Of the 15 companies that have tapped primary markets this year, shares of seven companies trade below their issue price while two stocks have yielded nil returns. The remaining six stocks have outperformed benchmarks yielding double-digit returns since their listing. Shares of VRL Logistics — whose IPO received an astounding response from investors — is the top performer, with a return of 94% since it listed in end-April.
The Sensex has declined 14% since its all-time high in March 2015. Data also indicate that the Street was averse to infrastructure-related companies. Four out of five infra companies that listed on the market have yielded negative returns. The 15 firms that went public have cumulatively raised close to Rs 6,500 crore, Prime Database data showed.
According to Prithvi Haldea, CMD, Prime Database, while the weak sentiment in the market does reflect in the demand for IPOs, companies continue to file their draft prospectus which signifies investors are positive about the long-term prospects of our markets.
“Filings will stop as and when investors take a bearish view of the Indian markets. Filing draft documents doesn’t essentially mean the IPO is happening immediately. I am sure the companies will wait for the secondary markets to stabilise before actually going for the public issue,” Haldea said.
Merchant bankers said that investors continue to be selective despite the boom that was witnessed in the secondary market.
Some of the issues were priced keeping in mind the positive sentiment of the market, they said. “When the markets were bullish, the issues were priced as high as 10-12 times the earnings of the respective companies. But when markets turn bearish, these investors take the exit route bringing down the stocks. Adverse situations like these will force the companies to bring some sanity to the pricing. This was already evident in the issues that happened during the last week of August,” said B Madhuprasad, chairman, Keynote Corporate Services.
Experts said the sell-off in the global markets arising out of China ‘hard landing’ fears pose a severe risk for India’s primary markets that is recuperating after four years of hiatus. The recent issues saw a sharp fall in grey market premiums. The 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 about the appetite for a public issue.
More than 60 companies scrapped their IPO plans between 2011 and early 2014 due to unfavourable 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, executive vice-president, Edelweiss Financial Services, said stock performance on the company depends on its financials, and investors take a call based on the company’s track record and its pricing. Good companies will continue to attract investors irrespective of the timing of the issue. “Notwithstanding the short-term pain, primary markets continue to be in a buoyant mood,” Shah added.