The IPO frenzy is turning murky due to lack of transparency, says market veteran Sandip Sabharwal

Even as benchmark indices continue to witness renewed selling, the real buzz in the market has shifted to the primary market. But veteran investor Sandip Sabharwal believes the ongoing IPO frenzy may not be as healthy as it first appears.In a candid chat with ET Now, Sabharwal warned that the whole IPO story is “getting murkier”, citing a worrying pattern of companies suddenly turning profitable just before their public offering. “Many of these companies don’t report profits until the last quarter before going public, or the last year after years of making losses,” he said. This trend, he added, raises serious questions about transparency and earnings quality.

According to Sabharwal, despite such red flags, these IPOs are being “picked up” by large institutional investors, which in turn triggers a massive response from retail investors. The result, he noted, is an overheated primary market and a subdued secondary market. “Promoter selling and a rush of IPOs are keeping broader markets subdued,” he said, even though September quarter earnings were robust with overall growth of around 16%.

In a separate conversation last month, he added that despite the frenzy, he remains on the sidelines. “I didn’t do that because once you fall into that trap… you don’t really know what you’re doing in the end,” he said, emphasizing that attractive opportunities could present themselves later if valuations are correct.

On the outlook for the coming quarters, Sabharwal was optimistic about the earnings recovery. He expects the profit pool to widen from this quarter, driven by a revival in consumer demand. “The entire consumer sector should see a strong revival. Auto companies should continue to do well,” he said, adding that large-cap names like Bharti Airtel, Reliance Industries and major banks are well positioned as margins stabilize.

While the domestic earnings picture looks healthy, Sabharwal cautioned that global factors could still impact the near-term trajectory. “Global markets have done very well; we have not done so well. So if they go into a correction, we will have to see how much we correct,” he said.Also read: Lenskart, PhysicsWallah and Groww: GMP trends suggest up to 22% stock market gains for 9 IPOs next week

On public sector banks, Sabharwal remains constructive but selective. “PSU banks should generally do well, but people should focus on the bigger ones,” he advised, highlighting State Bank of India as a highlight. Now that the QIP fundraising is behind us and interest returns to the stock, he sees a potential upside of 15-20% for SBI as it continues its revaluation cycle.

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