Deepak Shenoy weighs in on Resourceful Auto IPO, says 'Outrage over oversubscription nonsensical'

Capital Mind's Deepak Shenoy has written that he is going to miss out on this IPO and that he has no problems with that because there will be other opportunities.

The founder of Capital Mind, Deepak Shenoy, has taken a contrarian view on a recent SME initial public offer that saw stupendous subscription, which sparked an animated debate online.

Resourceful Automobile, an SME that operates just two Yamaha showrooms in New Delhi under the brand name Sawhney Automobiles and employs around eight people, is out to raise Rs 12 crore. What caught everyone's attention is the oversubscription of 400x! The IPO price is Rs 117 per share and rumours have it that the grey market premium is 72 percent.

Comments on social media called the investor interest in the IPO "crazy", "insane" and so on, and have said that the IPO is a sign that SME segment is overheated.

Shenoy has taken a different view.

According to his post on X platform (formerly Twitter), the outrage over the oversubscription is nonsensical, the general understanding of how much investor money has gone to the company is flawed, and people are missing the whole point about an SME exchange, and the bigger point of investors' right to choose and investors' responsibility.

That said, he has written that he is going to miss out on this IPO and that he has no problems with that because there will be other opportunities.

Shenoy wrote that oversubscription should not be a cause for concern: "Firstly the oversubscription is BS - your money stays in your bank account and you simply cannot get an entry easily, so you keep money in your account and bid - if you don't get allocation, it will just get released and you still earn the interest. So oversubscription nowadays doesn't make sense to look at."

He said that smaller IPOs are getting oversubscribed because investors have been cut off from a big source of funding for the bigger IPOs. He wrote, "Even earlier people would borrow like crazy, 100-200 cr. for four days, to fund an ASBA application, from NBFCs. RBI and SEBI put an end to that, so now the smaller IPOs are getting oversubscribed."

Netizens have expressed shock that a company that was looking to raise so little was given Rs 2,700 crore, which these people calculated based on the oversubscription numbers.

Also read: Resourceful Auto SME IPO: Investors mystified over bumper subscription for firm with '2 Yamaha showrooms, 8 employees'

Shenoy has disabused people of that notion.

He wrote that no one has given this company Rs 2,700 crore. He pointed out that money has not left the investors'/applicants' bank accounts. In fact, according to Shenoy, if Resourceful tried to raise Rs 2,700 crore, the company would get nothing because the IPO's appeal is its "tiny" size.

Then he took on the concern that the IPO may be a sign that people are investing in "crappy" companies. To this, he cited the example of Jet Airways, which "traded for many years after it was dead".

Rationality is a myth

He shot down the idea that there was ever rationality that moved the market. He wrote, " Have put notes here on twitter, in times that were less heady, that a company is GOING TO WIPE OUT ALL ITS EQUITY and your money is going to become ZERO, and people have still bought enough for upper circuits. So don't even start with "rationality" and all that. People will buy anything, at any time, if there is a suitable narrative."

Shenoy said that he does not know if this company is "crappy" because he hasn't analysed it. On worries that the company is expensive, given that it is asking for a valuation of Rs 31 crore when its revenue was just Rs 1.5 crore last year, Shenoy wrote that he has seen more "expensive" IPOs than that.

He pointed out the merit in small companies raising small money transparently through the listed markets. He asked if it wasn't a better option that the company raising debt and raising money from private investors whose only focus seems to artificial intelligence (AI) now.

He wrote, "The bigger point is - no one is forcing you to buy into this or any IPO. You can take it as a sign of euphoria in the markets, if you like. But it's just wrong to try and block such companies from doing IPOs - if anything encourage more.

"Yes, it could go bust or the business may fail. You don't get a free ride on return, boss. There is risk. If you don't understand it, please do fixed deposits. Don't apply on FOMO."