2021 was for the New Age
2022 was for the Old Age
2023 may well be about Blunt Edges
In the year 2021, 63 companies lapped up Rs 1.2 lakh crore through the IPO market. But if you dive deeper you will know that close to 40% of the IPO proceeds went to the top 9 new-age companies.
|
Top 9 New Age IPOs (based on Amount Raised) |
Amount Raised in IPO in 2021 (INR Cr) |
|
Paytm |
18,300 |
|
Zomato |
9,375 |
|
PB Fintech |
5,625 |
|
Nyka |
5,352 |
|
CarTrade Tech |
2,998 |
|
MapmyIndia |
1040 |
|
RateGain Travel Tech |
599 |
|
Nazara Tech |
583 |
|
Easy Trip Planners |
510 |
|
Total Amount raised by Top 9 New Age IPOs |
44,382 |
And the headline of FortuneIndia at the end of 2021 was this.
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Today, barring Easy Trip Planners, stock prices of all these New Age businesses are down between 25% to 75% from their IPO price.
And if you are optimistic about Easy Trip Planners just based on the price movement, I would urge you to look at this from Mr. Nitin Mangal
Of the 11 Indian startups listed on the stock exchanges in 2021, only three startups did so in 2022.
Price Changes the Perception
This is how the narratives changed at the end of 2022.
Ab Tera Kya Hoga Kalia (read New Age companies waiting to get listed)?
Image courtesy: Inc42
And if you go by the recent strong reaction of the investing community after Mamaearth filed its DRHP, you can very well understand what the market pulse is at the moment.
In fact, Ghazal Alagh, the founder of Mamaearth, had to release a statement defending that they have not quoted any valuation for the IPO yet. You may look at it here.
Now let’s take a step back and see the pattern. New Age IPOs making investors go crazy at the time of listing and disappointing them after listing is not a novel thing. We have been seeing this for ages.
Dotcom IPOs in 2000
Infra/RE IPOs in 2007
Pharma IPOs in 2016
They all had a similar pattern.
A NEW item was packaged in a SHINY ATTRACTIVE bag with a strong FOMO (Fear Of Missing Out) driving CRAZY demand at OBSCENE valuations.
But why do we repeat it all the time? The answer is Neophilia
Adult investors, like you and I, behave like young kids when new opportunities arrive. While we are always taught that a bird in hand is worth two in the bush, our eyes are always glued to the bush. And it is not restricted to IPOs only. We do the same thing when we evaluate opportunities from the listed space for our investment portfolio. A company that you researched recently almost always seems more valuable than the one which is already in your portfolio.
And some of the biggest mistakes for any investor are not of Commission but of Omission.
Those who invested in new-age businesses in 2021, if they look at the performance of their friends who invested in old economy stocks at the same time, might feel like this.
Just for facts, Coal India in the year 2022 has been one of the top performers in NIFTY50.
The same investors who wanted to buy New Age businesses at any price in 2021 are now queuing up for the old economy stocks. First, they could not digest that a small set of startup founders and angel investors made a killing on their early investments. Now they can’t believe that a small set of public investors are making money on their early bets on old economy stocks.
It is not greed that drives the world. It is Envy.– Charlie Munger
And if you expand your investible horizon from the top 50 to the top 500 stocks, you still see a clear trend for the year 2022.
Old Age In. New Age Out.
Source: Capitalmind
I am not getting into a debate on what is better and what is not. And neither do I believe in blaming & shaming the listed startups only because the price of their stocks has fallen. As an investor, I may be skeptical about many of these new-age business models. But as an Indian citizen, I see the immense value proposition they bring to my country and our people.
I believe there are Pros & Cons of both New Age & Old Age businesses. And you have to look at them individually. Case by Case.
At least, the Old Age stocks today are nowhere compared to the obscene valuations that New Age stocks were in 2021. However, it would also be naive to believe that the Old Age stocks will reach a similar kind of valuation that the New Age stocks in 2021. While anything can happen in the market, one must understand that it’s a probabilistic game.
We at Smart Sync Services, have stocks from both the old economy and new economy in our portfolio. And No. We didn’t buy the New Age Stocks at the height of the valuation in 2021. But only in 2022 after a steep fall post-listing. It doesn’t mean that we have the perfect foresight of what will work and what won’t. 🙂
But what I mean to say is that the market often paints the whole industry with the same brush. However, in the long run, the men are separated from the boys. And your job is to find those men whom you can bet on. Of course, you will make mistakes. But the more fatal ones are where you blindly fall for Neophilia.
In 2021, New Age was new.
In 2022, Old Age is new.
But in 2023, and maybe every year, you don’t realize how your edges get blunt.
Now, what do I mean by blunt edges?
Look at this Knife below.
Have you ever wondered, why it is easy to cut with a sharp knife than a blunt one?
The pressure exerted by the sharp knife edge is more than that exerted by the blunt one. It is because the area on which force is exerted with a sharp knife is very small. Thus, it is easier to cut with the former than with the latter.
And there is a lesson for investors like you & me. We make our edges blunt by not sharpening our knives (read minds) enough over long periods. And it gets blunt over time as we start plucking the seemingly low-hanging fruits of investing in the name of the New Age, or the Resurgence of Old Age. You need to exert force on a smaller area (call it your circle of competence) to make it easier for you to cut. You have a knife that has to be put to work and sharpened periodically to help you cut (read invest) better. Beware of the edges getting blunt if you stop using that knife.
So,
2021 was for the New Age
2022 was for the Old Age
2023, and maybe every year is all about Blunt Edges
Thank you for reading.
Happy Investing 😊
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