Shares of companies that came out with initial public offerings after Diwali last year have delivered strong returns to investors even though the Indian stock markets lost their shine amid worries of interest rate hikes by central banks and geopolitical tensions.
These volatile markets almost halved IPO activity compared to the preceding period and are still struggling to get back on track.
A total of 44 companies came out with initial share sales totalling Rs 95,000 crore since last Diwali, of which the shares of 31 companies are trading above their issue price, according to Prime Database.
Adani Wilmar, which sold shares for the first time in February 2022, was the best-performing stock, followed by Veranda Learning Solutions, Data Patterns India, and Venus Pipes & Tubes. Campus Activewear, Go Fashions India, Metro Brands and Latent View Analytics also outperformed.
“The IPO performance from last Diwali to this speaks volumes about the sectoral preference,” said Sonam Srivastava, smallcase Manager & Founder, Wright Research. “Consumption-led stocks have turned winners while highly valued tech IPOs, especially in the fintech sector, have struggled. The standouts in the tech segment are Data Patterns and Latent View, which are niche tech stocks that are also profitable.”
Adani Wilmar shares logged 15 percent gains on the opening day and are currently up over 187 percent from the issue price. Veranda Learnings listed with 18 percent gains and has since advanced 137 percent. Data Patterns listed at a 29 percent premium and has gained 120 percent from its issue price, while Venus Pipes & Tubes, which was up 8 percent on listing, is now up 104 percent.
FSN E-Commerce Ventures, the owner of Nykaa, was the best-performing share on listing day but soon lost its rally. The stock now trades at close to its issue price. Latent View, Go Fashion and Sigachi Industries, on the other hand, kept the listing day momentum going.
Paytm owner One97 Communications, which had the second-largest IPO, remains the worst-performing on listing day and has still not been able to attract investor attention.
Life Insurance Corporation of India has also struggled. Paytm is down over 68 percent while LIC has lost 36 percent from its issue price.
“Among the IPOs that hit the street during this sluggish period, almost 25 percent are trading below their issue price,” said Manan Doshi, co-founder of unlistedarena.com. “The underperformers were mainly new-age companies that had weak cash flows or those that were priced aggressively. This was a result of the global correction, especially in new-age companies, and edgy sentiments due to the Russia-Ukraine war.”
He said the majority of IPO shares sold during this period are trading comfortably above their issue price and many have yielded excellent returns.
“As the euphoria faded during the year, investors are now more cautious on the front of profitability and valuations. IPOs that are priced reasonably are getting an overwhelming response from investors across the board,” Doshi added.
Analysts expect the primary market will gain momentum soon and companies will go ahead with their IPO plans. About 71 IPOs were in the pipeline as of September.
The Securities and Exchange Board of India has already approved IPOs from these companies, which plan to sell Rs 1.05 lakh crore of shares.
Additionally, 43 companies seeking to offer Rs 70,000 crore worth of shares are awaiting SEBI’s approval.
“IPOs will keep hitting the markets as a lot of investors want an exit and some companies want growth capital. The timing of these will depend on the recent performance of the secondary markets,” said Deepak Jasani, head of retail research at HDFC Securities. “Investors will have to evaluate them well and not just get carried away by the grey market premium or the listing gains of recent IPOs. The post-listing performance will depend on how aggressive the pricing of the IPOs has been and the secondary market performance.”
According to Aditya Kondawar, a partner at Complete Circle Capital, the primary market will be purely a function of how IPOs get subscribed and listed this year.
“It is a well-known fact that IPO-going companies want the best market conditions so as to ensure that the issue sails through comfortably with good demand and the listing also gets done at a premium thanks to the euphoric market conditions,” Kondawar added.