Moneycontrol Pro Panorama | IPO market halo dims in August

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August is turning out to be a damp squib for initial public offers. NSE data shows that of the eight companies whose issues opened in August, Devyani International is trading at a premium of 27 percent to its offer price, Exxaro Tiles is marginally higher while the remaining are trading below their offer prices. The sudden shift in sentiment may seem puzzling when just a few months ago, it seemed like all one had to do was get the issue off the ground and the shares would soar post-listing.

One could point to a number of external reasons for this, such as grey market premiums declining, central banks turning cautious on continued liquidity support, the rising cases of the Delta variant in several countries and so on. Maybe, investors as a group are turning cautious and that is visible not just in the broad market index, but also in the slippage seen in mid and small cap stocks. But these are all guesses at best.

More importantly, it turns the investing spotlight back to where it belongs — the price-value equation of a stock. When there’s too much money chasing a handful of IPOs, then there is a risk of this equation being ignored in the race to secure an IPO allotment. If the fundamentals of a stock justify its valuation, even when the markets slip the stock price will hold up. These episodes are an early warning to investors not to burn their fingers by investing in overpriced IPOs.

It is also a signal to intending issuers and their investment bankers not to get carried away by heady markets. Sure, there is the advantage of pricing an issue high, one can raise more money with less dilution or selling shareholders can make more profits. Bankers may earn more fees in the process, too. But that’s a short-sighted approach as the IPO price becomes an overhang for the stock and it hurts retail investor sentiment too, making life difficult for future issuers.

One of the macro events that investors will be awaiting cues from is the annual Jackson Hole conference scheduled. There has been much hand wringing over whether growth is robust enough for monetary policy support to take a step back. And more worryingly, is the sharp rise in inflation temporary or not? Is the Delta variant an important enough threat to the global economy or not? Here’s a curtain-raiser on the conference.

Here are more investing insights from our research team:

Is this the right stock to ride the post-pandemic revenge travel?

NOCIL: Demand pick-up, 'China plus' to provide growth momentum

Divi’s Labs: Green chemistry provides an edge

Gujarat State Petronet: Solid growth trajectory, stock show tied to Gujarat Gas

IIFL Wealth says it with business model shift. Will the stock fire?

What else are we reading today?

PF money in start-ups — A risk worth taking?

The coal crisis reaches Indian shores and may persist for a while

The real reason why most super apps are not super great (republished from the FT)

Technical picks: Tata Steel, Bajaj Finserv, Shriram Transport Finance and Deepak Nitrite (These are published every trading day before markets open and can be read on the app)
Ravi Ananthanarayanan
Moneycontrol Pro