Initial Public Offer (#051)
Why I was not happy with what the country's finest banker had to say about listing 'pops'
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Initial Public Offer
Last week, someone was not happy with the discounted listing of PayTm and tagged Uday Kotak on Twitter saying that Kotak did not do a good job in pricing the IPO fairly.
To which, Mr. Kotak who is not that active generally was very swift in responding.
To add to the discourse, Mr. Bhikchandani was swift too.
While I admire all of these great personalities, I do have some discomfort in this discourse.
To begin with, 287 companies went public in the last 11 years in India.
The sample set that Mr. Kotak was referring to is only 4% of the total companies that went public.
Almost 34% of the companies that went public had negative returns on Day 1.
When you put it in a scatter chart, this is how it looks -
What’s the point?
Well, for starters - every retail investor invests in an IPO for one thing - listing gains.
Data tells us that the trailing odds for you to make money on listing gains are 66:34.
Should you apply in an IPO?
Only if you know about the business model and are comfortable with the valuations
Typically, there is massive information asymmetry between the existing investors and retail participants
Finally, do check out how much of the IPO is an OFS (sale of existing shares by existing investors) and fresh issue - that does give a sense of whether capital is required by the business or existing investors need an exit
(This is neither a good or a bad thing - one could take a view that the existing investors need to exit hence the OFS, the other view could be maybe they need liquidity for having committed capital since a long time.)
You can read my entire response in this Twitter thread -
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StockRoom Sunday
Podcast of the Week
Came across this very insightful channel that breaks down glaring headlines into relevant insights by people who have skin in the game.
Song of the Week
Been a big, big fan of Diljit’s current album. Do check out this track alongside all the other tracks of the entire album.
Book of the Week
This week, I finally received the signed copy of The Joys of Compounding from Ishmohit.
I have been meaning to read this book for quite some time, getting this gift came in at the right moment.
My bookshelf is now piled with a lot of unread books.
In this world of massive interruptions from the digital world, reading a book feels like a big task, maybe something I will be taking up in my 2022 resolution.
Click here to check it out.
This little part, this is happiness ⬇️
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Ciao.