One in three IPOs trade below their issue price

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AT LEAST one in three initial public offerings (IPOs) this fiscal year is currently trading below its offering price. In the past 10+ months since April 1, 2021, in the financial year 2021-22, as many as 50 companies have mopped up a record Rs 1,11,156 crore; The state-owned Life Insurance Corporation also expects to raise more than Rs 50,000 crore through an IPO this year.

Over the same 10-month period, the Bombay Stock Exchange’s benchmark sensitive index (Sensex) gained more than 16.5%. The BSE mid-cap and small-cap indices rose 18% and 34%, respectively, over the period.

While investors in 18 out of 50 listed companies are sitting on losses, several others have generated only marginal gains. Of the 32 premium trades as of Feb. 18, a dozen generated capital gains of up to 15%, including seven that rose by as much as 10%, according to data compiled by The Indian Express.

Among the losers, investors CarTrade Tech and One97 Communications (Paytm) suffered the maximum erosion in value, with shares trading more than 60% below their issue price. Even Zomato saw a strong correction of 36% in the last month; it is currently trading at Rs 86, which is 13% above its issue price. FSN E-commerce (Nykaa) saw its share price rise from Rs 2,071 on January 17 this year to Rs 1,397 on February 18. The show was priced at Rs 1,125. Data models increased from Rs 815 to Rs 652.20 during the same period.

The sharp decline should be seen in the context of greater selling pressure on technology stocks. While the BSE Tech fell 8% compared to the Sensex’s 0.7% drop since Dec. 31, the Nasdaq lost 13.4% compared to the Dow Jones’ 6%.

Half a dozen IPOs are listed at a premium of more than 100% and six others have returned between 50% and 100% capital gains since listing.

The CEO of an asset management company said investors should be careful when there are many IPOs. “You always see that when markets are up, IPOs tend to cluster because companies are hoping for a high premium. In such cases, sponsors don’t leave much on the table for investors; they make the most of it,” said the CEO, who did not wish to be named.

The CEO further expressed concern about the huge valuation demanded by new era tech companies and investor appetite. “If these companies weren’t able to make a profit during the lockdown when everything went online, I’m not comfortable with them when the economy opened up,” he said. .

The top ten gainers appreciated between 58% and 273% with Paras Defense and Space Tech topping the list with a 273% gain; its shares increased from Rs 175 to Rs 654 after listing on October 1, 2021.

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The big loser is CarTrade Tech which came out with an IPO at Rs 1,618 per share. This stock is now trading at Rs 586, a discount of 63.8%. Investors also lost out in Paytm’s high-profile IPO. The company which offered its shares at Rs 2,150 is now listed at Rs 833.9 on the stock exchange. Paytm’s market capitalization plummeted from IPO valuation of Rs 1.5 lakh crore to Rs 54,057 crore on February 18.

“The large size of the Paytm IPO, coupled with a complex business model and high valuation metrics, held back post-listing performance. Despite this, the IPO story of the India is rushing and IPOs that were launched after Paytm, such as Go Fashion and Tega Industries, have proven extremely successful,” said Mohit Ralhan, Managing Partner and Chief Investment Officer of TIW Private Equity.

The year 2022 should see the IPOs of LIC, Ola, Byju’s and Delhivery. India is home to 79 unicorns; 42 emerged in 2021 alone. “India is the world’s third-largest startup hub and has developed a strong ecosystem of entrepreneurs and venture capitalists, backed by supportive government policies, which will continue to fuel India’s IPO boom. The story has only just begun and the future looks quite bright,” Ralhan said.

An investment banker said the fate of the IPO market is tied to the strength of the stock market. If the stock market remains volatile and shows a major correction, some issuers may postpone their IPO plans. On top of that, if issuers price their IPOs high without leaving anything on the table for retail investors, there are bound to be post-listing disasters.

As the U.S. Federal Reserve plans to raise rates and tighten monetary policy, foreign portfolio investors (REITs) have begun to pull out of newly listed IPOs as well as secondary markets.

Market regulator SEBI is also concerned about valuations. IPO market price discovery is not as “transparent and efficient” as secondary market price discovery, SEBI Chairman Ajay Tyagi told an ICN summit in September from last year. In a consultation paper last week, SEBI said new-age companies should disclose their valuations based on the issuance of new shares and the acquisition of shares in the past 18 months before filing. draft offer documents.

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