High valuations must be justified by growth visibility

At an event in Kolkata, Securities and Exchange Board of India’s Whole-time Member Kamlesh Chandra Varshney urged merchant bankers to adopt realistic pricing strategies for large initial public offerings (IPOs).

- HIMALI PATEL

Excessively high valuations, said, often lead to post-listing slumps, eroding retail investors’ trust.

Why 1POs are priced high

In 2024, 337 companies went public, raising nearly %1.67 trillion. “When market sentiment is euphoric, promoters frequently view these windows as an opportunity to unlock maximum value. In such conditions, and if the sector has an exciting story, investors almost always pay a premium,’ says Trivesh D, chief operating officer, Tradejini.

Noteveryone agrees that IPOs are overpriced. “The proof of realistic pricing is that the IPO gets subscribed. If the pricing was too aggressive or greedy, investors would reject it, as has been the case for several issues in the past. After all, no one is forced to buy an IPO,’ says Pranav Haldea, managing director, PRIME Database Group.

Risks arising from high valuations

Expensively priced IPOs can be risky, even for short-term punters.

Which valuation metric should you use?

■ Valuation metrics must match the nature of the business model