Five out of the eight IPOs in August trading below their issue prices
Five out of the eight initial public offers (IPOs) which mopped up Rs 13,857.07 crore in August are trading below their issue prices, raising concerns if the big party around public issues is over, albeit temporarily.
Three out of them started trading with a cut on their listing days while two others slipped below their issue prices in subsequent sessions. In contrast, 24 out of the 27 issues that hit the market between January 1 and July 31 are in the green and all of them have showered investors with varied degrees of gains.
Market mandarins say the recent correction in the mid and small cap space, in which most of these IPO stocks belong, have played spoilsport. Moreover, a possibility that central banks across the world, especially the Federal Reserve, may taper the liquidity flow into the financial system has spooked the markets in India and elsewhere.
“Markets hate uncertainty. And there is now uncertainty on what the Fed might do,” says Sudip Bandyopadhyay, group chairman of Inditarde Capital.
Some clues could be forthcoming when Fed chairman Jerome Powell speaks on Friday after a virtual internal meeting which usually takes place at Jackson Hole, Wyoming. A swell of capital has fuelled a global equity rally even though the real economies struggled under Covid impact.
Bandyopadhyay believes the hyper exuberance over IPOs may be over as valuations have become a concern.
Pranav Haldea, managing director of Prime Database, concurs. While he feels valuations tend to become more expensive towards the latter stage of an IPO cycle, he disagrees that they were too pricey. “If an IPO was expensive, it would simply not have found enough buyers,” he argues.
Siddhartha Khemka, head of (retail research, broking and distribution) of Motilal Oswal Financial Services, says the market usually oscillates between greed and fear and at present, fear has overpowered greed.
“It is not that issues in the recent past were not richly valued. But they are still oversubscribed multiple times and doled out handsome listing gains,” Khemka points out.
Market watchers say the appetite for fresh papers has come down, especially in the high net worth (HNI) segment, who were borrowing from NBFCs to apply for IPOs.
“Recent IPOs gave good listing gains, resulting in higher retail investors expectations. They are looking for quick returns. However, one needs to be selective in IPOs,” says Shrikant Chouhan, who is an executive vice-president at Kotak Securities.
However, Arun Kejriwal, founder of Kejriwal Research and Investment Services, warns that if the valuations don’t correct, there is a possibility that issues could fail at the IPO level. However, a section of experts point out that public memory is short, after all. “Let one big IPO be a success and the party will start again,” Khemka quips.
Almost 52 per cent of IPO investors sold shares on the listing day in the first four months of this fiscal while another 20 per cent sold the allotted shares within the first week of listing, an analysis by Motilal Oswal Financial Services showed.
Around 64 per cent of the IPO clients applied for at least two such public issues.