Analysts have cited several reasons for the disastrous start, including over-optimistic valuations for the loss-deep company, the sheer size of the IPO and even a report released on the day of listing by equity research firm Macquarie. “The IPO pricing was not in line with the company’s prospects. Higher valuations based on reported institutional commitments led to higher pricing, despite the fact that the company’s business model had come under pressure recently,” says Dheeraj Reilly, MD & CEO, HDFC Securities.
Leveraged subscriptions by HNIs may also have played a role. IPOs often get over-subscribed, leading to low allocation. Hence HNIs usually borrow and apply for more shares than they wish. but mega-size
The IPO was huge. “There was hardly any oversubscription and everyone got more shares than their actual appetite,” says Kunj Bansal, CIO, Karvy Capital.
Macquarie’s report gave little thought to Paytm’s prospects and placed a target of Rs 1,200 for its shares, which was about 45% lower than the issue price. The share price fell below Rs 1,300 for some time but later recovered. However, analysts are divided on whether the worst-case scenario is behind for Paytm. Says Bansal, “If there is no basis to justify an IPO price of Rs 2,150, then there can be no basis to justify Rs 1,200 as the company is making losses and has little prospect of profit in the near future,” says Bansal. .
Will Paytm listing’s loss affect future IPOs? Analysts believe that sentiment has taken a beating, at least in the near term. “Markets are driven by sentiment. Similarly
Helped IPO coming after Nykaa, Paytm IPO will take something away from there,” zerodha Co-founder and CIO Nikhil Kamath told ET Now last week. Investors have also learned a valuable lesson. “This could dampen the enthusiasm of investors to subscribe to all kinds of issues,” says Bansal. In addition, lead managers will be wary of bringing up an IPO at an unfair valuation. “Future valuations by new-age companies may be more modest. Although retail memory is short, the expected IPOs in the coming months will try to leave something on the table for investors,” Reilly says.
Now that the share price has recovered, what should Paytm investors do? Bansal says the decision to hold on cannot be based on loss or profit from the IPO price. “Monitor the performance of the company for a few quarters. If financial performance is satisfactory, stop. If not, get out,” he says. Reilly has some advice for those troubled by listing losses. “Limit the amount to be invested in each IPO and keep a strict stop loss in case of absolute loss per IPO,” he says.