Platform has become a battleground between proponents of old style investing and new class of investors who believe startups cannot be valued using old metrics
RK Gupta’s mailbox has been flooded with queries from worried investors after Paytm shares hit the lower circuit on debut on Thursday. “It was the biggest IPO in India, but the company didn’t manage it well,” said Gupta, who runs the popular twitter handle IPO_Mantra. “I keep telling people that a big brand doesn’t always translate into big returns. Be cautious,”
The Delhi-based social media influencer has been adding 15,000 to 20,000 new followers every month, and he’s not the only one. As markets reached record highs, and the IPO market boomed, Indian market participants are skewing younger and younger. In the last 18 months, 29 million new demat accounts were opened, and the average age of a new demat account holder has also come down to 29.
Younger investors lean towards picking tech stocks and are also heavy users of social media. Market observers say that the majority of Indian retail investors put money in IPOs without doing any research on the company and without even reading the company’s DHRP or RHP.
Their decision is driven by one or a combination of a few factors: euphoria around the bull market, the hype around popular companies like Zomato, Nykaa and Zomato, the big listing gains that a few recent IPOs have recorded, a cursory look at high grey market prices, buzz in informal WhatsApp/Telegram groups, or views of influencers on Youtube.
“Social media is playing an important role in identifying investment opportunities and creating buzz around companies and IPOs,” says Neil Bahal, Founder & CEO, Negen Capital, a portfolio management firm. “If the top 4–5 influencers talk about a company, it makes a difference.”
On November 8, Chicago-based fund manager Anurag Singh of Ansid Capital tweeted a long thread on the PayTm IPO that quickly went viral. The first tweet said, “There is a new game in town. The rules are ‘well laid out’ by VCs,’ and over the next 20 odd tweets, he dissected the company’s business and revenue model.
Singh concluded, “Amazon and Flipkart inspire excellence. Paytm looks like a mediocre company dominated by giants.With dreams bigger than its financials, Paytm is asking for valuations at 65 percent of Axis Bank, 40 percent of HDFC Bank. If your mutual fund buys this IPO, stop that SIP.”
“There weren’t enough contrarian views in the market. If loss making companies are coming to the market, they should be able to answer the questions. I wrote what many experts were thinking but not saying,” said Singh.
And as the internet darlings like Zomato, Nykaa and PayTm listed, social media has become a battleground between proponents of old style investing and a new class of investors who believe that new loss making internet companies can’t be valued using old metrics like price-to-earnings ratios or profit margin ratios.
“The old style investors missed the tech boom, the crypto boom, and the NFT boom. Some of these new companies, like Nykaa, are choosing to invest in growth over profitability. They are launching new products, creating a bigger brand or strengthening their organisation. Of course, some of these startups are also clueless about profitability—that’s also a fact. But the good ones that might appear expensive will appear cheap 3–4 years later, ” says Bahal, who is also a well-followed influencer.
One of the most prolific tweeters on IPOs on Twitter has been 26-year-old Aditya Kondawar of JST Investments, whose followers have tripled to 62,000 followers since the IPO boom began a few months ago.
His elaborate posts on companies after reading a draft red herring prospectus (DRHP) and culling out relevant information have been very popular. “I post quality investing content, but the IPO related content has really picked up. I am active on Twitter, Telegram, LinkedIn, and 10–12 WhatsApp groups. It’s been crazy just keeping up, ” he says.
Gupta of IPO Mantra claims to go even deeper, “I talk to lead managers, HNIs, and brokers to spot good opportunities and only then publish my views.”
During the pandemic, Youtube played an important part in popularising stock market investing, often with videos that linked to discount brokerages.
“I get 10-15 emails every day to collaborate and review IPOs. But I don’t have a tie-up with any discount brokerage or a distribution setup. I believe, the current euphoria will just aid transfer of wealth from impatient to patient investors,” says Parimal Ade of Yadnya Investment Company, who runs two Youtube handles with nearly 10 lakh followers.
Popular Youtube influencers are garnering big followings. For example, Rachana Phadke Ranade has nearly 3.19 million subscribers on Youtube, PR Sundar has 7.59 lakh, Neeraj Joshi has 16 lakh and Siddharth Bhanushali–6.51 lakh, among others.
There are also a growing number of experts who are trying to warn retail investors about factors to consider before investing. For example, many IPOs have a large component of OFS (offer for sale) by promoters and PE funds, (62% of total offer in 2021).
“There is a cocktail—some real juice, some intoxication and some froth. We have been actively highlighting many such IPOs, especially where prices of selling shareholders have been marked up 3-10X in the year before listing, ” said Sandeep Baid, Co-founder of Multiple, a new social network for investors.
Experts say that recency bias is kicking in and new retail investors are being swayed by the returns of the last 18 months when the market was only going northwards.
Almost all influencers say that it won’t be pretty when the tide turns.
“I put out charts, numbers, and data after a lot of primary and secondary research. The new age DHRPs don’t give out relevant information. But these days, everyone is a guru and all investors want quick gains. And when the market falls, people won’t forget. So I tread carefully,” says Kondawar.