Secondary Market Drubbing Takes A Toll On IPOs

Consistent fall in the secondary market and falling listing day premium of the newly listed shares on bourses is indicating choppy days ahead for the Indian stock market. Benchmark indices closed with a loss of 1.8 per cent while the stock of Anupam Rasayan listed at a 6 per cent discount to the issue price of Rs 555 per share. Another IPO stock that was listed last week, Easy Trip, which had a tepid listing (a gain of 10 per cent on a listing day), also came down on Wednesday and traded at Rs 180.55, against its issue price of Rs 187.

The disappointing listing performance of recently listed companies has also weighed on prospective IPOs that are planning their market debut in the coming days. 

Brokerages have become cautious about the aggressive pricing of IPOs and have recommended to their investors to avoid such highly-priced IPO. In a research note to their clients, at least two brokerage houses, Choice Broking and YES Securities have alerted investors to avoid the IPO of Barbeque Nation, which opened for subscription on Wednesday. The IPO is priced in the band of Rs 498-500 per share.

An expected huge correction in the secondary market along with the disappointing listing day gains has also taken its toll on the unofficial grey market premium (GMP) of newly offered shares under IPO.

In the past few weeks, the benchmark indices have corrected somewhat amid concerns over rising Covid cases and a spike in bond yields which has dampened the risk appetite for investors, according to analysts.

As per grey market watchers, the premium for Anupam Rasayan, ahead of its listing slipped by over 75 per cent to Rs 70 from Rs 300 two weeks ago. The IPO was subscribed 44 times. It was expected to list at a 13 per cent premium over the issue price of Rs 555, but in actual it was listed at a 6 per cent discount.

Similarly, Laxmi Organics which received 107 times bids also saw its premium in the grey market plunged by nearly 30 per cent to Rs 70 from Rs 100 it commanded last week. The stock is expected to list on Thursday, March 25 at a premium of 54 per cent.

The same trend was witnessed in the market last week when shares of Easy Trip made their debut on the bourses. A great disparity was seen between Easy Trip's grey market and listing prices.

This seems to be the case for many other IPOs that got listed this year. Out of nine listings, seven are trading below their listing prices.

Recent trends suggest that IPOs gains are fizzling out after a day or two, indicating that the euphoria in the IPO market could be settling down. Analysts also flagged valuations as expensive for Laxmi Organics, Craftsman Automation and Kalyan Jewellers.

Shares of Craftsman Automation were commanding a premium of just 2 per cent or Rs 30 over the issue price while those of Kalyan Jeweller traded at a discount of Rs 1.50, indicating a tepid listing for the two.

Shares of IPO companies that listed over the past six months are down an average 20 per cent from their peaks, data provided by Prime Database shows. In comparison, the benchmark Nifty 50 and also the Nifty Midcap 100- are down less than 5 per cent each from their peaks.

Shares of 18 out of the 22 companies listed since September 2020 are above their issue price. That is a positive sign, but the post-listing euphoria for many of these stocks has fizzled out. Shares of Antony Waste, Mrs Bectors Food, Chemcon Speciality and Burger King are down about 40 per cent each from the highs they recorded post listing.

For instance, Mrs Bectors Food and Chemcon Speciality have seen their stock price more than double following their stock market debut. However, currently are up less than 30 per cent over their IPO price.

Not all companies have fizzled out though. Stocks like Happiest Minds, CAMS and Gland Pharma are currently less than 10 per cent below their highs.

Amid the current IPO boom, this data gives a cautionary tale. Experts said investors shouldn’t blindly subscribe to all IPOs even if the grey market paints a rosy picture.