Scam 1992 and brands they love: Factors driving young India's interest in new-age IPOs

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For 20-year-old Srikanth Mani and his friends, their interest in the stock markets and its opportunities was spurred by the web series Scam 1992, a biography on the rise and fall of erstwhile stockbroker Harshad Mehta who was famously known as the Big Bull.

The show, followed by Zomato’s listing gains, drove him to look at the slew of internet IPOs seriously and Mani, a bachelor of business administration student, is already planning to begin his stock investment journey through an initial public offering (IPO).

Historically, investor interest in internet companies has been high every time they chose to go public. A lot of this is driven by the relatability of these brands as names like Apple, Google, Facebook became a part of our daily lives.

India is witnessing a similar phase with relatable names like Nykaa, Policybazaar, Fino Payments Bank and the country’s largest-ever IPO by Paytm. In an environment where traditional investment avenues are either costlier than ever or are fetching the lowest-ever interest rates on deposits, India’s young population is looking at newer avenues to maximise their returns. That journey for many in the 18-to-35-year age group begins with the stock markets.

Post-pandemic momentum

The year 2021 has been stellar as far as new share sales are concerned, with internet companies walking down D-Street. These IPOs seem to have managed to bring in many first-time investors who were watching from the sidelines as Indian stock markets continued their bull run in 2020 through 2021.

“Internet businesses specifically are popular because they can resonate with the crowd. For a lot of these upcoming IPOs you will realize that you are users of those products, which means something for investors,” Lalit Keshre, co-founder and CEO of investment platform Groww, told Moneycontrol.

However, this interest is not a one-off. After the initial stock market crash in March 2020, what followed was increased awareness among Indians. Amid lockdowns and staying at home, many made that investment they had been contemplating.

Data from the Securities and Exchange Board of India (SEBI) shows that 14 million new demat accounts were opened in FY21, compared with only 4.9 million in FY20. On average, about 1.2 million new demat accounts were opened a per month in FY21 against 0.42 million a month in the preceding year.

The momentum has spilled over to FY22 with 2.45 million demat accounts opened on average per month between April and June 2021, according to SEBI.

Independent investment adviser Sharmila Joshi said, “The current euphoria over IPOs cannot be seen in isolation. The primary market, i.e., where securities are first created/listed, always benefits from a bull run in the secondary market where trading is already ongoing.”

Why are new-age investors interested?

Mani is not alone in choosing IPOs as an entry point into the equity market. For human resources professional Sanjana Kumar, 30, Nykaa’s IPO became the final push to enter the stock market. Nykaa being profitable and a brand she uses often made it an easy decision for her.

“I have a basic understanding of how the stock market works, but not enough to choose an existing stock, figure out the right timing to invest and take a risk-based on that. So, I had decided to start off with an IPO,” Kumar said.

With ballooning premiums in the grey market, known brands and a general attraction around these names, first-time investors do not have to spend time worrying about which stock to start off with. An IPO will either do well or it won’t. With a consensus that an IPO is likely to succeed, first-timers can test the waters and gain the confidence to invest further.

A testament of this is that stockbroking and investing platforms like Zerodha, Upstox, and Groww have seen an uptick in new-age investors in sync with these new IPOs.

“We have seen a huge interest among investors to invest in IPOs, with 45 percent growth in Q2FY21 vs Q2FY20. We are likely to see the IPO euphoria continuing in the coming months, with plentiful liquidity from all investors, including domestic and foreign institutions,” said Upstox co-founder and CEO Ravi Kumar.

Zerodha founder Nithin Kamath recently tweeted that unlike previous bull runs, most of the new investors starting their investment journeys through IPOs are below the age of 30.

“The good thing is that they are younger and have less to invest. Meaning they can learn hands-on and bounce back quicker if money mistakes are made,” Kamath’s tweet read.

The internet companies IPO parade began with Zomato listing at a premium of 66 percent. Those who missed out on the Zomato bus do not want to repeat the same mistake with Nykaa, Paytm or Policybazaar.

“The FOMO (fear of missing out) part of it is very true as well. My generation as a whole is always looking to just be a part of something. And a small part of that probably goes towards the stock market as well,” said Mani.

Investing easier than before

Among the factors that convert those contemplating putting money in equities into actual investors is the ease of subscribing to an IPO.

For Kumar, the process was made easier as her KYC or know your customer process was already through thanks to a previous mutual fund investment on one of the fintech stockbroking platforms.

“Since my KYC was done, the platform just pulled out the data for opening the demat account. I did not have to fill any details again. So it was pretty quick,” Kumar explained.

The unified payments interface (UPI) which was added as a mode of subscribing to IPOs back in 2019 too has made it easier. Kamath in his tweet credited UPI for helping non-bank brokerages like Zerodha enlist new users ahead of these IPOs. Upstox’s platform, too, sees a majority of IPO subscriptions happen through UPI.

According to National Payments Corporation of India CEO Dilip Asbe, UPI now makes up 50 percent of retail IPO subscriptions. A million new UPI mandates were created during Zomato’s IPO alone in July, as per reports.

“India Stack has probably been responsible for a lion's share of disruption and innovation in India Fintech,” Kamath’s tweet added.

The worries around high valuations

Of the long list of internet IPOs, only Nykaa and Fino Payments Bank are earning profits, while Zomato, Policybazaar and Paytm are yet to do so. Despite this, Paytm, for example, is expected to list at a premium of $20 billion or above and its price band has been set between Rs 2,080 and 2,150 per share.

With these companies yet to turn profitable, are new retail investors eyeing these stocks to be part of their portfolio for the long term?

“A lot of the interest around IPOs is only to benefit from listing gains, and that pattern of investment is only increasing. Apart from two to three IPOs, all other stocks in the past few years have seen people exit on day one of listing,” said investment advisor Joshi.

With an eye on quick gains and little concern about a company’s long-term play, a lot of investors are willing to play along with the high valuations. In fact, many borrow money to just invest in an IPO and make the most of listing gains, making repayments once they exit on the first day.

When looking for a long-term investment, the new-age investor is well aware of the right metrics to look for and has all the tools available for it.

Mani said, “The world has drastically changed. Traditional methods of investments are having to bow to cryptocurrencies and NFTs (non-fungible tokens) which are giving phenomenal and, honestly, incomprehensible returns. I believe that traditional methods like gold, real estate, stock market will outlive the new avenues.”