IPO check: Ceigall to P N Gadgil — These 8 newly listed stocks shed up to 15% from their listing prices

IPO check: Since August and up to the third week of September, there have been 17 mainboard IPO listings. Assessing their performance, about 8 out of the 17 are trading below their listing price. Apart from Ola Electric Mobility Ltd and Kross Ltd, which had a flat listing, the others have listed with impressive premiums.

Shares of Ceigall India Ltd, Unicommerce eSolutions Ltd, Saraswati Saree Depot Ltd, Baazar Style Retail Ltd, Shree Tirupati Balajee Agro Trading Company Ltd, Tolins Tyres Ltd, Kross Ltd, and P N Gadgil Jewellers Ltd are trading 4-15% below their listing price.

The market has been flooded with initial public offerings (IPOs), and this trend appears to persist. However, investors are starting to wonder how these shares will perform and whether the excitement will carry post-listing, potentially turning them into multibagger or high-performing stocks in a bullish market.

Kushal Gandhi, Technical Analyst at StoxBox, elaborated that IPOs are a strong avenue within the equity segment, drawing institutional participation even during turbulent times. However, it's common for newly public companies to experience what's known as ‘IPO disease.’ A company exhibiting IPO disease may initially experience a significant surge in its stock price, followed by a rapid decline, or it may struggle to maintain momentum after its initial days of trading.

“If a stock with IPO disease does recover, it can take a long time to do so. Examples of companies affected by this phenomenon include Zomato, PB Fintech, and Nykaa. We believe that stocks exhibiting a basing pattern are the ones to watch, as these patterns result from the transition in ownership from private to public investors and institutions. Investors should consider staying invested in these companies as they appear to be resilient to the effects of IPO disease and demonstrate potential for growth,” advised Gandhi.

Stock Performance

In a bull market, there tends to be a surge in IPOs and positive market sentiment, resulting in many IPOs opening at a premium. However, some of these stocks have not seen a subsequent increase in value post-listing. This post-listing correction raises questions about whether investors are solely seeking listing gains when applying for IPOs. Despite the Nifty 50 reaching all-time highs, investors are booking profits after the listing, causing these stocks to decline after listing.

This post-listing correction raises questions about whether investors are solely seeking listing gains when applying for IPOs. Despite the Nifty 50 reaching all-time highs, investors are booking profits after the listing, causing these stocks to decline post-listing.

Further, speaking about the another trend, A R Ramachandran, an independent SEBI Registered analyst, said that since the past one year atleast where broader markets have mostly been bullish, this has helped demand and thereby ensured higher listing gains for IPOs despite below average fundamentals. This trend might not last long if the broader markets start correcting sharply in the coming months.

The Grey Market Premium Hype

Experts in the market think that another significant factor contributing to the euphoria is the grey market premium (GMP). Instances have occurred where the grey market premium has indicated varying values, sometimes aligning with the correct values and sometimes showing different values.

Once a company lists the real demand supply for any company, it comes to ground reality. Before listing the demand in grey market is artificially created, which may not be the real value or real demand for the same, explained Prashanth Tapse, Research Analyst, Senior Vice President of Research at Mehta Equities.

Very few companies prices sustain above listing prices, which will be only due to a fundamentally strong business model, and many companies fail to sustain due to weak fundamentals and slip down their listing.

Arun Kejriwal, the founder of Kejriwal Research and Investment Services, emphasized that grey market premiums are not sustainable. He pointed out that the grey market premium witnessed one day prior to the listing often differs from the actual listing and subsequent performance. For example, Bajaj Housing had a grey market premium of ₹84 or 85, but the share price rose to ₹165, indicating a premium of ₹95 over the issue price.

Kejriwal advised investors not to invest solely based on high premiums seen on various apps. He stressed the importance of understanding the company, its operations, and being comfortable with the valuations before subscribing to any shares.

Disclaimer: The views and recommendations above are those of individual analysts, experts and broking companies, not of Mint. We advise investors to check with certified experts before making any investment decision.