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Home >Markets >Mark To Market >The IPO charm is waning; revival hinges on lowering expectations

The IPO market charm is fading as quickly as it started. After stellar oversubscriptions and bumper listings, recent initial public offerings (IPOs) of Nuvoco Vistas and Chemplast Sanmar saw lukewarm investor response. Several recently listed IPOs did not provide enough listing pop.

Devyani International, the Pizza Hut and KFC franchise, was one of the two issues to hold up well with 31.4% gains over the issue price of 90. The other is Rolex Rings. IPOs such as Windlas Biotech listed at a discount and shares trade at a huge 20.2% discount to the IPO price. The other much-hyped IPO of CarTrade Tech closed 7% below its offer pricing on listing day. Krsnaa Diagnostics listed with a 7% gain, but now trades at a 3% discount to offer price. Exxaro Tiles trades at just 2.9% above the IPO price. Five of the last seven listed IPOs disappointing marks a huge reversal in sentiments, which will dampen the IPO market for some time.

The boom in the stock market has driven IPO issuers to seek a stiff price for their offerings. Indian IPOs went from reasonable valuations to sky-high valuations in no time, leaving little on the table for investors.

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Rich pipeline

“There is a fatigue factor with investors because of a large number of issues. The issue prices kept going higher as private equity investors factored grey market premiums in pricing the issue, which led to more overpricing," said Arun Kejriwal, founder of Kejriwal Research, an advisory firm.

Some IPOs fund raising has not been for expansion. Instead, they offer a route for existing investors and promoters to unlock value. Most IPOs have a large offer for sale component that shows promoters are cashing out in good times. With the private equity market going through the roof as well, some of that froth is being seen in the primary market. A recent Credit Suisse India report noted that 2021 has been strong for equity raising with private equity deals at a record high of $18.6 billion in the first half of the year, excluding the fundraising by subsidiaries of Reliance Industries Ltd.

Some companies still continue to find favour with investors because of their scalable or big tech business model. “Investors are exiting from China and Zomato is a beneficiary over here," said Nitin Rao of Alpha Ideas, an investment blog.

However, a large number of IPOs slated to hit the market may not have the favour of such sentiments. The Credit Suisse report noted that about $12 billion worth of IPO filings have been made. Further, over the next 12-18 months, the market capitalization of Indian stocks could expand by as much as $160 billion, which excludes the planned share sale of state-run Life Insurance Corporation of India.

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