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Rude Shock For IPO Investors As Paytm Tanks On Debut
With the Sensex cracking over 500 points and decisively giving up the important psychological mark of 60,000 – it begs the question of whether a deeper cut is in store in case Paytm’s dismal listing sparks off a sudden about turn in sentiment.
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The much-anticipated Paytm IPO, the largest Indian IPO in history, hit the bourses this morning. At the moment, the stock is trading at sub-1700 levels – down nearly 22% from its issue price; jolting the hordes of uninformed speculators who had been lulled into the false belief that they “can’t go wrong” with new age IPO’s!
Expectedly, various analyst reviews lambasting the stock followed – suddenly highlighting the company’s absence of a robust competitive advantage in the payments space, as well as it’s lack of clear business strategy. Possibly a case of too little, too late?
The ripple effect of the dismal listing was felt on other stocks too. ABSL AMC, an anchor investor in the stock, is down more than 3% today to around Rs. 584 levels, having slid far below it’s listing day high of over Rs. 720 not so long ago. PB Fintech, the darling of investors (or speculators?) till yesterday, is also down around 7% in a single session.
Paytm’s poor listing is ominous – and dangerously reminiscent of the market toppling Reliance Power IPO of 2008 which raised Rs. 11,500 Crore and was oversubscribed more than 70 times. We all know how that panned out over the 1.5 years that followed!
Such an unchecked proliferation of IPO’s is never really a good sign for the stock markets overall; it sometimes signals that promoters are trying to cash in on the froth by monetizing their holdings at unreasonable valuations – and at the unfortunate cost of retail investors.
Interestingly, the India VIX is up by nearly 6% today. When markets are panicky and volatile (for instance, during a ‘dump everything and run’ selloff), the VIX shoots up. In other words, a low VIX is indicative of high levels of greed within the trading community. Conversely, a high VIX implies that fear is the prevalent undertone.
With the SENSEX cracking over 500 points and decisively giving up the important psychological mark of 60,000 – it begs the question of whether a deeper cut is in store in case Paytm’s dismal listing sparks off a sudden about turn in sentiment. With two failed attempts at breaching the 20-day moving average (a key short-term indicator of broad direction) in the past 2 weeks, one can surely say that things aren’t looking very rosy for equities in the short term. As I write this, the index is testing the lower Bollinger Band – and if it breaches it, the bears will almost certainly be back in control for the near term. While you don’t need to make any knee jerk portfolio changes, a bit of caution is certainly warranted. A disciplined asset allocation strategy and dispassionate accumulation through SIP’s is (and will remain) the success mantra for equity investors over the next 3-5 years as we enter uncharted waters.