Till about a month ago, IPO investing was about checking the anchor book, finding out GMP and then applying for the public issue hoping lady-luck would be on your side. But the last few IPO listings have taken the punch out of public issue investing. The debut day performance of Nuvoco Vistas, CarTrade Tech, Krsnaa Diagnostics, Windlas Bioctech and Glenmark Life Sciences shares gives a reality check to IPO investors. This is a cautionary tale for many IPO investors, who used to blindly submit IPO applications only with the aim of listing gain.
Taking wind out of the sails
From January to July 2021, almost 30 main board IPOs got listed. Such was the IPO craze, about 4 doubled the money on listing. More than 15 IPOs gave double-digit % listing gains. The success of IPOs such as Indigo Paints, MTAR Technologies, Nureca, Dodla Dairy, Clean Science and Technology, Zomato, and Tatva Chintan made IPO investors confident.
But the story has changed since August. It was Glenmark Life Sciences which first saw a weak listing, the first in many months. The shares ended the debut session with less than 4 per cent gain even though it was subscribed 44 times during the IPO. Next, Rolex Rings IPO shares saw a decent 30 per cent listing day gain, but Windlas Biotech ended the day with about 12 per cent loss from its IPO issue price of Rs 460. Exxaro Tiles saw a 10 per cent gain on listing day, thanks to curbs put in by the system. The 10 per cent gain should be seen in the context of its nearly 23 times subscription.
Krsnaa Diagnostics on August 16 listed at small premium over IPO issue price, after being subscribed over 64 times. It closed the debut session with a slim 3.85 per cent gain. Next, CarTrade Tech. shares, which saw 20 times subscription during IPO, had a weak listing, after which the stock closed debut session with a 7.3 per cent loss. Finally, it was the Rs 5,000-crore Nuvoco Vistas IPO shares that fell as much as 17 per cent on debut, and finally closed at Rs 531, about 7 per cent lower than the issue price of Rs 570.
Word of caution
Increased retail participation (64 per cent of daily volumes since Mar 2020/post COVID vs 45 per cent prior) has been one of the key contributors to the rally, according to BofA Securities. However, muted gains within IPO listings recently pose a risk to levered retail positions.
Many see a risk of estimate cuts and with valuations at a peak and thus expect markets to correct 9-10 per cent in the near term. Taper talks in the US, potentially higher US bond yields and USD, consensus EPS cuts, recent muted IPO gains negatively affecting retail investor sentiment could act as negative triggers.
In this backdrop, retail investors must approach IPOs with some caution. No longer should they blindly punt on public offers, throwing caution to wind. It is time to stick to fundamentals and approach the IPO listing game with a cool head.