Kabhi Khushi Kabhi Gham: IPO listings gather pace, but markets turn selective

The IPO buzz seems to be getting more challenged now as investors become selective as “the market is maturing”, said Pankaj Tibrewal, CIO at Ikigai Asset Managers.

India’s IPO market is buzzing again with two heavyweight offerings — Tata Capital’s Rs 15,511 crore issue and LG Electronics India’s Rs 11,607 crore OFS — hitting the bourses this week. Yet even as listings accelerate, investors are showing signs of caution, choosing quality over sheer momentum, markets experts said.

The IPO buzz seems to be getting more challenged now as investors become selective as “the market is maturing”, said Pankaj Tibrewal, CIO at Ikigai Asset Managers. “Many companies showcase strong revenue and profit growth in the run-up to their listing, but this often comes with weak cash flow generation. Once listed, both revenue and profit growth tend to taper, leaving investors exposed if they chase momentum without discipline,” he added.

The shift is visible in performance. Out of 268 IPOs so far this year, 150 are above issue price while 119 are trading in the red. “Most were oversubscribed, but growth was low or negative. The market hasn’t been charitable this time,” Tibrewal added. As of end of September, the pipeline saw 74 IPOs, cumulatively raising Rs 85,000 crore in the market.

Several recent IPOs, despite being heavily oversubscribed, have delivered lacklustre listings. VMS TMT, which saw a robust subscription of 102 times, debuted 4 percent below its issue price. GK Energy, subscribed 94 times, managed a modest 10 percent gain on listing. Amanta Healthcare, subscribed 83 times, offered a limited 13 percent listing-day return. Meanwhile, Seshaasai Technologies, with a 70-times subscription, listed 3 percent below its issue price.

However, what is keeping the IPO market still buzzing is institutional flows – both from foreign funds as local SIPs flows, which ensures a steady flow of funds to gobble up the supply. So far this year, while foreign institutional investors sold nearly Rs 2 lakh crore in secondary markets, they ploughed in Rs 41000 crore in the primary markets.

Ajay Vaswani of the Investment Trust Council of India noted that equities continue to remain the default investment choice in an environment of subdued returns from deposits and bonds. Still, he said, “Investors now treat IPOs less as a growth story alone and more as valuation-driven bets. Pricing discipline and the extent of promoter exits are being scrutinized far more closely than before.”

Big brands like Tata and LG continue to command confidence, and so do new business models that have demonstrated success. “Brand-backed IPOs invariably do well – almost never undersubscribed,” said a managing director at a top private bank. The good part for investors though is that as the IPO market gets selective, bankers are also forced to be more pragmatic about pricing, something that should eventually work in investors favour.

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