With Meals-Tech platform Zomato’s Rs 9,375 crore preliminary public providing (IPO) being oversubscribed by 38 instances, the main focus now shifts to July 27, when the corporate’s shares can be listed on the inventory markets for buying and selling. As the primary Indian ‘unicorn’ – a startup valued at $1 billion or extra – to come back out with an IPO, Zomato has created a particular place for itself in India’s startup historical past.
Furthermore, the Zomato IPO – probably the most excessive profile of the 12 months up to now – can also be emblematic of the ‘IPO spree’ being noticed in 2021 amid the crippling Covid pandemic.
Usually, a booming inventory market usually supplies the fertile floor for an IPO spree. “Major market (IPOs) is intently linked to the secondary market (share market). Every time the latter is performing properly, corporations line up for IPOs,” stated Hitesh Punjabi, Asst. Professor, KJ Somaiya Institute of Administration Research, Mumbai, whereas referring to the inventory market increase of mid-2000s and the thrill round Reliance Energy’s IPO in early 2008.
In FY21, which lined the interval of the Covid-induced lockdown and a number of other ‘unlocks’, the BSE Sensex rose over 68 per cent and NSE Nifty 50 index rose by 71 per cent. In FY 21, over 20 IPOs listed at a premium to their situation worth, in line with Equitymaster.
Pattern this: Completely happy Minds, an IT consulting firm, reported a 111 per cent achieve on itemizing – the most important in a decade. Its share was issued to the general public at Rs 166 and opened greater by 111 per cent at Rs 351.
Kiran A Shah, Co-founder and CEO, SRE Wealth, says, “Sectors like chemical compounds and IT, and tech corporations are doing properly amid the pandemic.” Whereas the fast push for digitisation through the Covid-19 pandemic has been credited for the robust IT and tech sector efficiency, the increase in chemical sector has been linked to developments in China.
Lalit Kumar, Founding father of Chennai-based LKR Advisors, explains: “The increase in chemical sector is predominantly because of the environmental norms in China the place 40 per cent of its chemical manufacturing capability had been shut down for security inspections.”
The increase in chemical shares for the reason that final 12 months has meant that lots of the 20-odd IPOs since final 12 months had been from the sector. Clear Science, a speciality chemical agency’s IPO was oversubscribed by 93 instances on July 9 and the shares listed at a premium of 98 per cent on the BSE on July 19.
At a time when studies of financial misery in India have been aplenty, the increase within the inventory market is certain to puzzle these not accustomed to its working. Market observers say that the exponential rise in demat accounts – signifying the rise in new retail buyers – and the large inflow of worldwide cash into the inventory market is fuelling the “bull run”.
“Lots of kids have entered the retail market through the pandemic. In actual fact, Paytm stated 27 per cent of the Zomato IPO candidates had been below the age of 25,” Mr Shah stated, including that low rates of interest are additionally encouraging individuals to spend money on shares. As per the CDSL and NSDL, Indian buyers opened a report 1.42 crore demat accounts in 2020-21. “The pandemic has been a blessing in disguise for the markets. Many millennials sitting at house are actually investing,” Mr Kumar stated.
India noticed report overseas portfolio investments (FPIs) of Rs 2,74,034 crore in FY21. Bloomberg, as well as, states that overseas buyers have invested over $Eight billion in India this 12 months (until mid-June 2021). This has helped the market stay flush with liquidity since over a 12 months. For the uninitiated, FPIs are investments by overseas residents in securities together with shares, authorities bonds and company bonds and many others.
“IPOs at Nasdaq have raised $50 billion from January to June 2021. India raised $5bn as towards $2.5 billion final 12 months throughout the identical interval. Non-institutional buyers are bringing liquidity available in the market purely from brief time period funding at 3.75-4.5 per cent for itemizing beneficial properties,” says Mr Kumar, highlighting the buoyant world markets.
