times oversubscription on its offer price. Do you think retail investors will benefit?

Amit Khurana:  Nykaa has attracted a lot of interest and it is expected to garner listing gains of 60-70%, some are also speculating gains to go up by 100%. However, due to the huge oversubscription, allotment of shares would be minimum. In fact, there would hardly be any allotment coming in for the retail investors or even the HNIs. Though in the future we do expect post listing gains, as interest will further build up for Nykaa. 

Ques: What should investors do if they fail to get share allotments after investment in these IPOs?

Amit Khurana: For Zomato allotment came in at 76 and its price today is 132. So, if you had bought it at a lower price, you would be in profit. These are businesses where u need to have a long-term view and a higher risk appetite than traditional listings of profitable companies. These are new business models driven by digital transformations, however, these firms won’t make substantial profits for years and that has to be factored while deciphering an investment strategy. They will gain market share and more visibility but equity gains would be marginal.

Paytm is a household name, but you may want to think twice before buying it at any price post listing. If an IPO is listed at a premium of 50% it has already discounted the profits it will make in the next 5 years. So, if Nykaa were to get listed at 70% premium it has already discounted decades ahead inflows. 10 years is a long time frame as its business environment will change in the coming years. I feel something that has not been discounted in the valuation is the regulatory risk witnessed across US, China or Europe, but yet to come to India.

Ques: So what should an investor consider while putting their hard-earned money in such propositions?

Amit Khurana: Whether you want to invest money into existing businesses or the new theme businesses that are emerging is a matter of choice. However, there should be a balance of both. The online merchandise businesses are expected to grow significantly in the coming 20-30 years and offer new experiences to the investors. The best bet would be to build a bouquet of stocks with diverse models depending on your risk appetite. Few of them would outperform the market/basket by a wider margin.

IPO Update:

Nykaa IPO’s finalization of basis of share allotment is expected to take place next week on Monday, November 8, 2021

Paytm’s parent One97 Communications will come out with its IPO on Monday, November 8 with the price band fixed at  2,080-2,150 per share.

IPO of PB Fintech Limited, which operates online insurance platform Policybazaar and credit comparison portal Paisabazaar, was subscribed 16.59 times on the last day of subscription.The finalization of the basis of share allotment is likely to take place next week on Wednesday, November 10, 2021

Sigachi Industries’ IPO received a whopping 101.91 times subscription on the last day of its issue on Wednesday, November 3. The finalization of the basis of share allotment is likely to take place next week on Wednesday, November 10, 2021.

IPO of Fino Payments Bank was subscribed 2.03 times on the last day of subscription on Tuesday, after receiving tepid response on the first two days. The finalization of share allotment of Fino Payments is likely to happen on 9th November. 

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