Primary market rout: 10 new listings down 2%-50% since 2017

“Particularly, new investors, lured by the high profits get attracted to the IPO market. But, when the tide turns and the market becomes bearish, sentiments in the IPO market also get impacted. Sometimes, when the secondary market turns bearish for a prolonged period of time, the capital mobilised through IPOs goes down steadily. This happened during 2008-14,” he said.

Only 8 companies out of 20 listed in 2017 gave positive returns up to 7-100% which include name like Avenue Supermarts (up 102%), HDFC Asset Management Company (up 58%), Bandhan Bank (up 29%), ICICI Lombard (up 16%), and Lemon Tree (up 10) when compared to their respective issue price.

What does history suggest?

As many as 24 companies have raised Rs 31,038 crores in 2018, compared to Rs 67,147 crore raised by 36 companies last year, said a media report. The pipeline looks robust as well.

Going forward, the IPO activity is expected to remain busy for the rest of the year, as there is a strong pipeline of Draft Red Herring Prospectus (DRHP) filed with the Securities and Exchange Board of India (SEBI)

"On the account of next year's general elections, companies are expected to advance their IPOs in the last quarter of 2018," said an EY report. Sectorwise, manufacturing sector (Metals & Mining and Chemicals) is the most active sector in terms of the number of IPOs, whereas financial sector is at the top in terms of issue proceeds, the report said.

But, the recent withdrawal of the IPO of Dinesh Engineering is the first casualty of the recent fall seen in equity markets. Now, will the ongoing correction in equity markets push promoters in delaying their IPO in 2018?

“The general market sentiment which is largely impacted by prevailing liquidity in the market plays a crucial role in developing market trends in the short run. With multiple factors moving against the Indian economy in recent times, investor sentiment has turned sour,” Vipin Khare, Director-Research at William O'Neil India told Moneycontrol.

But, this is not the first time. Historically, there have been cases when a sharp fall in the stock market has led to a dry up of investor interest in the primary market.

“In early February 2008, three IPOs of companies Wockhardt Hospitals, Emaar MGF Land and SVEC Construction were withdrawn due to poor investor response. This was after the Nifty tumbled 16.3% in January 2008,” said Khare.

In November 2010, the Nifty failed to cross its all-time high of 6357.10 which was made in January 2008, resulting in a sluggish market over the next few months.

As a result, Galaxy Surfactants was forced to withdraw its IPO owing to a tepid investor interest in May 2011. (The Company managed to time its IPO well earlier this year, with its issue getting subscribed 20 times in February 2018.)

Khare added that for a good two-and-a-half year period between 2011 to mid-2013, the Indian market was quite choppy and lacked momentum. This was a period when about 50 companies called off their IPOs.

What should investors do: Are there any attractive bets?

The Indian market sentiment got hit by many negative factors such as rising crude oil prices, rupee depreciation, a liquidity crunch in debt market, rising interest rate environment, persistent foreign outflows, and steep valuations etc. among others.

Analysts advise investors to stay away from IPOs and avoid buying on the first or the second day. They should instead allow the dust to settle before making their purchase.

“An IPO should never be bought on the first or second day of trading. Initial euphoria can be met by selling soon after and hence, it is important to let the dust settle. Otherwise, an ill-timed buy could result in a "hold and hope" strategy, which often leads to dead money,” said Khare of William O'Neil India.

This has been the case with many recent IPOs such as General Insurance, TCNS Clothing, Indostar Capital Finance, ICICI Securities and Hindustan Aeronautics. Besides, Indian Energy Exchange, all other stocks have corrected sharply from their 52-week highs and are trading well below their 50-day or 200-day moving averages.

“Considering a weak market condition and high overhead resistance, these stocks are likely to form new consolidation base patterns in the near future,” he said.

Vijayakumar of Geojit Financial Services said that in the list of stocks mentioned there are stocks like IEX which have great potential and are attractively priced now. In the case of ICICI Securities and RIL Nippon AMC, the market has over reacted due to issues being faced by the promoters.

Disclaimer: The views and investment tips expressed by investment experts on Moneycontrol.com are their own and not that of the website or its management. Moneycontrol.com advises users to check with certified experts before taking any investment decisions.