Why India's biggest IPO failed

 

If someone says you that this company's IPO is going to be launched, and 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 make money in this but today everything in stock market is changed forget about you & me,the portfolio of sir Jhunjhunwala is also red. LIC,Paytm,Cartrade & Zomato all this billioners company's bad performance,they not just sank everyone money but they lost trust in stock market forever.But have you ever thought that a company who 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 who didn’t believe in this. After all India's biggest IPO is happening ,sure to benefit. You also thought like this but now its share become 630 from 2150 means 70% loss,but why?

I know what you're thinking,"Financial." If company is in loss so its finance is bad, so how it'll perform in stock market. Its correct but if its like this then

LIC who made 4,00,124crore,why its IPO became fail?

Many IPO got fail today many stock value is down by 50% and market is running more volatile but expert believe its a best time to invest in market. Because this time you'll get good companies stock in good discount price but still market is more volatile.

Why this happen because people often hope profit in IPO they loss their money. Why we believe talk of such big company well to understand this you've to understand that the process of IPO works?

Listen very simple words,some people make one company together they called promoters of company after that when its growing they need funds for expansion.For that they take money by this 2 way. 1. Debt means borrowing for this they take loan from bank or issue debentures to general public whose against they take loan and 2nd is equity in which company give his equity to private investor and takes fund or comes with IPO or issues right.In right issue who has your share they can purchase little more shares now all this thing which general public knows most people know this all thing.

But question is that what the thing which mostly people don't know?

So see when any company need money,so they take debt or they dilute equity but when company raise any money so why they're raising,most people don't even know this.Maybe company take for expansion or it could be that company raise for clear their old debt or it could be the promoter's of company they want to take 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? So understand this very carefully.

First thing when IPO comes out how we know about it?

Either you see the news or you listen why any influencer or your friends or family members told you that,this company IPO will be come. But question is in all this people who puts right side of company infront of you they show you that side which no one knows.Maybe no one.

India mostly show good about IPO because they want you're stability for long time in their platform and they earn revenue in add. And the same goes to influencers or most important your friends & family never research in company for them self so what they do for you.

LIC is one of the largest company of India.21,000 cr IPO happened then after doing all this thing IPO got fail.But why? Nature's roll that if somewhere someone's loss is happening so somewhere someone's profit happening 100%.Means if someone going in loss so someone definitely earn profit for 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 loosing 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.

Second comes promoter's of company who care about company profit and most important  the greedy by selling company's shares and earn more profit.

Last and most important influencers they want you attention by anyhow for that they earn money. But they are ones who are in lime light,they are who is visible to all but what about those who don't see most of the people.

So basically by leaving all of them this 3 are main player in this game.

·         Traders whose work is knowing the stock margin by reading data. That's why if trader know 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 them much. Its going up or down they'll earn money.

·         Brokers they always push IPO,why?

By doing this people who invest more in IPO broker earn that much brokerage and. If someone comes in their platform and starts investing in IPO so they get a lifetime customer,

·         Merchant bankers their work is they make increase valuation of company 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. You please push this IPO. Due to which they both approach influencers. And here influencers doesn't only apply to YouTube influencers.

Influencer means that each and every person which is connected through media. And giving you information about IPO. And as soon as these influencer 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 from different media resources about it and then invest in it. Which result in that people invest due to influencers in that comapny, But when listing is done or after sometime it's share price starts to fall, then people start blaming stock market. Whenever you see a video of stock market by influencer or media personality, So they will tell you mainly this two things about any IPO.

·         How is 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 company's balance sheet and profit and loss statement. So in turn what happen is, if profit seems in balance sheet and profit and loss statement, then it will be said that it is a good company to invest, But if the loss is shown then this company is not good you should not invest.

·         And the second thing is price. You will be said that the price on which this company's share is listed, is overpriced or underpriced. 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 this 2 methods 1st, Industry PE ratio to company PE ratio comparison.

Means industry's price to earning ratio, for that particular company whose IPO is going to come, is compared to the it's price to earning ratio and tells us that share price is overvalued or undervalued. And 2nd growth rate to PE comparison. Means the company's growth rate is compared to company's price to earning ratio. But do you know that share price is overvalued or undervalued to know this there are 6 other options too in spite of these 2. And when you calculate from that ways then you will find difference in that. Majorly people, about company's financial position and IPO price on which it is listing, will tell only about that but, the things which are hide from you majority of times, are these.

1st Why IPO?

Company's are launching IPO is okay, But why they are launching it? It is launched forcefully or they genuinely need fund. For which you need to read draft red herring prospectus, but as usual many people don't do it.

2nd What?

That company is raising funds, but why are the company raising funds what are they going to do from that funds? You should know this too.  Who knows what 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 hide in balance sheet, that company is not earning much from it's normal operation.

4th, Intangible assets,

Many times to make company's balance sheet powerful, they claim many intangible assets in the balance sheet due to which, balance sheet looks proper, and people feel that genuinely the company is good,

 5^th and most importantly, hype vs value.

In majority cases you won't be told, that this IPO's hype is more or this company has genuinely value. Due to which you would not know that you should genuinely invest in this company, or is it look a like work. Let me tell you an incident, I have a friend Gautam, he told me to invest in LIC IPO and he has invest in LIC IPO too. But I asked him one question,

I asked how much do you know about company? He said it is big and good company. World's biggest company. I said him not that, How much do you know about company and it's IPO?

He said don't know, So I gave him only one advice. Don't invest. He said no it is a big company, we will make profit for sure. I said him one thing. I said if you don't have knowledge about company then don't invest. You will lose money. And you know what is the result. The day on which IPO listed of LIC, 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 investigate 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. Why does the company need money for? What is their purpose of capital? Is it mixed?

Means, does company need to repay its debt and wants to grow too. Or company only needs to pay its debt or is this offer for sale, means, company's promotors are selling their share through IPO. Using IPO's name, they are selling their shares so they can get money. Why is company raising money try to know that. If any company is launching it's 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 pumped up valuation. So that they can raise maximum money but, if you want to take a smart investment decision, then I would advice you do your own research. Try to find out the company's valuation by yourself. And not by 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, 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 a exit strategy then invest.