'If you don't understand it, do fixed deposits...': Capitalmind's Deepak Shenoy pans hype over Resourceful Automobile's IPO

Deepak Shenoy, the founder of Capital Mind, calls the hype over Resourceful Automobile's SME IPO misplaced, which misses a fundamental point: no one is being forced to participate in this or any IPO. 

In a post on X, Shenoy argues that market euphoria might be driving some of the frenzy, but that’s not a reason to block companies from going public—in fact, more such opportunities should be encouraged. 

Resourceful Automobile, which operates just two Yamaha showrooms in New Delhi, saw its IPO oversubscribed by a staggering 400 times, sparking intense debate on social media. 

Many X users called the investor interest as "crazy" and "insane," suggesting that the SME segment might be overheated. 

However, Shenoy believes that this reaction is overblown and rooted in a misunderstanding of the IPO process and the SME exchange's role.

He clarified that oversubscription numbers don’t mean that investors have handed over Rs 2,700 crore to the company. 

"No one has given this company Rs 2,700 crore," Shenoy wrote, noting that the money remains in investors' bank accounts until allocations are finalized. If anything, he argues, the appeal of the IPO lies in its small size, which wouldn’t attract such massive sums.

Shenoy also rubbished concerns that the IPO is indicative of irrational investment in “crappy” companies. He pointed out that market rationality is often a myth, citing examples where stocks continued to trade even as companies were heading towards bankruptcy. 

“People will buy anything, at any time, if there is a suitable narrative,” he remarked, emphasizing that market behavior is not always rational. "Jet Airways traded for many years after it was dead. I have put notes... 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".

Addressing the criticism of Resourceful Automobile’s valuation—Rs 31 crore against a revenue of just Rs 1.5 crore last year—Shenoy acknowledged that the company might seem expensive, but he's seen pricier IPOs in the past. 

He underscored the value of small companies raising funds transparently through public markets, as opposed to relying on private debt or equity, where investor focus might be skewed towards trends like artificial intelligence.

"The bigger point is - no one is forcing you to buy into this or any IPO," Shenoy reiterated. "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."

Calling the uproar over the oversubscription not just unnecessary but also misguided, Shenoy urged investors to focus on understanding the risks involved and making informed decisions rather than being swayed by fear or hype.