- Sunil Singhania predicts 75% of recent IPOs will trade below listing price in six months
- He warns investors to be cautious due to high valuations in current IPOs
- Singhania cites limited information and unproven entrepreneurs as risks in IPO investing
At a time when Indian primary markets are buzzing with an influx with new public offerings, market veteran Sunil Singhania has issued a stark warning to investors as he believes 75% of recently-listed IPOs will trade below their listing price in the next six months.
While acknowledging that "IPOs are essential in an evolving economy", Singhania warned that investors must seek out caution and look at many factors carefully before investing in an issue.
"One has to be very, very careful. My view is that around 75% of the companies coming out with IPOs will trade below their issue price in the next six months," Sunil Singhania, founder of Abakkus Asset Manager LLP, told NDTV Profit.
Singhania believes the major deterring factor in the current wave of IPOs is valuation, noting that it is risky to invest considerable wealth in a company with high valuation just by looking at limited data and information. He even listed three reasons why investing in IPOs right now, is not a good idea.
"The pricing of IPOs leaves nothing on the table for retail investors. Second, not all IPO companies are great entrepreneurs, so one has to be careful about that.
"Third, as you rightly said, there is limited information, and you depend on what the management presents to you in half an hour, and then you have to take a call of investing Rs. 200–500 crores from a fund's perspective in those companies," he said.
However, Singhania believes that there are merits of investing in an IPO if the company is strong, as evidenced by the recent example of LG Electronics, which listed at a premium of 50%.
"There will also be a set of companies that are interesting — where there is merit — and for those, IPOs will be the only way you can look at investing because they are coming fresh.”
"If you get an allotment, it's good, because good IPOs normally list at a premium. I'm talking about genuinely good IPOs. Recently, an electronic consumer brand got listed — great response, strong brand, good growth," he said.
Sunil Singhania's interview is part of NDTV Profit's broader Diwali coverage, where we speak to various money managers and market veterans about how and where to invest going into Samvat 2082. You can catch the full interaction using the link down below.
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