Overvaluation in IPOs is surely a concern, says Jitesh Agarwal of Treelife

In an interview with MintGenie, Agarwal said that investors must regularly review their mutual fund holdings.

Edited Excerpts:

Q. Many investors are queuing up to invest in IPOs. What factors do you advise investors to look into before putting their money into any of them?

Many investors end up subscribing to IPOs based on the brand value however it is necessary to evaluate the following factors before investing in a company:

• The company’s current financial health
• Industry prospects
• Market competition
• Credibility of the management team
• Offer price in relation to the company’s valuation

Q. Many companies raising money through IPOs are overvalued. This has caused unrealistic expectations and losses to investors due to corrections. What is your perspective on the same?

Overvaluation in IPOs is surely a concern as it can lead to unrealistic expectations and subsequent market corrections which could erode investor wealth, especially retail investors. Investors should be cautious and conduct thorough research to understand the true value of the company against its market price. 

Take, for example, Paytm/Nykaa where both companies experienced significant share price declines post-IPO, raising concerns about overvaluation.

Q. Companies looking to go public must prioritize good governance and transparency. Why do you think that investors ignore such essential factors before assessing their choice of investment?

Investors generally overlook governance and transparency because of the temptation to earn quick profits, market hype, or insufficient information. It’s important for investors to prioritize these factors to ensure long-term sustainability and mitigate any foreseeable risk.

Q. Many mutual fund houses are investing in overvalued businesses. Do you think that investors must refrain from continuing with such mutual fund holdings?

Investors especially retail should regularly review their mutual fund holdings and assess whether the fund’s investment strategy aligns with their risk appetite and investment goals. If a fund consistently invests in overvalued businesses, investors should reconsider their current investments and explore more prudent options.

Q. What is your advice to companies aiming to make a successful transition to the public markets?

Companies should focus on establishing strong governance, financial transparency, a clear business strategy for the future, and effective communication with potential investors about the current business. Building a track record of profitability and clear growth prospects is also crucial for a successful transition. 

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Updated: 26 Nov 2023, 10:29 AM IST