Initial public offerings (IPOs) are witnessing robust demand as investors remain bullish on the primary market, which has delivered strong returns so far this year.
The initial share sale of Ujjivan Small Finance Bank Ltd, which closed on Thursday, was subscribed 170 times. It was the highest subscription seen so far in 2019.
In November, the initial public offering of Fairfax-backed CSB Bank Ltd had seen a subscription of 87 times, while the public offering of state-owned Indian Railways Catering and Tourism Corp Ltd (IRCTC) was subscribed 112 times, when it hit opened in October. Shares of Ujjivan Small Finance Bank are yet to list.
These IPOs went on to deliver stellar listing gains for investors, with the price of IRCTC shares jumping almost 128% on listing day. CSB Bank’s shares closed trading at 54% above the company’s IPO price.
According to industry experts, the heavy demand that these IPOs have seen is, in fact, a derivative of the listing performances that earlier IPOs in 2019 have delivered for investors. Having made good returns, investors seem to be coming back for more.
“In 2019, only a few number of IPOs have happened. But the IPO experience has been great for investors. Because except for one issue, every other issue has done phenomenally well. So investors have had a positive view towards investing in IPOs," said Jibi Jacob, head of equity capital markets at Edelweiss Financial Services Ltd.
Till November, only 14 companies had hit the primary market, collectively raising ₹11,111.65 crore, according to data from Prime Database.
In calendar year 2018, 24 companies raised ₹30,959 crore through initial share sales, while in 2017, 36 companies raised ₹67,147 crore through this route, shows data.
The demand seen during the recent IPOs showed that there is sufficient liquidity chasing primary market deals.
“There is enough money in the system to invest, but given that the markets have been volatile, fewer deals have gone through this year compared to the previous year," said V. Jayasankar, senior executive director and head of equity capital markets at Kotak Investment Banking.
According to Jayasankar, the success of recent IPOs is not just a factor of supply-demand dynamics, but also of the quality of the companies that are coming into the market. “The quality of issuances has been probably of the highest order across the last five years. The average IPO return has been more than 50% this year. Investors are getting fair pricing, quality of issuances is great and returns are great, so that’s why money is chasing," he said.
Investors are getting very good returns in the IPO market, in fact, it is beating every index, Jayasankar added.
Bankers are hoping the trend will continue into the next quarter and expect quality issuers to continue to experience strong investor interest. “Going ahead, we expect IPOs from good quality issuers, and which are well priced, to see strong demand. Liquidity is not the concern for quality issuances," said Salil Pitale, joint managing director and co-chief executive officer at Axis Capital. “People are discerning in terms of where they want to put their money. If it’s a quality name, then institutional demand comes in and then Retail and high net worth individual (HNI) investors follow," said Pitale.