IPO Rush 2025: FOMO Is Investing In Someone Else’s Conviction Says Nippon India’s Sailesh Raj Bhan

IPO Rush 2025: The year 2025 has been a significant one for the Indian securities market. The words 'volatility' and 'uncertainty' have ruled the conversation this year. Amid this atmosphere, investors, both institutional and retail, have shown faith in the primary market. The IPO space has garnered significant interest, as over 92 companies have raised Rs 1,53,168.64 crore via public issues as of mid-November.

Sailesh Raj Bhan, President & CIO – Equity Investments at Nippon India Mutual Fund, shared his advice on how investors should approach the IPO space at the 9th Value Investing Pioneers Summit organised by the CFA Society India in Delhi.

In a conversation with Outlook Money, Bhan spoke about several hot-button topics related to the IPO space. In 2025, shares of several companies were listed with stellar gains, leaving IPO investors happier. However, this has also given rise to Fear Of Missing Out (FOMO) in the primary market space. Bhan urged investors to avoid falling for FOMO and called it the single biggest driver of inferior returns. Bhan added that investors should avoid chasing listing gains without understanding the business of the company.

“FOMO is the single biggest driver of inferior returns in the future because you are investing in somebody else's conviction, which is not investing at all. These companies will be listed and stay listed. So, there's an opportunity to buy these businesses after you fully understand them. If you learn the business post listing, there is enough time to size it better. So, the opportunity to invest never goes away,” Bhan said.

Bhan added, Investors who really wish to chase the listing gains but also protect their overall returns should consider dividing their portfolio. He added that they should allocate 80 per cent of their effort towards finding long-term returns and chase short-term listing gains with the other 20 per cent.

“You can completely divide your portfolio into A and B sections. A is for investment (80 per cent), and B (20 per cent) is for chasing 10 to 20 per cent gains when you want to put your animal spirits to work in that context. Most mistakes happen in bull markets. So if you keep that 80:20 ratio, there's no problem; you'll survive. But if you reverse it to 20:80, you will not exist in the next bull market because the bear markets generally are very brutal,” Bhan said.

One of the topics around which much discussion has happened is the valuations at which some companies are launching their IPOs and how the valuations are being derived. In recent months, several analysts raised concerns over Lenskart Solutions' high valuation of Rs 70,000 crore. The company was valued at a P/E ratio of around 227x to 238x based on its reported FY25 earnings, which is typically considered very high.

Bhan highlighted the perils of determining a company's value by comparing it to the market values of similar companies. Bhan told Outlook Money that one of the key concerns regarding valuing a company based on listed companies is that the two companies can be distinctly different in terms of the number of years they have been in the industry and the size and scale of their operations. Thus, he highlighted the need to adhere to a margin of safety while considering the valuation of IPO-bound companies with high valuations.

"You're comparing a company that has been listed for 30 years; you know its behaviour, you understand that company very well, and you're comparing it with a business which is very young. I understand the practicality, like you have to benchmark, you have to compare. Given that we don't have a 5-10 year track record of numbers to analyse and get a sense of how the businesses have behaved in different cycles, we would prefer a little more margin of safety than normal,” Bhan said.

Bhan urged investors to be more risk-averse while applying for IPOs. He added that while there are no regulatory solutions that can stop people from losing money in the primary market, being pragmatic can save investors from buying at high valuations and losing money.

“There is no free money lying in the market” is what an investor should understand. So you're taking a risk to get the returns out of it, and hence the judgment has to come from the investor side of it. I think it's a market where the investor has to be more pragmatic, practical, and maybe a little more risk-averse than they normally are in the market because of this thing (valuations). And obviously, some of these businesses are also world-class. The problem is most of them might get a very high valuation, which I think can hurt,” Bhan said.

Bhan also pointed out certain red flags that primary market investors should look out for before investing in IPOs. He urged investors to carefully assess the accounting practices of the IPO-bound company they are investing in. He urged investors to avoid companies that have a very aggressive accounting practice wherein the accounting profit is substituted for the real profit. While accounting profit only considers explicit costs, real profit, or economic profit, considers both explicit and implicit costs.

“Businesses can follow aggressive accounting policies or very conservative accounting policies. If they follow conservative accounting policies, a true picture is visible. The minute you start following aggressive policies, then you end up not understanding what the real profit in the business is and how much is accounting profit,” Bhan said.

Bhan added that investors should also look at the cash flow that the company is generating and how they are using the cash flow. He urged investors to prioritise companies that invest in real growth investments.

“Investors should emphasise how much cash the business is generating today and how the flow of that cash is there. Is it going for a new investment for growth? Or is it going for buying growth by throwing money? So if it's going for real growth investments that are required and can benefit in five to ten years, then it is fair enough. But if it is going to just buy near-term growth so that you get great valuations, you have to be careful,” Bhan said.