Dark Sides Of The IPO
If someone says to you that this company’s IPO is going to be launched, your money can be double. So what’ll you do? You get greediness that why not I invest in this company and make my money double. Now it’ll rain money happen IPO’s are coming and money storm is just started everyone wants to make money in this but today everything in the stock market is changed forget about you & me, the portfolio of sir Jhunjhunwala is also red.LIC, Paytm, Cartrade & Zomato are all these billionaires company’s bad performances, they not just sank everyone’s money but they lost trust in the stock market forever. But have you ever thought that a company that has such huge business why their IPO get failed? Something is there which they hide from you and they hide it very smartly that without knowing you get stuck in it.
The question is how and most important which are the powerful lessons which we’ll learn from this case study as an investor and can follow in our journey 1st Nov 2021 Paytm’s IPO opened there’s enthusiasm everywhere one name in everyone’s tongue Paytm. There was hardly one who dint believe in this.
After all, India’s biggest IPO is happening, and it is sure to benefit. You also thought like this but now its share become 630 from 2150 means a 70% loss, but why? I know what you’re thinking, “Financial.”If a company is at a loss so its finance is bad, so how it’ll perform in the stock market. It’s correct but if it’s like this then LIC who made 4,00,124 cr, why its IPO became fail?
What Founders Hide In Their IPO
Many IPO got fail today many stock value is down by 50% and the market is running more volatile but expert believes it’s the best time to invest in the market. because this time you’ll get good companies’ stock at a good discount price but still the market is more volatile. So as an investor what’ll you do? Well, there’s a very simple way you can invest in a mutual fund because less comparatively risk in it. Because funds managers balance according to the market situation. It won’t give you a high return by going out of the way but the return are more than the inflation so it becomes a safe & better investment option.,why does this happen because people often hope to profit in IPO they loss their money. Why do we believe talking of such a big company well to understand this you’ve to understand that the process of IPO works?
Listen to very simple words, some people make one company together they called promoters of the company after that when it’s growing they need funds for expansion. For that, they take money in these 2 ways. 1. Debt means borrowing for this they take a loan from bank or issue debentures to the general public whose against they take a loan and 2nd is equity in which the company gives its equity to a private investor and takes funds or comes with IPO or issues right. In the right issue who has your share, they can purchase a little more shares now all this thing which general public knows most people know this all thing. but question is that what is the thing which most people don’t know? See when any company needs money, they take debt or they dilute equity but when a company raises any money so why they’re raising, most people don’t even know this. Maybe the company takes for expansion or it could be that company raise for clear their old debt or it could be the promoter’s of the company they want to take the exit for that they’re selling their share company disclose all this thing but most people can’t even catch this thing I know what you’re thinking that if company disclose why money being raise so why people lost their money in IPO? To understand this very carefully.
1st thing when IPO comes out how do we know about it? either you see the news or you listen y any influencer or your friends or family members told you that, this company’s IPO will become. But the question is in all these people who put the right side of the company in front of you they show you that side which no one knows. Maybe no one.
India mostly shows well about IPO because they want your stability for a long time in their platform and they earn revenue in add. and the same goes for influencers or most important your friends & family never research in the company for them self so what they do for you. LIC is one of the largest companies in India.21,000 cr IPO happened then after doing all these things IPO got to fail. But why? Nature’s role is that if somewhere someone’s loss is happening so somewhere someone’s profit happening 100%. This means if someone going in loss so someone definitely earns profit from that but question is, who is that? three words everyone except you. From the news of launching IPO to listing who all are involved in this process, once understand their role because if you understand this so your chances of losing will be very less First comes media, social media and TV also comes in this, their main work is selling news and advertisement to you.2nd comes promoters of the company.
PLAYER OF The IPO
who care about company profit and most important the greedy by selling company’s shares and earn more profit. last & most important influencers want your attention by anyhow for that they earn money. but they are the ones who are in limelight, they are who are visible to all but what about those who don’t see most of the people.
So basically by leaving all of them, these 3 are the main players in this game.
1. Traders whose work is knowing the stock margin by reading data. that’s why if traders know the stock will go upside or downside or they’ve made that calculation right then those people earn money by going up or down and that’s the reason they support IPO very much. Because that doesn’t matter to them much. it is going up or down they’ll earn money.
2. 2nd brokers always push IPO, why?
- By doing this people who invest more in IPO brokers earn that much brokerage and
- is if someone comes in their platform and starts investing in IPO so they get a lifetime customer,
3. 3rd most important Merchant bankers. Their work is they make increase the valuation of the company to give the best valuation of company. So that the company can raise more money from less share in share market. So how does this work? Company’s promoters and merchant bankers, always approaches brokers and traders that our company’s IPO is going to be launched. Please push this IPO. Due to which they both approach influencers.
