To Invest Or Not To Invest In This (IPO) Market Euphoria

“What should you do now?” asked a financial newspaper last evening. It seemed like the end of the world and one had to make tough choices about life and about investing. Given the euphoria that drove the Bajaj Housing Finance IPO and then the subsequent listing bump, perhaps the question was quite accurate in its framing. What indeed would you do now?

But why are people asking this question? The stock was listed at a premium of 114% on Monday and then rose close to another 10%. It is perhaps the biggest existential question in recent trading days, should one invest now or should they not?

Bajaj Housing Finance, a subsidiary of Bajaj Finance, came out with a roughly Rs 6,500 crore public issue and was subscribed nearly 64 times in three days. That amount added up to Rs 3.2 lakh crore. The company provides home loans, loans against property, lease rental discounting and developer financing.

Remember another well-known non-bank finance company did the same thing. That was HDFC which then merged into HDFC Bank in July 2023 because it's more efficient to be a bank than a non-bank finance company in the housing business.

Among other things, banks can access funds at a lower cost. This is not to say there is no market opportunity. But there is no rocket science, just a strong track record and the Bajaj brand name. But some are saying that there are better bets in the market. Chakri Lokapriya, a veteran Dalal Street investor, told The Economic Times that apart from the rate of loan and quality of service, housing finance is a commoditised business.

“So I would rather buy the other housing companies — PNB Housing, LIC Housing — rather than try to buy now. If you are lucky enough to have gotten the IPO, then I would be a seller on the listing," Lokapriya said.

Another expert said that conservative investors should sell as the listing gain was over and above expectations. They said that long-term investors could continue holding for long-term growth as the sector outlook remains optimistic given the company's well-positioned business model.

The other question is: Are investors paying attention to the details or are they jumping blindly on every IPO that hits the market? Remember, the IPO of a two-wheeler showroom was oversubscribed 400 times.

Such euphoria is precisely the green light that companies have been waiting for. Including those who didn’t have such near-term fundraising plans. More and more large-cap IPOs are lining up. The latest news is that LG Electronics is looking at an IPO for its India arm, on the heels of another Korean giant Hyundai. These are companies that have been in India for several years and run mostly profitable businesses. But no one ever thought they would go for an IPO in India.

Remember, it is rare to see multinationals list in India in recent decades. Jumping onto the bandwagon are obviously the tech IPOs which are mostly loss-making but will ride the frenzy nevertheless and thus provide far quicker exits for their investors and founders than surely they would have imagined.

Where does this leave small Indian investors who are rushing in today is a little difficult to say right now. Most are betting on short-term returns. But not all get allotments and those who do will not succeed every time. At some point, the musical chair will slow down. Particularly, when stocks of many such companies start quoting below the IPO price, as many previous examples have shown.

It is tough to predict the turning point. One indication of its arrival is when investors start moping about a lost IPO and wondering if they will ever get such an opportunity again.