What Aswath Damodaran thinks about IPOs and role of the Central Bank?

What Aswath Damodaran thinks about IPOs and role of the Central Bank?

Aswath Damodaran is a Professor of Finance at the Stern School of Business at New York University, where he teaches corporate finance and equity valuation. In a recent interview, he discussed new IPOs and the role of central bank in the economy.

Why have Zomato and Paytm plummeted significantly after listing?

According to Aswath Damodaran, IPO is not a value game. It is a pricing game. The traders who are driven by greed have put into IPOs like Zomato and Paytm. He further added that there was nothing in their statements that said: “pay Rs 200 per share”. He thinks the market is not just against the IPO but it is also against the high growth companies and this change in momentum can happen again.

Opinion about Central Bank

Aswath Damodaran has a very strong opinion about the central bank. According to him, the central bank is not the prime driver of the economy. It can fine-tune things to manage the economy but it cannot protect the economy from going into a severe recession.

He said, “I think in the last 20 years, central bankers have taken on the role that fiscal policy planners did.

“We will keep the economy going, we will protect risk-takers from losing too much money!” And when you do this long enough, you encourage really bad behaviour. What if I step in and say, You know, there is no downside, every time stocks go down, they always go back up. Every time there's a cut in prices, you recover in the next six months.”

"So I think central banks need to go back to their original role, which is to preserve the health of the currency and to prevent it from getting debased. It's not to protect the economy from going into a severe recession. It can fine-tune things to manage the economy. But it shouldn't be thinking of itself as the prime driver of the economy."

Take on Russia-Ukraine Conflict

He thinks that this conflict has the potential to create incredible damage partly because of the parties involved. This could very quickly spill over into something much more dangerous, potentially even catastrophic. The reality is it might show up as an economic recession.

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