Most IPOs listed this year trading over their issue price
STELLAR SHOW: Stocks including Rail Vikas Nigam are commanding up to 38% premium over issue prices
Stock market listings in the first four months of calendar year 2019 kicked off on a positive note with shares of six out of seven main companies that went for initial public offers (IPO) trading at a price higher than their listing prices.
However, five of the ten SME IPOs listed during this period are trading below their issue price as they failed to retain sufficient investor interest.
The first four months of 2019 witnessed a cumulative fundraising of around Rs 9,591.71 crore from the main IPOs as against a whopping Rs 18,435.66 crore raised during the corresponding period of 2018.
A K Prabhakar, head – research, IDBI Capital, said there has been an improvement in the overall IPO sentiment, but promoters "must bring something to table to attract investors to create demand".
"More often promoters alone want to make money. If they offer some discounts to investors that would help investors to make money as well," Prabhakar said.
Arun Kejriwal, founder, Kejriwal Research & Investment Services, said those who were in need to tap the market have done that in the first four months of this year, and have done reasonably well.
"There is always an appetite for IPOs at a fair price. Whenever an IPO is overpriced and there is one bad issue, the next one suffers. The performance of one IPO will affect the other. It is a chain reaction. It is the same money that rotates from one issue to the other," he said.
According to him, the time is always right if an issue is offered at a fair price, and till the election results, no major surprise or shock can be seen in the market.
Apart from MSTC, which listed on the exchange at a discount of 10.78% and is currently trading at 17.73% lower than its issue price, all other stocks such as Xelpmoc Design and Tech, Chalet Hotels, Embassy Office Parks REIT, Rail Vikas Nigam, Metropolis and Polycab are trading between 9.5% and 38% higher than their issue price.
Metropolis, however, is expected to see some corrections as the price and valuations look too steep, according to both Prabhakar and Kejriwal.
Besides, promoters of the company had their shares pledged even on the day of the listing, Kejriwal said.
"We hope the valuation sustains, but it may see some correction, depending on how the market views once those share pledge disclosures are made on the exchanges," Kejriwal said.
On the other hand, there is a decline in the number of IPOs in the SME segment compared to the same period last year. Till March 2019, around 17 SMEs tapped the market to raise a cumulative Rs 250.59 crore compared to 52 such companies, which raised a cumulative Rs 917.42 crore during the same period last year, as per data available with Prime Database. According to data available with a financial news portal, five out of ten recent SME IPOs are trading below their issue price.
Prabhakar said takers for SME issues are limited as there are a lot of restrictions. "Retail participation is limited because unlike in main IPO, purchases are to be made in huge lots. The regulations are made to attract high networth individuals. Besides, chances of bankruptcy are also high in case of these companies, hence investors are cautious with these stocks," Prabhakar said, adding that only 40% of SME stocks can be expected to offer good returns.
Kejriwal said there had been mis-marketing in SME IPOs in the past. "There was an era for SME when anything and everything got sold. But investors have now become cautious, and so are the merchant bankers. Thus the going has become very tough for SMEs."