If you list out some of the most commonly held myths about stock market investing of all times, this may rank amongst the top 5.

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The parabolic market rally of the past 16-18 months might have stumped those who took such a myopic view and blindly excited debuting stocks on the day of listing.

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Some companies were the best buys even on their debuting day purely going by their post-listing performance until now—IRCTC, Clean Science and Technology, Paras Defence & Space Technologies Ltd. to name a few (not recommendations).

We spoke to Vinit Bolinjkar, Head of Research, Ventura Securities Ltd to help us decode the calculation behind IPOs and what should investors watch out for -

There is another trend that emerged during the pandemic — investors who don’t get IPO allotment tend to chase stocks post listing, irrespective of valuations.

This is another end of the spectrum.

To add to it, Zomato’s blockbuster stock market debut took the IPO frenzy to unprecedented heights.

It has been a confidence booster not only for other startups but also for investors.

Lately, Nykaa received an overwhelming response and the issue got oversubscribed 81.78 times.

Qualified Institutional Investors (QIP) book was oversubscribed 91.18 times and the retail portion witnessed 12.24 times higher bids.

Considering a busy IPO schedule and their valuations, it seems that startups are confident of raising money at any valuation. And even investors appear to be okay with paying any multiple as long as these investments fetch profits.

What do we think about the present situation in the IPO market?

Neither all newly-listed stocks witness runaway rallies and nor do we suggest you chase them post listing.  But why not take a fresh look once the listing fever recedes?

In the recent past, our research team at Ventura Securities Ltd has successfully identified newly-listed companies that went on to register further gains.

For instance, it recommended Stove Kraft on April 27, 2021, at Rs 471 which traded at Rs 1,074 as of November 04, 2021. As you may know, the stock got listed in February 2021 at 22% premium over its issue price.

The research team has again taken a holistic view of the situation— it’s neither excited about overwhelming listings nor excessively worried about high valuations. It believes in ditching thorns and keeping the roses.

The Ventura’s recently released report titled Diwali Picks Samvat 2078 has recommended five stocks of which three got listed in 2021. You will be surprised to know four of them belong to the food, hospitality and lifestyle segment.

Newly-listed companies:

If companies such as Nykaa and Zomato are to succeed, three out of five companies are likely to do well in the future.

Consider an idea discussed in the report for instance, Burger King.

It is a Quick Service Restaurant (QSR) company, which runs 270 stores currently. It endeavours to increase the store count to 700 by FY26.

Furthermore, Burger King India is gearing up to acquire 85% stake in Burger King Indonesia.

Burger King India is expected to clock a revenue of Rs 1,054 crore in FY22, whereas, the combined revenue of operations in India and Indonesia is likely to expand to Rs 7,000 crore by FY27.

That’s the size of the potential opportunity.

Another company is Manorama Industries that will help you take exposure across several themes, not just food.

It’s the only manufacturer of several value-added, tailor-made products that go in the making of Cocoa Butter Equivalents (CBE).

The company’s products are essential ingredients for the cosmetics industry as well.

Moreover, a unique waste to revenue business model of Manorama Industries allows it to score high on ESG (Environmental, Social and Governance) compliance.

On the back of increasing demand for CBE, the company is expanding its production capacity by 170%. Manorama Industries is recognized as the star export house by the government of India.

It’s noteworthy that the Food Safety and Standards Authority of India (FSSAI) has allowed chocolate manufacturers to use 5% CBE from January 2018. Earlier the ceiling was 2.5%.

This gives a lot of revenue visibility to the company from India operations as CBE consumption in India is likely to increase 150% between 2018 and 2022.

In summary

Don’t take a myopic view on companies that are going public. Although, you may hear diverse view about them.

Some won’t be convinced with their business models others would have problems with valuations.

But as long as the company management knows what they are doing, the potential market size for companies that are going public these days is huge.

(Disclaimer: The views/suggestions/advice expressed here in this article are solely by investment experts. Zee Business suggests its readers to consult with their investment advisers before making any financial decision.)