Premiums of new boys on Dalal Street ease in September. Here's why

Average new listing premiums saw moderation in September compared to August, showed data

Though Indian stock exchanges saw a rise in new debutants in September, data showed a moderation in average premiums of mainboard initial public offerings (IPOs) to 18 percent this month from 28 percent in August. Analysts linked these diminishing returns to the aggressive valuations of public issues and said that the near-term trajectory of new listings would depend on overall market sentiment.

In the past week, benchmark indices Sensex and Nifty 50 have declined 1 percent each, while the BSE Midcap index was down 0.2 percent, and the BSE Smallcap index up 0.8 percent.

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Market fatigue, policy fears hit IPO premiums

Explaining the easing gains of newly listed companies, Deepak Jasani, head of retail research at HDFC Securities, said that the market, in general, is showing signs of fatigue. “Moderating returns in September are due to the heavy selling pressure seen in the mid-and smallcap pockets. As a result, expensive public issues are bearing the brunt,” he added.

Sonam Srivastava, smallcase manager and founder of Wright Research, on the other hand, attributed this cool-off to an erosion in investor confidence amid fears of policy tightening conditions overseas. She, too, opined that there was growing scepticism about market valuations, wherein certain IPOs were perceived as overpriced.

Over 10 companies have debuted on the bourses in September, with Jupiter Life Hospitals and Vishnu Prakash R Punglia seeing 46 percent gains on their respective listing dates versus their issue price, data showed. (See chart)

Meanwhile, in August, around six mainboard companies were listed on the exchanges. SBFC Finance surged the most on its listing date (refer chart), rising 61 percent from its issue price. This was followed by Aeroflex Industries (up 51 percent) and Concord Biotech (up 27 percent).

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Listing prospects of upcoming IPOs

Over the near term, analysts said that the success of new listings hinges on market sentiment, quality of IPOs, and pricing dynamics.

“If the broader market remains uncertain, it could impact listing gains. However, high-quality IPOs with robust business models and attractive pricing might fare better,” said Wright Research’s Srivastava.

In October, four mainboard IPOs will tentatively be listed. They are: JSW Infrastructure, Updater Service, Valiant Laboratories, and Plaza Wires. Additionally, over 10 small and medium enterprise (SME) IPOs are also in the queue to be listed.

According to ipowatch.in, JSW Infra and Plaza Wires enjoyed 19 percent premiums in the grey markets on September 29, whereas Valiant Lab traded at a 11 percent premium. No demand, however, has been seen for Updater Service in the unlisted markets so far.

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SME IPO listings fare better in September v/s mainboard

In the case of SME IPOs, the average listing day gains rose to 63 percent in September from 52 percent in August, data showed.

VFX-solutions company Basilic Fly Studio saw the maximum gains on its listing date in September, whereas renewable energy company Sungarner Energies led the charge in August. Both counters surged over 200 percent on their listing day. (Refer table for top 5 listing day gainers in August, September)

Ambareesh Baliga, independent market analyst, underpinned SME IPO listings faring better than the mainboard in September to investors’ greed for a quick buck. “Investors have flocked to these SME IPOs to mint the easy-and-quick money opportunity—the common mindset to apply and book profits on listing,” he said.

Recently, market regulator Sebi launched new investor protection measures covering SMEs, catering to this ‘dus ka bees’ (turn 10 into 20) herd, who want to double their money in no time. Moreover, it extended the applicability of Additional Surveillance Measure (ASM) and Trade for Trade (T2T) regulations to the SME segment, which was earlier only limited to mainboard stocks.

While this regulation ensures more stringent checks and balances on the SME segment, analysts said that the move might make some investors cautious due to fear of trading restrictions.

On the other hand, Srivastava of Wright Research asserted that selective investors would appreciate this move over the longer-term as an added layer of surveillance would be a step towards a more transparent and secure market.

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Investment rationale for new listings

From an investment standpoint, Jasani of HDFC Securities recommended studying each public issue independently, without giving too much importance to the grey market premium or the buzz around recently listed IPOs.

Srivastava, meanwhile, advised diversifying investments across multiple IPOs in order to spread risk.

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