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Short supply doesn't mean great value

To take advantage of scarcity premium, apply in IPO

Tinesh Bhasin  |  Mumbai 

With the market going great guns, there are a large number of companies which are getting ready to list themselves through initial public offerings (IPOs). Many of them are big names, such as Reliance Nippon Asset Management Company, ICICI Lombard and HDFC Life, among others. And there is something unique about all these stocks – either there are no or just one or two listed peers. In the absence of listed peers, these stocks are likely to command scarcity premium. The question: How much premium should a retail investor pay for a stock which has none or few listed peers? ...

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Short supply doesn't mean great value

To take advantage of scarcity premium, apply in IPO

When Justdial came up with its initial public offer (IPO) in 2013, investors lapped up the shares. It was subscribed around 12 times. Its unique business model was one of the biggest reason for investors' interest. Many, therefore, assigned a scarcity premium to it. The issue price was fixed at Rs 530 a share. The stock now trades 416.25."Companies with unique business models or those which are the only ones listed in their sector get a scarcity premium. But if the profit growth doesn't meet investors' expectations, they start to lose interest in the stock," says G Chokkalingam, founder and managing director, Equinomics Research & Advisory.When markets are in a bull run, like they are at present, analysts recommending stocks assign scarcity premiums to some companies to justify their valuations. It is more often seen during the IPOs. As there are no other listed companies to compare the valuations with, many investors rush for such stocks based on analysts' recommendations. They .. With the market going great guns, there are a large number of companies which are getting ready to list themselves through initial public offerings (IPOs). Many of them are big names, such as Reliance Nippon Asset Management Company, ICICI Lombard and HDFC Life, among others. And there is something unique about all these stocks – either there are no or just one or two listed peers. In the absence of listed peers, these stocks are likely to command scarcity premium. The question: How much premium should a retail investor pay for a stock which has none or few listed peers? ... image
Business Standard
177 22

Short supply doesn't mean great value

To take advantage of scarcity premium, apply in IPO

With the market going great guns, there are a large number of companies which are getting ready to list themselves through initial public offerings (IPOs). Many of them are big names, such as Reliance Nippon Asset Management Company, ICICI Lombard and HDFC Life, among others. And there is something unique about all these stocks – either there are no or just one or two listed peers. In the absence of listed peers, these stocks are likely to command scarcity premium. The question: How much premium should a retail investor pay for a stock which has none or few listed peers? ...

image
Business Standard
177 22