Moneycontrol Pro Panorama | The message from IPOs that flop

Dear Reader,

The Panorama newsletter is sent to Moneycontrol Pro subscribers on market days. It offers easy access to stories published on Moneycontrol Pro and gives a little extra by setting out a context or an event or trend that investors should keep track of.

Star Health Insurance’s dim debut may make it seem like the IPO boom is truly over. The health insurance company, backed by big bull Rakesh Jhunjhunwala, saw its offer undersubscribed and had cut its offer size as a result. That its debut was a weak one was not surprising, falling below its offer price, but then recovering to trade just above it. Even the backing of a high-profile investor could not convince investors to look past concerns such as the issue’s expensive valuation.

But then, also consider Go Fashion, which also listed recently and is trading at a 75 percent premium to its issue price. Therefore, it is not as if all issues are being shunned by investors. Of the 50-odd issues raised in 2021 in NSE’s IPO tracker, only 14 are below their issue price. But of these, 11 were issues that took place in the second half of 2021. That’s one sign that the exuberance in markets feeding into IPO pricing comes with a price that becomes visible post-listing.

Even then, the listing price is not necessarily an indicator of where the share price could be a few months or even a year from now. But the listing pop generates a lot of excitement and is seen as a sign of pent-up demand for the shares and perhaps also how much money is left on the table.

While stock markets have certainly cooled down, that some issues do well and some don’t is also an indication of investors being discerning about the issues where they go over the top. If the issuers and investment bankers can do a better job of understanding the pulse of the market, while the IPO is being priced, then they can avoid the embarrassment that comes when the shares trade below the listing price.

Factors such as peer valuation, uniqueness of the business, share of fresh fund-raising versus selling of shares by existing shareholders, growth pathway and size of the float could be kept in mind while pricing the offer. Leaving more money than required on the table is a more forgivable lapse than leaving too little or nothing.

That said, here’s our research team’s take on another issue in the IPO line-up, footwear company Metro Brands.

One good sign for equities is that retail investors retain their confidence in markets. The strength of domestic flows can be gauged from the mutual fund data for November, with equity funds getting net inflows of Rs 11,614 crore, up from Rs 5,214 crore in October. These and other domestic inflows are a contrast to FIIs who seem to be on a selling spree.

But as this report from the Financial Times reveals (free to read for Pro subscribers), this is a trend that is not unique to India. FIIs are pulling money out of emerging markets. It says: “In late November, non-resident flows to EM assets excluding China turned negative for the first time since the coronavirus-induced market ructions of March 2020, according to data from the Institute of International Finance.” The emergence of the Omicron variant, weaker growth outlook and the altered Fed outlook are all risk factors.

For India, vaccine hesitancy is a matter of concern, even as we require three more months to fully vaccinate the adult population in the country. Do read our Herd Immunity Tracker to get a full picture of how much progress has been made and what remains to be achieved.

Key insights from our Research team:

Weekly Tactical Pick | Nazara Technologies

Is it right time to board this railway stock?

What else are we reading today?

SEBI's idea of One commodity, One exchange can put India on the world commodity map

Is a health regulator the cure for all medical infrastructure ills?

India’s EV industry may be hitting inflection point

Traditional Media: An accelerating decline against Big Tech

Algo Rhythm: Three factors to consider before starting algo trading

Meme mania is reshaping US markets (republished from the FT)

And, in Personal Finance

Personal Finance: Three cornerstones to ensure a sound retirement portfolio

Picks from our Technical Analysts: ITC, Kolte Patil, L&T and Kotak Mahindra Bank (These are published every trading day before markets open)

Ravi Ananthanarayanan

Moneycontrol Pro