Stock Market Slump Hits IPO Buzz: Ola Electric, Firstcry GMPs Drop
The Indian secondary market experienced a sharp decline of nearly 3% at the beginning of the week, driven by weak global cues and profit booking at stretched valuations. Despite analysts suggesting that this sell-off is a temporary volatility and not an indicator of a long-term panic in Indian equities, the primary market, particularly Initial Public Offerings (IPOs), is feeling the impact.
Ola Electric IPO: A Mixed Response Amid Market Turbulence
Ola Electric, the largest IPO of the year, has seen a notable decline in its grey market premium (GMP). The GMP dropped to ₹10 from ₹15 within a few days, suggesting a diminished enthusiasm among investors. At the current GMP, Ola Electric’s stock is expected to list at a 13% premium to its issue price.
The tepid response to Ola Electric’s public offer may also be contributing to the drop in GMP, with the issue being subscribed to only 72% by the second day of the bidding process. Despite the short-term volatility, many analysts maintain a bullish outlook on the IPO from a long-term perspective, citing Ola’s leadership in the domestic electric two-wheeler market as a significant advantage.
“Considering the rise of electric vehicles in the country (with electric scooters currently making up 15% of the market), we believe Ola is well-positioned to lead, being the only dedicated 2W EV player.” Therefore, keeping an eye and a cautious view on the demand and thereby the reduction in losses for Ola, we recommend subscribing to this IPO with a long-term perspective,” said analysts at LKP Securities.
Valuation and Market Comparison
Ola Electric has priced its IPO in the range of ₹72-76 per share. At the upper end of this range, the company will achieve a market cap-to-sales ratio of 6.6x, resulting in a market cap of just over ₹33,500 crore. In comparison, top global automobile entities are currently trading at market cap-to-sales ratios between 1-8x.
Firstcry Owner Brainbees Solutions IPO: Adjustments in Grey Market Premium
The IPO of Brainbees Solutions, the parent company of Firstcry, was anticipated to generate significant buzz due to its size and the backing of marquee investors. However, the grey market premium (GMP) for this IPO has also experienced a correction, falling to an 18% premium from over 25% a few days earlier.
IPO Details and Utilization of Proceeds
Brainbees Solutions’ IPO, which opens on Tuesday, includes a fresh issue of ₹1,666 crore and an offer for sale (OFS) of up to 5.4 crore shares by existing shareholders such as M&M and SoftBank. The company, also supported by Premji Invest, plans to utilize the net proceeds towards setting up new modern stores under the brand ‘BabyHug’, investing in the subsidiary Digital Age, overseas expansion, and sales and marketing initiatives.
Market Sentiment and Investor Outlook
Short-Term Volatility vs. Long-Term Potential
The recent market sell-off has created short-term volatility, impacting investor sentiment and demand for upcoming IPOs. However, seasoned market analysts emphasize that this is a temporary phase, and the long-term growth potential of the Indian equity market remains intact.
Ola Electric and Brainbees Solutions exemplify companies with robust business models and significant growth prospects. Investors are advised to consider these IPOs with a long-term investment horizon, focusing on the fundamental strengths and market positions of these companies.
Investment Recommendations
LKP Securities and other analysts continue to recommend subscribing to the Ola Electric IPO from a long-term perspective. They highlight the company’s leadership in the domestic electric two-wheeler market and the broader narrative of electric vehicle adoption in India as key drivers of future growth.
For Brainbees Solutions, the backing of high-profile investors and strategic utilization of IPO proceeds position the company well for continued expansion and market leadership in the baby products segment.
Conclusion
The Indian IPO market is navigating through a phase of short-term volatility influenced by global economic conditions and market sentiment. Despite these challenges, companies like Ola Electric and Brainbees Solutions present compelling investment opportunities for those with a long-term perspective. Investors are encouraged to assess the fundamental strengths and growth potential of these companies, while keeping an eye on market developments.
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