The IPO Rout: What it reveals about smart money?

What is even more intriguing is how the who-is-who of the mutual fund industry, supposedly smart money, queued up for the anchor book to pay up hefty premiums while similar businesses with comparably better return metrics were going for a song in the secondary markets. This paradox raises very important questions: Was it pure FOMO (Fear of Missing Out) driven by greater fool theory? Did the mutual fund managers undergo irrational pressure to deploy capital in primary issues due to supply constraints in the secondary markets? Or was there an expectation that liquidity-fueled momentum would continue to drive up prices post-listing? Or was it a combination of all of these? We will never know the precise answer. Nevertheless, it is fascinating to pick one case study for examination where these factors were exceptionally evident to illustrate how irrational decision-making can creep into the strategies of mutual fund managers who are meant to be the custodians of retail investors’ hard-earned money.

The meltdown in IPO stocks in the ongoing market rout has exposed the smart money for its frailties. Just to give a sense of how deep the rout in the primary markets is, around 40% of the IPO stocks that were launched in 2024 are trading below their issue prices.

Similarly, around 50% of the companies that raised funds through QIPs (Qualified Institutional Placements) are now available well below their issue prices. The companies that top the list where the prices have witnessed a sharp fall of over 40% from the issue