The selloff in global markets, triggered by fears of a Chinese ‘hard landing’, poses a severe risk to India’s primary market, which is recuperating after four years of hiatus.
Merchant bankers and primary market observers said that grey market premiums saw a sharp fall on Tuesday and were reflective of the weakness in secondary markets. With the meltdown in in global markets on Monday and the prevailing uncertainty, retail investors have turned cautious and their absence may impact performance of forthcoming IPOs as it did with the Indian Oil Corp (IOC) offering on Monday.
Sources told FE the grey market premium of Power Mech Projects declined more than 60% ahead of its listing on Wednesday. The shares of Hyderabad-based power infrastructure company were quoting at a premium of R50-55 a share against Rs 150 levels late last week. The company had set a price band of Rs 615-640 for its IPO.
Navkar Corporation’s premium saw similar declines. The premium narrowed to Rs 20-25 apiece against Rs 55-60 per share last Friday. Shree Pushkar Chemicals and Pennar Engineered Building Systems (PEBS) lost the premium valuation, sources added.
Grey market is a pseudo over-the-counter market where IPO shares are bought and sold before a company officially lists on the stock exchange. It gives a broad indication of the appetite for a public issue.
Sandeep Nayak, CEO, Broking and ED, Centrum Capital, said retail investors’ participation is a function of sentiment and market behaviour and that they would not actively invest if the markets turn volatile. “We have witnessed dips in retail participation whenever markets turned volatile. For example, retail participation in June and July was down as Indian markets turned volatile,” Nayak said.
IOC’s secondary market offering by the government on Monday received a tepid response from retail investors even as they were entitled to a 5% special discount. While the offer for sale (OFS) managed to get fully subscribed, the retail book of the OFS was subscribed only 0.18 times.
The caution among retail investors comes at a crucial time as five companies — Navkar Corporation, PEBS Pennar, Prabhat Dairy, Shree Pushkar Chemicals and Fertilisers, and Sadbhav Infrastructure Project — have lined their public issues during the next 10 days. Together, these companies have the potential to raise close to Rs 2,000 crore. Ten companies have tapped primary markets so far this calendar and raised Rs 5,483.41 crore, data from Prime Database showed.
More than 60 companies scrapped their IPO plans between 2011 and early 2014 due to unfavorable market conditions, halting plans of Indian companies to raise more than Rs 65,000 crore through primary markets.
A section of the industry, however, said that the long-term state of the primary markets remains intact as India anticipates a bull-run in equity markets. Satyen Shah, EVP, Edelweiss Financial Services, said primary markets continue to be in a buoyant mood and subscriptions would depend on the nature of the issue.
“Performance of an IPO depends on the individual company, its track record and whether the pricing of the issue would leave something for the investors on the table or not,” Shah said on the sidelines of an IPO conference on Monday.