IPOs stay above issue price; 65% new entrants give robust returns

The primary market emerged as a money spinner for investors in 2017-18, with 65 per cent of the newly listed companies trading well above their issue prices, giving returns of up to three times.

Out of 41 companies that made their debut in the past fiscal, 27 are trading above their issue prices fixed after their IPOs. The remaining 14 firms, however, have failed to attract investors and are quoting below their issue price, an analysis of the new entrants on the NSE showed.

These 27 firms have rewarded investors with returns in the range of 1-325 per cent, with six of them reaching over 100 per cent till the last trading date (April 27).

Shankara Building Products, which made its market debut in April last year, has seen the steepest surge in its share price and is trading 325 per cent higher than the issue price.

The initial share-sale offer of Apex Frozen Foods has given a return to the tune of 270 per cent while Salasar Techno Engineering has rewarded investors with a return of 258 per cent.

Besides, Astron Paper and Board Mills and PSP Projects have jumped about 174 per cent each over their respective issue prices. Further, AU Small Finance Bank has rallied over 103 per cent from its issue price.

Others that have given impressive returns are CDSL, Dixon Technologies (India) Ltd, Bandhan Bank, Cochin Shipyard, Godrej Agrovet, Prataap Snacks as well as Security and Intelligence Services (India) Ltd.

"It's not that all companies' prices have flared up unmindful of realities. There has been exuberance for some issues because they are truly high potential. Either they are from virgin sectors like insurance or from genuinely high growth consumer facing businesses.

"Some buoyancy or appetite surely comes in from the demand side but that depends on discretion of fund managers to judiciously pick right stocks in their portfolios," Aashish Somaiyaa, CEO, Motilal Oswal AMC told PTI.

In contrast, as many as 14 companies have failed to stay afloat as they are trading much below their respective issue prices.

S Chand has seen its shares plunge by 41 percent, while shares of General Insurance Corporation of India have fallen by 22 per cent and The New India Assurance Company has shed about 17 per cent.

Interestingly, public sector insurers -- General Insurance Corporation of India and The New India Assurance Company -- have been trading well below their respective issue prices, while the same has not been the case with private sector players.

Shares of HDFC Standard Life Insurance Company have been trading 79 per cent above the issue price and those of ICICI Lombard General Insurance Company and SBI Life Insurance Company have risen by over 13 per cent and 8 per cent, respectively.

"One of the key determinants for long term investors like us is quality and continuity of management. Insurance especially is a long haul industry with choice of business and underwriting playing a key role," Somaiyaa said.

"While many PSUs have excellent management the short tenures of key personnel and discontinuity of strategies can make it difficult to formulate an investment hypothesis. Further in certain products and segments of distribution there has been steady value migration from PSU to private players," he added.

Meanwhile, the BSE's benchmark Sensex has climbed by over 10 per cent in the last financial year and is currently hovering at close to 35,000 points.

In the fiscal gone by, a total of 45 companies came out with their initial public offers (IPOs) raising a record over Rs 82,000 crore. The previous high was in 2007-08, when companies mobilized more than Rs 41,000 crore through initial share-sales.

Further, a host of companies are rushing in to file their draft prospectus with market regulator Sebi for launching their IPOs. Somaiya believes the performance of future public issues will clearly depend on individual merit and demerit.

"The key positive is that in the last couple of years many excellent businesses have got listed either for growth capital or for PE (private equity) exits. These have been great opportunities for investors as they were hitherto in private domain," he added.

According to Somaiyaa, if there are companies belonging to a sector with a long and sustainable trajectory of growth and these firms are able to differentiate themselves then undoubtedly there is "merit" in considering them. 
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