Indian IPO Market – High Risk, High Reward Avenue

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IPOs data since January 2017 indicate IPOs had a good run, there’s an ample expression of both risk and return. A rising stock market has characterized this four-year period. The benchmark BSE Sensex has soared 90%, despite of volatility. On the BSE, 266 IPOs were listed during 2020-21. On average, two of every three IPOs delivered positive returns on listing. However, in terms of current return, only about one of two companies in this set was still giving positive returns. 69% of IPOs since 2017 had a listing gain, but only 48% preserved it. Further, the gains were concentrated in a select group of companies. Returns on listing exceeded 20% for only 37 of the 266 IPOs. The median return was just 1.7% which means half of all the IPOs returned less than that on the listing. And, at present, the current median return was (1.2%).

Perspective:

The coronavirus pandemic affected the IPO market. As the economy reopened, the flow of IPOs resumed again in full force. In 2020-21, for the 10-month period till January, 34 IPOs hit the market. This is a drop from 2019-20, which saw 58 IPOs. And 2019-20 was a big drop from 2018-19, which saw 123 IPOs. Yet, by the end of January, the total money raised by IPOs in 2020-21 was within touching distance of 2019-20, and will surely surpass it, on the likes of how it’s going. Textiles, cement and construction, and engineering are some of the sectors showing great activity in the IPO market right now. The current financial year has seen issues from a payments solution firm (SBI Cards and Payment Services), a burger chain (Burger King India), and an IT services company (Happiest Minds Technologies). This week, five Indian companies are offering their shares to the public for the first time, and plan to raise around ₹3,700 crores in the process. There’s a gaming platform, a jeweller, a small finance bank, a chemical manufacturer, and an engineering firm. This seems to be a new trend in the market, to subscribe to IPO’s drive up their price and then sell to make a good profit in a short period of time. We have seen this with many IPO’s post the pandemic, being oversubscribed beyond value, institutional investors driving the price up, and then dumping the stock. We have seen this with Burger king IPO being listed at 92% premium over issue price, Happiest minds listed at a 111% premium over issue price, Route Mobile listed at a 103% premium, and Chemcon listed at a 115% premium over the issue price. This diverse set of companies that have had very successful IPOs also paints a picture of the Economy we are headed into post the pandemic. 

ERC Team

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