Oversupply, a drop in quality, and a drop in valuation leads to lack of money left on the table for new investors
In August, 10 businesses debuted on the public market, with half of them having a modest launch. The IPO market's euphoric success in 2020 and the first eight months of this year had repercussions. Oversupply, a drop in quality, and a drop in valuation have all contributed to a scenario where there isn't much money left on the table for new investors. As a result, according to experts, several of the listings were on a downbeat note.
The primary market has been sizzling in recent times, with as many as 20 companies mopping up more than Rs 45,000 crore through IPOs so far in the current financial year that started on April 1; and August stood out with ten companies getting listed on the bourses.
Glenmark Life Sciences, Rolex Rings, Exxaro Tiles, Windlas Biotech, Krsnaa Diagnostics, Devyani International, CarTrade Tech, Nuvoco Vistas Corporation, Chemplast Sanmar, and Aptus Value Housing Finance India were the August debutants.
On the reasons for subdued listing prices in recent weeks, Vinod Nair, Head of Research at Geojit Financial Services, said, the euphoric performance of IPOs during 2020 and 2021 has brought oversupply and fall in the quality of offerings, leading to the weak performance of recent IPOs.
"Also, high volatility of mid and small caps during August impacted the performance of the similar type of IPOs," he pointed out. The 30-share BSE benchmark Sensex, in August, soared over 9 per cent to scale the 57,000 marks for the first time on the last trading day of the month.
In comparison, the midcap index rose 3.31 per cent while the smallcap index gained just 0.49 per cent last month. An analysis of August listings showed that five companies, including Devyani International and Rolex Rings, listed with a premium on the exchanges.
Last month, the first to list was Glenmark Life Sciences on August 6. Shares of Glenmark Life Sciences had closed with a premium of almost 4 per cent in its debut trade against its issue price of Rs 720.
Auto components maker Rolex Rings on August 9 closed with a premium of 30 per cent as compared to the issue price of Rs 900. Exxaro Tiles, which made its stock market debut on August 16, ended the day with a premium of over 10 per cent as compared to the issue price of Rs 120. Krsnaa Diagnostics had closed with a premium of nearly 4 per cent on August 16 against the issue price of Rs 954.
On August 16, shares of Devyani International Ltd, the largest franchisee of Pizza Hut, KFC, and Costa Coffee in India, debuted on a strong note and closed with a premium of 37 per cent against its issue price of Rs 90. In contrast, five firms made a tepid market debut last month.
Rupen Rajguru, Head of Equity, Investments, and Strategy at Julius Baer, said every market has its period of ebb and flow and probably we are seeing the same in the IPO market.
"2021 has been a year in which we have seen very strong flows in both public (via IPOs) as well as private markets (record no of new unicorns, thanks to PE funding. Of late, the valuation of some of the IPOs was such that there wasn't much money left on the table for the incoming investors and hence the subdued response," Rajguru noted.
On August 16, Windlas Biotech shares made a weak debut on the bourses and closed with a discount of over 11 per cent, against the issue price of Rs 460. CarTrade Tech too had a muted market debut on August 20, closing with a discount of nearly 8 per cent against the issue price of Rs 1,618.
In its debut on August 23, cement manufacturer Nuvoco Vistas Corporation tumbled over 7 per cent from the issue price of Rs 570 per share. Shares of specialty chemicals maker Chemplast Sanmar on August 24 made a listless debut on bourses, with its shares closing about 1 per cent below the issue price of Rs 541. Aptus Value Housing Finance India on August 24 made a weak beginning on the exchanges with its shares closing over 1 per cent lower compared with the issue price.
Interestingly, all these IPOs were oversubscribed, with companies like Rolex Rings, Krsnaa Diagnostics, and Devyani International attracting huge investors' responses for their offerings.
On whether the subdued trend is likely to continue for IPOs, Nair said the number of offerings has started to decline and can continue in the short-term. "This can be expected to stabilise with an upside as the market sentiment improves. On a medium-term basis we can expect the better and good size of offerings as economy unlocks".
Rajguru said that currently, the global as well local liquidity is strong and the yields of alternatives (i.e., fixed income) are pretty low and hence there will be strong demand for good companies, provided the IPO pricing is not very unreasonable. More listings are in the offing. Two companies -- Ami Organics and Vijaya Diagnostic Centre -- launched their initial public offerings on September 1.