The Indian Stock markets, as measured by the Sensex and the Nifty, are near to its all time highs, inspite of all the negative news swirling around. This positive sentiment has been driven by a lot of factors like the expectation of Government reforms, the hope that the economy will start showing signs of recovery in the next couple of quarters and also due to the global liquidity that has pulled in FII investments. With this we are also seeing a pickup in the pace and interest in Initial Public Offers (IPOs). The quantum of over-subscription , and subsequent listing day gains of some of the recent IPO issues have been remarkable. The last time we saw this kind of interest was in FY18, when the secular market bull run was on, supported by all round economic growth.
We are seeing IPOs in a variety of sectors. Niche sectors such as the Online Space (IndiaMart), Government Monopoly (IRCTC), Medical Diagnostics (Metropolis) and also from generic sectors such as Banks, Microfinance etc. Recently we saw 50% gains for CSB Bank on its debut in the bourses. Before CSB, we saw IRCTC, Affle India, Polycab, IndiaMart etc. showing strong listing day gains and also easily beating the index returns, since listing.
The IPO issues are picking up pace in H2 2019, with around Rs.15000 crores of IPO issues in the pipeline and more than 20 firms already waiting with approvals from SEBI. Some notable upcoming issues are Bajaj Energy, Shriram Properties, Emami Cement, Indian Renewable Energy Development Authority (IREDA) etc. SBI Cards and Burger King have also filed applications with SEBI.
We need to understand that not all IPOs are to raise funds. It could also be used as an opportunity for early investors to exit or reduce their stake. Most of the recent IPOs have seen dilution of stake by the early investors. Be warned, all IPO issues do not have a “SUBSCRIBE” recommendation. Some of the IPO investors may only be targeting listing day gains, and in a subdued market these gains may not materialize. This was especially visible in some IPO issues of FY19, which had given negative returns on listing day and are still languishing. Since it is also a liquidity driven market, Institutional investors have also been subscribing to IPOs and attributing to its success, even in cases where the valuations are higher. Investors must look at companies with quality and healthy growth prospects and not just target listing day gains. It would be best to utilize resources such as Geojit IPO recommendation reports, so that the investor can make an informed decision.