INFLUENCER Role IN IPO
Influencer means each and every person which is connected through media. And giving you information about IPO. And as soon as these influencers finish their work, the result comes that maximum people invest in that IPO.
But there are 2 problems. 1 That people only saw the good side of the company and invested in IPO. And most importantly 2nd that people don’t research themselves. They listen to different media resources about it and then invest in it. which results in people investing due to influencers in that company, But when the listing is done or after some time its share price starts to fall, then people start blaming the stock market.
Whenever you see a video of the stock market by an influencer or media personality, So they will tell you mainly these two things about any IPO. 1st, How are the company’s profit and loss, Is the company in profit or loss, for which, you might be shown the balance sheet of the company or profit loss statement. But the reality is maximum people don’t know how to read a company’s balance sheet and profit and loss statement. So in turn what happens is, that if profit seems in the balance sheet and profit and loss statement, then it will be said that it is a good company to invest in, But if the loss is shown then this company is not good should not invest. And the second thing is the price. You will be said that the price on which this company’s share is listed, is overpriced or underpriced. These means are they charging you more or reasonable. Whether a share price or a particular company is more or less? To determine this, many people use these 2 methods
- 1st, Industry PE ratio to company PE ratio comparison. This means the industry’s price-to-earnings ratio, for that particular company whose IPO is going to come, is compared to its price-to-earning ratio and tells us whether the share price is overvalued or undervalued.
- 2nd growth rate to PE comparison. This means the company’s growth rate is compared to the company’s price-to-earnings ratio. But do you know that share price is overvalued or undervalued to know this there are 5 other options too in spite of these 2? And when you calculate from that way then you will find a difference in that.
Majorly people, about the company’s financial position and IPO price on which it is listing, will tell only about that but, the things which are hidden from you the majority of times, are these.
- 1st why IPO? Companies are launching IPO is okay, But why they are launching it? It is launched forcefully or they genuinely need funds. for which you need to read the draft red herring prospectus, but as usual many people don’t do it.
- 2nd what? That company is raising funds, but why is the company raising funds what are they going to do with that funds? You should know this too. Who knows what the company will do with your money.
- 3rd, Unusual profit, many times to make their balance sheet strong company, because they want to launch IPO, they start to make unusual profit more. and the profit from their revenue or from their main operation is not so much. But overall people see is profit. Due to which this thing is smartly hidden in the balance sheet, that company is not earning much from its normal operation.
- 4th, intangible assets, many times to make a company’s balance sheet powerful, they claim many intangible assets in the balance sheet due to which, the balance sheet looks proper, and people feel that genuinely the company is good,
- 5th and most importantly, hype vs value. In the majority of cases, you won’t be told, that this IPO’s hype is more or that this company has genuine value. due to which you would not know that you should genuinely invest in this company, or if it looks like work. Let me tell you about an incident, I have a friend Rahul Mishra, who told me to invest in LIC IPO and he has invested in LIC IPO too. But I asked him one question, I asked how much do you know about the company? He said it is a big and good company. world’s biggest company. I said him not that, How much do you know about the company and its IPO?
He said don’t know, So I gave him only one piece of advice. Don’t invest. He said no it is a big company, we will make a profit for sure. I said one thing. I said if you don’t have knowledge about the company then don’t invest. You will lose money. And you know what is the result. On the day on which IPO listed LIC, The listing loss was done so people lost their money. Now most important, which are those lessons that we as an investor can learn from these, and can implement in our investing journey. 1st lesson Always investigates the purpose of capital, Whenever a company launch IPO and you plan to invest, always ask this question. why? Why is the company launching this IPO? What does the company need money for?
An important lesson for the IPO investor
What is their purpose of capital? Is it mixed? This means that a company needs to repay its debt and wants to grow too. or the company only needs to pay its debt or is this offer for sale, means, the company’s promoters are selling their share through IPO. Using IPO’s name, they are selling their shares so they can get money. Why is the company raising money try to know that. If any company is launching its IPO and you don’t know its purpose of capital then don’t invest in that company whether it is the best company.
2nd lesson, Understand the valuation game. Nowadays company launches its IPO on a pumped-up valuation. so that they can raise maximum money but, if you want to take a smart investment decision, then I would advise you do your own research. Try to find out the company’s valuation by yourself. and not by the media’s way of talking I invest in that company because when you, do this then not only you will see the real side of the company, but you will also get to know how media makes you fool.
3rd and most important lesson is, Define your motive. Whether there is an IPO or not, whenever you are investing your money then your motive should be clear. with that, your exit strategy should be clear in your mind too. That if you are investing then why you are investing and when you will exit this investment. Investing in IPO, why? For listing gains or for long-term holding?
If investing in mutual funds then why, for how long, and when you will take exit from this. If you are investing anywhere make an exit strategy then invest. Time is bad right now may be the company that is on top today, may not be there tomorrow.
