Investors need to be cautious during the boom phase of the primary market

- The game of raising a company's valuation by bringing in new investment before launching an IPO

Following the successful listing of a startup company in the Indian stock market, a new chapter has begun in the country's primary market. Due to this recent success, other startups have also been thumping to bring in IPOs. Of these, two to four companies have already entered the final phase of the exercise. Thus, in the near future, IPOs of companies as well as startups will see a new boom in the primary market.

However market experts are expressing uncertainty on the issue. According to experts, a number of companies have entered the capital market since the 1990s. But investors in all these companies are not likely to get high returns. Some of these companies do not even exist at present.

With the recent approval by SEBI for listing startups, companies in the sector have also started entering the capital market with the issue. However, startups have resorted to increasing their value by bringing in foreign investment before launching the issue. As foreign investors invest in startups, their valuations go higher, which in turn attracts investors to IPOs.

At a time when the game of raising the valuation of a company by bringing in new investment before launching an IPO is rampant, in the interest of small investors in the primary market, the provision that no new investment will come during the specified period before such IPO comes is regulatory Securities and Exchange Board of India (SEBI) It should be enforced and controlled.

Large foreign investors like hedge funds, private equities invest in companies that are making huge losses and are unlikely to turn a profit in the near future. They have different calculations behind this, which ordinary investors cannot follow and if they follow, it becomes risky. As the company, which has been making losses for the last several years, is about to launch an IPO in the near future, it has made it clear in the prospectus that it will not say when it will make a profit. Even so, owning one is still beyond the reach of the average person.

The US and European countries have adopted very liberal monetary policies in the wake of the 2008 global recession following the 2008 mortgage crisis in the US and the subsequent Corona epidemic in 2014, which has brought interest rates to zero or below zero. In comparison, high interest and inflation rates in developing countries, including India, have led to a flow of money from these countries to developing countries. Where investors are exposed to high returns even after taking the risk of depreciation in the currency of those countries. Factors such as India's democratic structure, liberal government policy towards foreign investment and favorable economic conditions make India more attractive to foreign investors than other developing countries.

In addition to the new business ideas of startups, this investment has come from foreign investors for their own reasons. The expansion of the economy, which is attracting huge amounts of foreign investment, is just a measure of the vast horizons. It does not signal a cure.