Investment bankers, promoters and private equity funds are rubbing their hands in glee as 2020’s stunning equity rally that pushed stocks to record highs has further brightened the prospects of India’s booming market for initial public offers.
In the fattened pipeline are the likes of Kalyan Jewellers, commodities exchange NCDEX, RailTel, Indian Railway Finance Corporation and Barbeque Nation, just to name a few among the 2-odd dozen players wanting to raise money in fresh equity sales. But will it be smooth sailing? Read on!
By all accounts, 2020 was a year of contrasts: investors buffeted through a pandemic-induced bear market, a V-shaped recovery in stock prices, an economic recession and a turbulent political slugfest all in a space of 9 months. Even as stocks get roiled in the penultimate week of 2020, the benchmark 50-share Nifty is still up a respectable 8 percent year-to-date; and from its March lows, the recovery is a stunning 78 percent.
So, who all made money in this year’s IPOs and how much? Well, almost EVERYONE! IPOs returned on average 42% in 2020 compared with an average 20% in 2019 and just 6% in 2018.
Food chain, Burger King, tech stock Happiest Minds and telecom back-end provider Route Mobile were among 13 immensely successful IPOs that have raised Rs 26,184 crore so far this year, the highest amount since 2018. Investors who were lucky to get even a few shares allotted to their demat accounts laughed their way to the bank.
How so? A wily combination of recognised brands, good pricing, heavy investor demand for quality paper and easy financing ensured that an average IPO got subscribed 75 times. That itself ensured an impressive listing.
Loss-making Burger King raised Rs 797 crore in its initial share sale in early December. Priced at Rs 60, the IPO got subscribed a whopping 157 times.
This madness alone resulted in Burger King’s stunning debut of Rs 112, an 88 percent premium. Lekin abhi picture baaki thi! Such was the frenzy for Burger King’s shares that the stock hit 3 successive 20 percent circuits and then another 10 percent uptick at Rs 213 over four sessions. It’s cooled off a bit now, but demand is unabated.
The story was no different for Happiest Minds – floated by serial tech entrepreneur, Ashok Soota. Priced at Rs 166 a share, it listed at 120 percent premium after getting offers that were 150 times more than its issue size of Rs 702 crore.
Well, things are a lot trickier now for would be floaters.
Heady valuations already got a dose of reality in December 21 pullback. And foreign investors, who poured more than $20 billion over past three months in Indian equities, now seem to be circumspect. Retail investors, too, have tasted blood and now want juicier discounts.
Investors, in particular institutional deep pockets, will demand more in terms of projected performance and probably a fairer pricing at a time when sure signs of greed are amply visible in the market.
It’s the second time in 10 months for Anthony Waste Handling to test the IPO waters. The company, which collects solid waste for city municipalities, has an IPO worth Rs 300 crore open for subscription at Rs 313-315 a share at a time when bullish sentiment seems to have tapered.
And here’s the catch. Somewhere in March, at the initial stages of the Covid scare, Anthony Waste had priced its IPO at Rs 294-300 a share and withdrew it after receiving less than tepid response.
So, in many ways Anthony’s ongoing fund raising will decide the how future IPOs are going to be priced in 2021.
Will markets reward greed or punish it, remains to be seen. But one thing is for certain: there is going to be sanity in pricing if this correction deepens further.(Additional reporting by Sumit Mehrotra and Khushboo Tiwari)