Premiums of new boys on Dalal Street ease in September; analysts allude to rich valuations

The number of companies listing on Indian stock exchanges increased in September, while the average premium for mainboard IPOs dropped to 18% from 28% in August. Experts have linked these dwindling profits to the inflated prices of public offerings and have predicted that the short-term growth of new listings will be determined by the mood of the market as a whole.

The Sensex and Nifty 50 both fell by 1 percent over the last week, while the BSE Midcap index fell by 0.2 percent and the BSE Smallcap index rose by 0.8 percent.

Market fatigue, policy fears hit IPO premiums

Deepak Jasani, head of retail research at HDFC Securities, cited market fatigue in explaining the slowing gains of freshly listed businesses. Reduced September results can be attributed to widespread selling in the mid and small cap segments. He continued, "As a result, the most costly public concerns are taking the hit.

Wright Research founder and small case manager Sonam Srivastava, on the other hand, ascribed this slowdown to investors losing faith due to concerns over a tightening of policies in other countries. Like many others, she thinks that the market is overvaluing some companies and undervaluing others.

Over ten companies had their stock market debut in September, and statistics showed that both Jupiter Life Hospitals and Vishnu Prakash R Punglia saw 46 percent rises on their listing days compared to their issue price. Graphed Below:

Meanwhile, roughly six mainboard businesses debuted on the markets in August. On the day of its offering, SBFC Finance saw the greatest increase from its issue price (see chart), totaling 61%. Then there was Concord Biotech (up 27 percent) and Aeroflex Industries (up 51 percent).

Listing prospects of upcoming IPOs

Analysts have speculated that the success of new listings in the short-term will be determined by market sentiment, the quality of IPOs, and pricing dynamics.

Listing gains may be affected by the state of the market as a whole. Srivastava of Wright Research speculated that "high quality IPOs with robust business models and attractive pricing might fare better."

Initially, four initial public offerings (IPOs) scheduled for the mainboard would be listed in October. These firms are JSW Infrastructure, Updater Service, Valiant Laboratories, and Plaza Wires. In addition, there are over ten initial public offerings (IPOs) from small and medium-sized businesses waiting to be listed.

in September 29, ipowatch.in reported that JSW Infra and Plaza Wires traded at a 19% premium in the grey markets, while Valiant Lab traded at an 11% premium. The demand for Updater Service, however, has not been observed in the unlisted marketplaces.

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SME IPO listings fare better in September v/s mainboard

Data indicated that in September, small and medium sized enterprise IPOs saw an increase in average listing day gains, from 52 percent in August to 63 percent in September.

Basilic Fly Studio, a provider of visual effects solutions, saw the most success on its listing date in September, while Sungarner Energies, a renewable energy provider, topped the charts in August. On the day they were publicly traded, both stocks rose by more than 200 percent. (Check out the table for August's top five listing-day gainers.

Independent market expert Ambareesh Baliga attributed the stronger performance of SME IPO filings compared to the mainboard in September to investors' desire to make a quick buck. "Investors have flocked to these SME IPOs in order to mint the easy-and-quick money opportunity—the common mindset to apply and book profits on listing," he said.

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This 'dus ka bees' (transform 10 into 20) horde wants to double their money quickly, therefore the market regulator Sebi recently unveiled new investor protection measures covering SMEs to appeal to them. Not only that, but it also made the ASM and T2T requirements, which had previously only applied to mainboard stocks, applicable to the SME market as well.

Analysts have warned that some investors may be hesitant as a result of this rule because of concerns about trading limits, despite the fact that it ensures more stringent checks and balances on the SME segment.

However, Srivastava of Wright Research argued that, in the long run, discerning investors would welcome this change because it would represent a step toward a more open and secure market.

Investment rationale for new listings

From an investment perspective, HDFC Securities' Jasani advised examining each public issuance separately, without placing too much weight on the grey market premium or the excitement surrounding recently listed IPOs.

In the meanwhile, Srivastava suggested spreading investing risk by purchasing shares in various IPOs.

Disclaimer: The opinions and recommendations offered by Moneypoise.com's investing experts are those of the experts themselves and not of the website or its administration. Investors are urged by Moneypoise.com to double-check their plans with qualified professionals.

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