AT LEAST one in three initial public offerings (IPOs) this financial year since is currently trading below its issue offer price. In the past 10-plus months since April 1, 2021, in FY 2021-22, as many as 50 companies mopped up a record Rs 1,11,156 crore; state-owned Life Insurance Corporation too expects to mobilise over Rs 50,000 crore through an IPO this year itself.
During the same 10-month period, the benchmark sensitive index (Sensex) of the Bombay Stock Exchange gained over 16.5 per cent. BSE mid-cap and small-cap indices rose 18 per cent and 34 per cent, respectively during the period.
If investors in 18 companies out of 50 listed are sitting on losses, several others have generated only marginal gains. Of the 32 trading at a premium as on February 18, a dozen generated capital gains of up to 15 per cent which includes seven that have risen by up to 10 per cent, according to data compiled by The Indian Express.
Amongst the losers, investors in CarTrade Tech and One97 Communications (Paytm) suffered the maximum value erosion with shares trading over 60 per cent below their issue price. Even Zomato witnessed a sharp 36 per cent correction over the last one month; it is currently trading at Rs 86, which is 13 per cent over its issue price. FSN E-commerce (Nykaa) saw its share price fall from Rs 2,071 on January 17 this year to Rs 1,397 on February 18. The issue was priced at Rs 1,125. Data Patterns dropped from Rs 815 to Rs 652.20 during the same period.
The sharp fall must be seen in the context of a larger selling pressure in tech stocks. While the BSE Tech fell 8 per cent against the Sensex fall of 0.7 per cent since December 31, the Nasdaq has lost 13.4 per cent compared with the 6 per cent in Dow Jones.
Half-a-dozen IPOs are quoting at a premium of over 100 per cent and another six have returned between 50 per cent and 100 per cent capital gains since their listing.
The CEO of an asset management company said investors should be careful when there are many IPOs. “It is always seen that when the markets are on a high, IPOs tend to bunch up as companies hope to command a high premium. In such cases, promoters don’t leave much on the table for investors; they make the most,” said the CEO, who did not wish to be named.
The CEO further raised concern over the huge valuation demanded by new age technology companies and investor appetite. “If these companies could not make profit in lockdown when everything turned online, I am not comfortable with them when the economy has opened up,” he said.
The top ten gainers appreciated between 58 per cent and 273 per cent with Paras Defence and Space Tech topping the list with a gain of 273 per cent; its shares jumped from Rs 175 to Rs 654 after listing October 1, 2021.
Newsletter | Click to get the day’s best explainers in your inbox
The top loser is CarTrade Tech which came out with an IPO at Rs 1,618 per share. This share is now trading at Rs 586, a discount of 63.8 per cent. Investors also lost in the high-profile IPO of Paytm. The company which offered its shares at Rs 2,150 is now quoting at Rs 833.9 on the exchanges. The market capitalisation of Paytm has crashed from the IPO valuation of Rs 1.5 lakh crore to Rs 54,057 crore as on February 18.
“The large size of Paytm’s IPO coupled with a complex business model and high valuation metrics dampened the performance post listing. Despite this, the IPO story of India races ahead and the IPOs which were launched after Paytm, such as Go Fashion and Tega Industries proved to be extremely successful,” said Mohit Ralhan, Managing Partner & Chief Investment Officer of TIW Private Equity.
The year 2022 is expected to witness IPOs from LIC, Ola, Byju’s and Delhivery. India is home to 79 unicorns; 42 emerged in 2021 alone. “India is the third-largest startup hub in the world and has developed a strong ecosystem of entrepreneurs and venture capital investors, supported by favourable government policies, which will continue to feed into India’s accelerating IPO boom. The story has just begun, and the future looks quite bright,” Ralhan said.
An investment banker said the fate of the IPO market is linked to the strength of the stock market. If the stock market remains volatile and shows major correction, some of the issuers might postpone their IPO plans. On top of this, if issuers price their IPOs at high levels without leaving anything on the table for retail investors, there are bound to be some post-listing disasters.
With the US Federal Reserve planning to hike rates and tighten the monetary policy, foreign portfolio investors (FPIs) have started exiting from newly listed IPOs along with secondary markets.
Market regulator SEBI is also concerned about valuations. The IPO market price discovery is not as “transparent and efficient” as secondary market price discovery, SEBI Chairman Ajay Tyagi said while addressing a CII summit in September last year. In a consultation paper last week, SEBI said new age companies should make disclosures about their valuations based on issuance of new shares and acquisition of shares in the past 18 months before filing draft offer documents.