The IPO frenzy has caught Dalal Street by a storm. The last few weeks have seen a slew of new listings and it doesn’t stop there, with more and more new age companies thinking it’s the right time to head to the bourse.

You may call it the Zomato effect, but newly listed Indian stocks are beating the benchmark indices mostly helped by a record pace of initial public offerings.

In fact, firms that listed in the past two years have outperformed the Nifty 50 Index by more than 40% this year, the biggest gap since 2014.

So, is this momentum going to last and for how long? Pranav Haldea, MD, at Prime Database believes that IPOs are still a risky asset and that retail investors should be wary.

“It is even more risky to subscribe in IPOs than to invest in already listed companies because of the amount of disclosure which are there, for an already listed company those are much higher. For already listed firms there is a true price discovery by virtue of being listed for a certain amount of time”.

But if one has to gauge these new listings by face value stocks like that of Zomato have already rewarded investors who got lucky with an IPO allotment. Zomato which is listed at a price band of Rs 76 has seen a 75% appreciation, Barbeque-Nation Hospitality which listed at an IPO price of Rs 500 is trading today at 130%. This would definitely help create excitement in the primary market. How should one look at this frenzy, especially since many of these companies are still loss-making?

“Markets are always forward looking and valuing these companies on the basis of the future potential they represent. We don’t have too many such companies in the secondary market. So, if they get subscribed by different investors, it shows that the price was attractive enough to put in their money,” Haldea adds.

One must not discount the availability of liquidity in the market, especially since the pandemic which has seen markets rally to break new records. But once listed these stocks must be viewed with the same lens as done for other listed companies i.e to study the company, its financials, its management, its corporate governance factors and also take cues from how institutional investors are behaving with the given stock.

Does this mean the froth in the primary markets will finally settle? Tech startups are seeing tremendous traction in primary market. Haldea says that it is too soon to judge. ” Globally, we’re on a cusp of digital transformation and some of these companies represent that. And while there aren’t too many of these companies already out there to compare them with, the appetite for a different kind of investor population is available here”.