The last leg of August has not been very kind to investors who have put their money on initial public offerings (IPOs). With Aptus Value Housing Finance, Chemplast Senmar, Nuvoco Vistas tepid debut on bourses, it seems as if the Indian IPO frenzy is losing steam. Aptus Value Housing Finance was listed at a 5.6 per cent discount to its issue price of ₹353 apiece while Nuvoco Vistas opened at the bourses at a 17 per cent discount against its issue price. Chemplast Senmar was the third in the row to start its Dalal Street journey on a weak note. Exxaro Tiles, Krsnaa Diagnostics also witnessed a mild listing earlier this month.
Is the IPO party over?
Decoding this declining appetite for IPOs in the last few weeks, analysts attributed multiple reasons ranging from flawed valuations, negative market sentiments, political and geopolitical reasons. “In the last 5 months of current fiscal, 21 companies came with their IPOs and most of them were driven by the flow from retail investors. It was predictable that the flow will slow down because retail investors carry limited funding. Most of the retail investors are now applying only for listing gains and that’s why it put selling pressure on stocks at the time of listing,” Vinit Bolinjkar, head of research, Ventura Securities Ltd said.
As per many analysts, faulty overvaluation is leaving no room for retail investors to make a profit that is pushing the investors to stay away from the IPO market. Throwing light on the valuations, V.K Vijaykumar, chief investment strategist at Geojit Financial Services, said, “The lukewarm response to IPOs is good since IPO valuations were not fair in many cases. There is froth in IPOs which needs to be removed. Investors should distinguish between fairly-priced IPOs and unfairly-priced ones, particularly OFSs.”
The markets have been on tenterhooks due to multiple reasons- from uncertainty emanating from the Delta variant to the US Fed’s announcement of tapering $120 billion asset purchase from the Covid-19 hit economy along with this inching inflation and the fear of the third wave has made the markets more volatile. “Sentiments got affected due to inflation worries, COVID-19 third wave and geopolitical uncertainties which also added to the woes,” Narendra Solanki, head-equity research (Fundamental), Anand Rathi Shares & Stock Brokers said.
Pointing towards high volatility in the market as the culprit behind flailing IPO’s, Binod Modi, head strategy at Reliance Securities said that heavy selling in midcap and smallcap stocks weighed on performances of recent IPOs. “Valuations of most IPOs have already factored in the next 2-3 years of forwarding earnings and therefore investors did not show much interest on those IPOs post listing. However, we believe many of them are good companies with promising outlooks and being run by quality management. Hence, any meaningful correction can offer a healthy risk-reward proposition,” he added.
It must be noted that over 20 companies filed regulatory permission to launch primary share sales worth around Rs 40,000 crore in August so far. Some of the major filings include the Delhi-based PB Fintech, the promoters of insurance distributor Policybazaar and the Pune-based Emcure Pharma. Besides, Adani Wilmar, the FMCG arm of the Adani Group and online fashion and apparel brand Nykaa have also filed for IPO. India’s one of the largest digital lending player Paytm is all set for India’s largest market debut at Rs 16,600 crore. Through an extraordinary general meeting on September 2, a few days ahead of IPO-bound Paytm is expanding the employee stock ownership plan (ESOP) pool with 3.7 crore shares, taking the total pool to 6.10 crore.
At a time when the economy is flushed with liquidity and the mother of all the IPOs is yet to come, the IPO party will go on for some time.
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