By Rajesh Kurup
The rush to cash in on the initial public offering (IPO) frenzy and high stock valuations have led to many companies listing at a discount this year. Of the 36 companies that raised funds through IPOs since January, 11 listed at a discount.
A discounted listing is when a stock ends below the issue price on market debut.
Kerala-based Kalyan Jewellers topped the charts with its share price closing lower by 13.45% on the first day of the listing. Chemplast Sanmar was at the bottom pecking order with a 1.13% discount.
“The IPO price of most of the companies, which went public recently, was at high valuations, which will be difficult to sustain in the long-run. Further, most IPOs were highly-oversubscribed with the leveraged participation, which led to quick profit booking or unfolding of leveraged position,” Mahesh Singhi, managing director at global investment banking firm Singhi Advisors said.
“When these shares come in for listing, they began to trade at discounted prices, resulting in retail investors missing out on listing gains. A solace to the investors who subscribed to the IPOs is that most of the companies are now trading above the IPO price, but this won’t remain the same in future,” Singhi said.
Windlas Biotech (discount of 11.59%), Suryoday Small Finance Bank (9.44%), Cartrade Tech (7.29%), Nuvoco Vistas Corp (6.79%), Anupam Rasayan India (5.24%) and Macrotech Developers (4.70%) were among others with discounted listing this year.
Of the total 11, five of the discounted listing, including Windlas Biotech and Aptus Value Housing Finance India, were in September (see table).
“The weak listing of the last few IPOs can be attributed to the weakness in the broader markets at the time of their listing. Most IPO-bound companies belong to the small and midcap space where there was weakness in the early part of August. As an IPO cycle moves on, valuations tend to get more expensive,” Pranav Haldea, managing director at Prime Database Group, said.
“I don’t see the discounted listing of a few companies to halt the primary market. There is a healthy pipeline of IPOs, and if the pricing is attractive and the secondary market continues to remain bullish, we expect to see good demand and listing,” Haldea said.
The number of discounted listings this year is on the higher side compared with 2020, when 14 companies launched IPO, of which four companies debuted with discounts. These firms were SBI Cards & Payment Services, Angel Broking, UTI Asset Management Company and Equitas Small Finance Bank.
IPOs in 2021
Riding on the boom in the stock markets, companies raised about Rs 47,722 crore so far this fiscal, compared with Rs 31,128 crore in the last fiscal.
With another 15-20 companies, such as Seven Islands Shipping, Arohan Financial Services, Paras Defence & Space Technologies and Shriram Properties, in the pipeline, this fiscal is expected to be another good year for IPOs.