Given the buoyancy within the markets, IPOs appear to be a viable possibility for corporations and buyers alike. Nonetheless, many IPOs this 12 months, specialists say, can be distinctive. “New enterprise fashions are coming to faucet the markets this 12 months,” says Mr Punjabi whereas referring to the new-age tech corporations like Zomato, Paytm and Mobikwik amongst others.
The problem will lie in valuing such new-age corporations whose enterprise fashions, with years of losses distinguished of their revenue & loss statements, are fairly completely different from these of conventional corporations.
“It is vitally troublesome to worth digital corporations not like conventional corporations. These corporations can develop enormously too,” says Mr Shah. Mr Punjabi nonetheless remembers how Infosys too had confronted such a difficulty when its IPO hit the market in 1993. “Analysts couldn’t decode a technique to worth it because the IT was a brand new sector. Nonetheless, a few years down the road, we now know the way such corporations are to be evaluated.”
Therefore, Zomato’s recently-ended IPO has additionally come below the lens of analysts for its long-term viability.
“Zomato is very priced. Throughout the pandemic, it has achieved properly. However as soon as issues return to regular, individuals will like to return to consuming out. We have to see if Zomato will be capable of deal with such a state of affairs,” notes Mr Shah. Nonetheless, he additionally sounds hopeful, including that Zomato could be the torchbearer for ‘unicorns’ who’re planning to go for an IPO sooner or later.
Mr Kumar is much less passionate about Zomato’s prospects. “Zomato has not been capable of make a revenue for the reason that begin. For it to make a revenue, it wants some heavy lifting and Rs 9,000 odd crore infusion is probably not sufficient,” he stated.
The present upswing within the inventory market has already triggered some murmurs of a potential bubble burst sooner or later.
Mr Punjabi says that the beneficial properties Zomato shares accrue on the itemizing day (July 27) can be key. Whereas over-subscription does assist construct expectations of bumper beneficial properties, any destructive issue coming to play that day may result in buyers gaining solely marginally, he added.
“For the long term, I’d counsel individuals to attend and watch the monetary efficiency of the corporate for some time.”
Mr Kumar believes the IPO market is in a bubble which will not burst proper now, however when the market settles down and liquidity goes down. “We might even see a fall of 30-40 per cent in recently-listed shares,” he argues.
Amid the euphoria of a raging IPO market and a surging inventory market, the dire state of affairs of India’s actual economic system continues to be a contrasting actuality.
Take these numbers for a perspective:
In accordance with Confederation of All India Merchants (CAIT), localised lockdowns through the second wave led to losses of Rs 15 lakh crore in April and Could 2021. In accordance with the Centre for Monitoring Indian Economic system (CMIE), 1 crore Indians have their jobs because of the second wave of Covid-19. Ninety-seven per cent of the households have confronted lack of revenue for the reason that pandemic-induced restrictions started in 2020, it added. Gas costs are over Rs 100 in all main cities, including to the excessive retail inflation in India.
What explains this dichotomy? Mr Shah stated the inventory markets are principally forward-looking, the place individuals commerce conserving future potential earnings of an organization in thoughts. Mr Punjabi concurs with this, however provides that the inventory market has already discounted the disruptions in the actual economic system and is anticipating higher financial prospects within the subsequent 6-Eight months. “If issues don’t go as anticipated, then we might even see the inventory market taking place within the coming months,” he argues.
“Greater corporations have grown greater within the final one 12 months. However smaller MSMEs have struggled and lots of have shut down too,” Mr Kumar observes about the actual economic system.
Anjela Tarneja of Oxfam India, a non-profit organisation primarily based in Delhi, dismisses any connection between the inventory market and the actual economic system hit by the pandemic. “A lot of the rise of the inventory market is a results of worldwide investments in Indian corporations. Certainly, the RBI had warned that the surge in shares ‘poses the chance of a bubble’.” In actual fact, she bats for a extra multi-dimensional measure that measures completely different socio-economic dimensions than a single unit metric like inventory market or GDP development.