Cut the price or wait a bit — what the market is telling IPO aspirants
- 10 IPOs have been listed in August, of which 5 IPOs have opened below the issue price.
- Analysts attribute it to retail investors having less cash in hand with multiple IPOs at a time, negative market sentiment and expensive valuations.
- The lull response in the IPOs is reflected on the relatively lower subscriptions.
AdvertisementInvestors seem to be disappointed with initial public offerings (IPOs) as they have made no money on the recent public issues on the listing day.
In the last two weeks, IPOs like CarTrade Tech, Aptus Value Housing, Nuvoco Vistas and Chemplast Sanmar have opened at a discount on exchanges. The drop in momentum tells that the IPO market seems to be waning in vigour.
Note that IPOs are known for their listing day gains as it allows investors to exit the company with profit within a short span of time.
“So, the problem with IPOs is not the fact that they are coming to the retail public to raise capital, but their valuations are not very reasonable. Everybody who is coming into IPO now is not leaving too much room on the table for retail to make money. They are in many ways overestimating the growth and coming in at a clearly frothy valuation, that I think is the main problem, said Nikhil Kamath, co-founder at Zerodha and True Beacon to Business Insider.
Moreover, IPO subscription data shows that those with high subscriptions are usually the ones with good listing gains. All IPOs opened recently have been fully subscribed, but not heavily subscribed like they used to be which shows the reduced interest among investors.
|IPOs listed in August||Listing day gains (in ₹)||Times subscribed||Gains till date|
|Glenmark Life Sciences||28.2||45.08||-10.75%|
|Aptus Value Housing||-6.5||17.2||5.71%|
On the other hand, the current negative sentiment in the market gives another reason for investors to stay away from IPOs.
IPOs are taking away too much liquidity from the market. In the last week, four IPOs which came in took away ₹16,800 crore of liquidity, said Jyoti Roy, deputy vice president, equity Strategist at Angel Broking. “IPOs will probably have to wait for some time for market sentiment to improve. Now IPOs need to ensure they do not crowd the market at one time because that will lead to liquidity crunch. Investors will become more choosy after the scenario,” he added.
Also, investors need to gauge the difference between existing and future performance projected by the IPOs while investing, said Vijay Singhania, chairman at TradeSmart. “Valuations based on projected performance is no [sic] valuation,” he said.
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