In the big-ticket fundraising, Avenue Supermarts was the only IPO which is trading with gains of little over 90 percent, followed by AU Small Finance Bank, and ICICI Lombard General Insurance.
The year 2017 will go down as a golden year for IPOs as India Inc raised over USD 11 billion in the year, and the outlook for 2018 doesn’t look bad either.
As many as 153 initial public offers, including SME, hit the Indian stock Market this year, raising USD 11.6 billion, according to an EY report.
Most of the IPOs which debuted on the bourses in 2017, including SMEs have given positive returns to Investors with some rising as much as 500 percent in the same period.
Stocks which more than doubled investors’ wealth include names like Meera Industries from the SME segment rose 508 percent, followed by Apex Frozen Foods which rallied 318 percent, and Shankara Building Products rose 234 percent in the same period.
The euphoria in the primary market got fueled by massive returns which investors made in secondary markets with both Sensex and Nifty50 inching towards record highs. The S&P BSE Sensex climbed Mount 34K, while the Nifty50 broke past 10,500 in December.
The IPO pipeline is likely to remain robust for the year 2018, but a repeat of 2017 seems difficult. Some rough estimates show that fundraising up to Rs 25,000-35,000 crore is already in the pipeline.
“The long-term growth story from a market is expected to witness many companies hitting the primary market in 2018 to capitalize on the confidence of investor. About 30 companies are already lined up to make debut in Indian bourses with estimated fundraise of above Rs 25,000-35,000 crore by the end of 2018,” Dinesh Rohira, Founder & CEO, 5nance.com told Moneycontrol.
“It is expected to witness promising trend in primary market with actual figures still anticipated to outgrow current numbers. Further, the revival in the global market coupled with strengthening Indian economy and improved fundamental is expected to keep bullish sentiment buoyant in long-term,” he said.
IPOs is an excellent opportunity for investors to participate in new sector offerings like asset management and diagnostics, staffing last year which emerged new sectors where companies raised capital for.
Big gains for retail investors
Qualified (FII & DII) Institutional Investors, Non-Institutional Investors (NII) and retail investors are the main categories of investors who participate in the offering.
Retail investors have made big gains this time. But, before putting your money in the primary markets, investors should do their own research as every IPO might not be worth investing, suggest experts.
IPO markets have been very buoyant in 2017. “On the basis of one analysis done by us, taking over-subscription and Listing gains into consideration, the retail category would have made an average return of 1.4 percent per IPO on allocation just on listing if they had applied to all the IPOs without evaluating,” Bismillah Chowdhary, CIO, Edelweiss Tokio Life told Moneycontrol.
“This would translate to 47 percent absolute return if we sum up all the IPOs return which has hit the market in 2017. Overall returns can be increased further by analysing and subscribing to good IPOs, and holding them for the long term if the company is well-positioned to grow and capture market share in the future,” he said.
Record Fundraising
Many big-ticket IPO’s hit D-Street in the year 2017 such as GIC, The New India Assurance, HDFC Standard Life, SBI Life, AU Small Finance, Reliance Nippon, Cochin Shipyard, Avenue Supermarts, HUDCO, Godrej Agrovet, and India Energy Exchange.
These companies raised between Rs 1,000 crore to Rs 11,000 crore from the D-Street but most of them failed to give benchmark-beating returns. General Insurance Corporation of India which raised over Rs11000 crore is down a little over 9 percent from its listing price.
The New India Assurance too failed to keep the momentum going and has plunged 18 percent since listing. SBI Life Insurance, Reliance Nippon, and Godrej Agrovet failed to hold gains and are trading 3-8 percent lower.
In the big-ticket fundraising, Avenue Supermarts was the only IPO which is trading with gains of little over 90 percent, followed by AU Small Finance Bank, and ICICI Lombard General Insurance.
“The current fiscal year witnessed many companies listing on Indian bourses making it record high fundraise coupled with overwhelming issue size. A large company like New India Assurance raised about Rs 9,600 crore, while SBI Life Insurance pocketed Rs 8,400 crore from the primary market,” said Rohira of 5nance.com.
“However, not many large size companies managed to trade above its issue price despite listing with premium. Given the valuation concerns for new stocks and poor fundamental outlook, many investors initiated to trade off with listing gain which further created a negative sentiment for the stocks,” he said.
Deepak Jasani, Head – Retail Research at HDFC Securities said that aggressive pricing could be one of the key reason accompanied by limited post listing demand.
“For the rest of the IPO’s which have given good returns, investors may keep a mental trailing stop loss of say 10 percent below the current reigning price if they are not able to track their performance and valuations closely,” he said.
A general tendency of the retail investor in the primary market is to gain from premium listing while undermining the core fundamental.
Further, the overheated valuation number ahead of its earnings outlook has truncated the short-term rally with many stocks turned negative. Not every stock which made its way to D-Street made money for investors.
We have taken companies which have raised more than Rs 100 crore from the primary markets and as many as 14 stocks gave negative returns post listing.
Stocks which disappoint investors include names like CL Educate, S Chand, The New India Assurance, Music Broadcast, GIC, Godrej Agrovent, Khadim India, Shalby, Matrimony, Bharat Road, MAS Financial Services, SBI Life Insurance, GTPL Hathway, Reliance Nippon, and Capacite Infraprojects.
“There are only 25 percent issuers who go with the flow while the rest of them try and take advantage of bullish sentiment, manage to hype it well and get an expensive issue through,” Dyaneshwar Padwal, AVP- Technical Analyst, KIFS Trade Capital told Moneycontrol.
For IPOs which have not made money despite strong liquidity flow into primary markets, investors should rethink their investment strategy.
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