Short call | How Hyundai Motor's debut could send markets into a spin; IndiaMart InterMesh, Gravita India in focus

With the Nifty 50 already down over 5 percent this month, the timing of Hyundai's IPO only heightens market jitters

All eyes are on the much-anticipated debut of Hyundai Motor India’s Rs 27,870 crore IPO—the largest in India’s history. As a household name, Hyundai's mega offering initially dazzled investors, but its steep valuations, all-offer-for-sale structure, hefty royalty payouts, and overall tepid demand scenario left retail participants hesitant, with only 50 percent of their allocated shares subscribed.

Thankfully, qualified institutional buyers (QIBs) stepped in, oversubscribing their portion by 6.97 times, averting an IPO flop. However, the grey market tells a different story. Initially soaring with a Rs 1,000 per share premium, the buzz fizzled out, turning negative before rebounding slightly to a modest Rs 65-70 premium.

As Hyundai's Dalal Street journey begins, there’s growing concern over how the sheer size of the IPO could drain market liquidity—echoing the trends observed with past megadeals. History shows that large public offerings have weighed on the Nifty 50; for instance, the LIC IPO in 2022, valued at Rs 20,557 crore, led to a 3 percent drop in the index a month after its listing. Similarly, Paytm’s Rs 18,300 crore debut in 2021 triggered a 5 percent decline.

With the Nifty 50 already down over 5 percent this month, the timing of Hyundai's IPO only heightens market jitters. Several more IPOs are set to enter the primary markets, including Swiggy and Vishal Megamart, each aiming to raise Rs 8,000 crore, further dialing up concerns around liquidity drain.

Having said that, global factors, such as FIIs shifting focus after China’s stimulus, and lackluster Q2 earnings from India Inc also raise further questions about how much more downside could be in store.

IndiaMART InterMESH (Rs 2,508, -16%)

Q2 FY25 results prompted cautious outlook from analysts

Bull Case: Business model remains robust led by strong value proposition as it requires little advertising. Growth is expected to be driven by new sales, service and marketing head, focus on Tier 1 and Tier 2 suppliers, and ARPU (average revenue per user) growth in gold and platinum segment. Company is investing to enhance customer experience, boost retention, and increase paying customer penetration.

Bear Case: Continued softness in subscriber addition, leading to moderating collections growth was a key negative from the quarter, according to Jefferies. Certain operational costs will increase going ahead to support paid supplier addition, said Centrum Broking. Wage hikes in Q3FY25 are expected to impact margins.

Gravita India (Rs 2,425, -3.5%)

Shares slipped despite Nuvama initiating coverage with 'buy'

Bull Case: Nuvama expects the availability of battery scrap for organized recyclers in India to rise, driven by a regulatory push. In September 2024, the Government of India introduced penalties for non-compliance with recycling obligations and implemented a reverse charge mechanism for GST on metal scrap purchases from non-institutional dealers.

Bear Case: Any delays in commissioning capex plans could impact the company’s FY27 EPS by approximately 9 percent. In the existing segment, GRAV is banking on a shift in the recycled lead market from the informal to the formal sector in India. This shift is expected to support higher capacity utilization and drive a projected volume CAGR of 34 percent over FY24–27E. Any significant delays in this transition could result in lower-than-anticipated volume growth.

(with inputs from Neeshita and Veer)