IPO frenzy and counting the losses later ...

History repeats itself.

Not once, not twice, but every time an IPO hits Indian stock markets … well, almost.

I recall 30 years back, IPOs were akin to a lottery, people used to put money in others' accounts, get them sign first share application form and then share transfer forms - that was the time when the likes of Harshad Mehta ruled the ecosystem. Getting allotment in an IPO was considered to be nothing less than a miracle culminating in humungous immediate gains. Many people became overnight millionares and millions lost their everything in this frenzy when the Harshad Mehta scam finally broke out.

That sort of desperation to get shares in an IPO has subsided a bit - however, the insanity and expectations of a different nature prevail these days.

Reports say that the much touted, biggest ever IPO in Indian stock markets history so far, namely the Life Insurance Corporation of India (LIC) may list on a discount on its IPO price next week.

There is such media frenzy and hype before virtually every IPO – each one selling dreams of an excellent business model, inherent value, too good to be true valuation, PE ratio, imbedded value, bumper listing gain, the jargon goes on ….

More often than not, simpleton like they are, retail investors buy these stories and the notion that you’d never lose money in an IPO. They dip into their savings, some adventurous ones even take loans (not sure if it’s going on now, even banks were touting loans for mega-IPOs till a couple of years back), apply for IPOs expecting to make a good killing on the listing day itself.

Only to be left high and dry – on the listing day and for ever thereafter. See the last few biggest IPOs, PayTM, Zomato and the like … you name it, you've suffered it!

The biggest IPOs of last one year or so have left the investors poorer by billions of dollars (not Rupees) and I dread a majority are currently quoting below their offer price.

I think, weird valuation, promoters’ greed and merchant bankers’ overenthusiasm are some of the key factors behind this debacle.

Promoters and merchant bankers are going unreasonably overboard on the pricing of the IPOs, killing the goose that lays golden eggs. Loss making companies with no clearly defined sustainable business model, with no assets command valuation which centuries old businesses with real assets, people, technology, money in bank account and impeccable profitability records cannot dream of. I am always amazed at valuation methodology / matrix followed for pricing the IPOs.

It seems everyone wants to make money at the time of IPO and get out of it – the company can very well run or ruin thereafter because the promoters have made their money, the company may even go to hell, can’t care less attitude. There seem to be a shortsightedness on everyone's part.

If the prices of newly listed stocks are to follow the secondary market companies, why shouldn’t the valuation methodology be the same?

The idea these days invariably in every new-gen entrepreneur is to make money on listing – nothing else. The classic model of a profitable business does not exist any more. Everyone wants to start a company, bring it to a stage to get investors, then get exit through IPO. No one wants to run a company and make it profitable, it seems. Just because you are burning others’ money, you tend to lose focus on making profit – you offer unreasonable discounts, cashbacks and what not just to have number of customers, GMV and what not … again business jargon making little sense to retail investors. ?

Can we expect sanity in the near future on part of every stakeholders – promoters, valuers, merchant bankers, investors??

In my childhood and teenage, I used to hear that stock markets are pure speculations. Being a commerce student. I never agreed with that - I thought

there is a method behind this madness;

it's a function of demand and supply;

companies command a valuation on the basis of their history and projection of future and so on ...

So I believed.

Back to square one now. I've started thinking otherwise now.

**************