The number of companies in which investors can invest has grown significantly, and it will continue to rise as more new-age companies enter the market. Markets must be approached with a far greater caution than in the past. Following that, Deepak Talwar, a seasoned market analyst and lobbyist gives suggestions to new age investors to learn from the fall of Giant IPOs.
Paytm, India’s largest IPO with a market capitalisation of Rs 18,300 crore, debuted on the stock exchanges at a 9 per cent discount to its offer price, with the stock touching the lower circuit on its first day of the market. It concluded at Rs 1,560, or 27.40 per cent less than the offer price. The fresh issue was worth Rs 8,300 crore out of the overall issuance, and the offer for sale was for Rs 10,000 crore. Similarly, Zomato’s stock reached an all-time low on February 15, trading at Rs 75.75 per share on the BSE, well below its IPO issue price of Rs 76.
Macroeconomic factors and global volatility, according to market analyst Deepak Talwar, are to blame for the recent sell-off in new age enterprises like Zomato. Its peers in the sectors such as Paytm, Nykaa and Policybazaar have also witnessed major sell-offs over the past few months. In the case of Zomato, lower-than-expected December-quarter profits have also contributed to the current share price decline. Despite a reduction in quarterly losses to Rs 63 crore, Zomato’s gross order value (GOV) increased only 1.7 per cent sequentially to Rs 5,500 crore.
Studying from the huge fall-offs of giant IPOs, there a lot new-age investors can learn while investing their money. Deepak Talwar says, “The most important thing to remember while investing is to double-check everything.” Going forward he adds, “It is believed that when entering such new-age enterprises, one must be extremely cautious, grasp the business dynamics, valuations, and future goals for the company and how they intend to grow.” It isn’t merely a new age enterprise. Poor performance is due to an exorbitant valuation and a lack of clear advice from management on when the company would begin to make a profit.
Investors can use this information to make smarter investment decisions. Deepak Talwar, a seasoned market analyst informs, “Essentially said, Warren Buffett, coined the term circle of competence, which simply means to invest in what you know. Regardless of how simple this notion may seem, many institutional and individual investors invest in assets they are unfamiliar with, which is why it is vital to address.”
Deepak Talwar further suggests, “Simply invest in firms or industries that you are very familiar with to stay within your circle of competence. Although it may seem obvious, you may determine your personal circle of competence by looking at your job/career, hobbies, and products/services you purchase on a regular basis.” He explains with an example and adds, “If you’re a pharmacist, you’ll most likely be able to describe how the pharmaceutical industry works and what drives revenues and expenses. Most importantly, you’d be able to explain it to anyone who inquired about it.”
Because investors are overconfident in their ability to generate money in any firm or industry, regardless of their little experience, the circle of competence is frequently neglected.
In the end, this can hurt an investor’s portfolio’s long-term results. As a result, investors should have a full understanding of the firm and industry in which they intend to invest. As a result, investors will have a considerable edge in evaluating the company and selecting what price to pay for it. Therefore, various people have different perspectives on different industries. The crucial thing is to identify which ones they do comprehend and when they are working within their comfort zone.