In an interaction with Munish Aggarwal, Managing Director and Head of Equity Capital Markets, Equirus

We expect that barring periods of high volatility in listed equities, the strong momentum witnessed in IPOs will continue, affirms Munish Aggarwal, Managing Director & Head of Equity Capital Markets, Equirus.

What criteria should retail investors consider when evaluating SME Board IPOs for investment?

Recently, there has been a flurry of SME IPOs and based on the performance of the BSE SME IPO Index (up ~120 per cent over the last 12 months), a lot of investors have been evaluating the opportunity. We believe that investors should not only evaluate the company's business and prospects but also consider the high volatility and relatively illiquid nature of such scripts. 

Relying solely on the Grey Market Premium rumoured in the market when evaluating an investment opportunity can result in investments being stuck in businesses that investors don't fully understand. This approach may lead to sub-optimal returns or even capital loss.

Can you explain how the Grey Market Premium (GMP) influences investor sentiment and its impact on demand?

A segment of investors also tracks the GMP and its movement and uses it as a proxy for listing gains. Such investors perceive that a higher GMP indicates better post-listing performance. Thus, a higher propensity to invest in the IPO generally helps in higher subscription numbers.

How do you perceive the IPO outlook for 2024 in comparison to the relatively profitable IPOs of the previous year?

We expect that barring periods of high volatility in listed equities, the strong momentum witnessed in IPOs will continue. We have seen a clear shift in investor perception with investors preferring proven business models, well-established unit economics and profitability metrics and the ability to generate free cash flows over the next foreseeable future. We expect that both domestic investors and FIIs will continue to seek new ideas to deploy capital. Differentiated companies like Jyoti CNC Automation which we brought to market earlier this year will receive broad-based investor interest.

How do valuations function in the context of startups, and what are the key factors to consider when analysing them?

Startup valuations are determined by various factors, including the stage of the business (concept, early implementation, or take-off stage), the scale of the business opportunity, the ease with which competitors can enter the market, the ability to grow without needing a lot of extra capital, the experience and commitment of the management team, and the runway before the next round of funding is required. In the startup sector, investor preferences have shifted from prioritizing growth at any cost to emphasizing profitable growth.

What is the outlook for the chemical sector and when can investors anticipate a reversal from its downward trend?

The chemical sector witnessed an extremely challenging 12 months. The aggressive pricing and demand-supply mismatch impacted the pricing and ability of Indian chemical companies to sustain margins. We are witnessing the pricing pressure easing off in certain industry segments and expect a broad-based recovery in the 2nd half of FY25.

Disclaimer: The opinions expressed above are personal and may not reflect the views of DSIJ.