Market Expert Sounds Alarm on Inflated IPO Valuations, Questions Profitability of New-Age Firms

In a recent statement that has sent ripples through the investment community, Ajay Srivastava, Managing Director of Dimensions Corporate Finance Services, has raised serious concerns about the trend of inflated valuations in initial public offerings (IPOs), particularly those of new-age companies.

Lenskart IPO: A Case in Point

Srivastava specifically pointed to Lenskart's upcoming IPO as an example of this troubling trend. He questioned the rationale behind what he termed as 'nutcase valuations' for companies that have yet to demonstrate a clear path to profitability.

Criticism of Consumer-Facing Startups

The market expert was particularly critical of consumer-facing startups that continue to operate with significant losses while demanding high valuations. He drew a stark comparison with AI-driven companies in the United States, noting that even those with impressive growth rates of 30-50% don't command such premium prices.

Paytm: A Cautionary Tale

Srivastava cited Paytm as a prime example of the potential pitfalls in this trend. Despite a massive IPO, the company has struggled to deliver on its promises, serving as a warning to investors about the risks associated with highly valued but unprofitable entities.

Concerns Over Mutual Funds and Corporate Governance

The critique extended beyond individual companies to institutional investors and regulatory bodies:

• Mutual Funds: Srivastava expressed disappointment in the level of scrutiny applied by mutual funds when investing public money in these high-valuation IPOs.
• Corporate Governance: He raised alarm bells about the standards of corporate governance in some of the companies going public.

Advice to Investors

In light of these concerns, Srivastava offered the following advice to investors:

• Focus on established listed companies rather than chasing high-risk, unproven business models.
• Question the wisdom of retail investors taking on 'project risk' with untested business models.
• Exercise caution when considering investments in the new-age sector, particularly at current valuation levels.

Market Implications

While acknowledging the potential of the new-age sector, Srivastava's comments highlight a growing unease among market veterans about the sustainability of current valuation trends. His critique serves as a reminder for investors to conduct thorough due diligence and maintain a balanced perspective when considering investments in upcoming IPOs, especially those of loss-making entities commanding high valuations.

As the market continues to evolve, the tension between innovation and valuation will likely remain a key topic of debate among investors, analysts, and industry experts alike.