BackMarket volatility may hit IPO party
Multiple IPOs in September saw massive subscriptions and bumper listing gains, thanks to copious liquidity and an IPO drought since March.
PremiumWild fluctuations such as those witnessed this week could scare away investors and cast a shadow over upcoming initial public offerings, market experts said, leading to delays in new IPO launches, lower subscription numbers and muted listing gains.
Between Monday and Thursday, the Sensex plunged 6%, before soaring 2.28% on Friday.
Multiple IPOs in September saw massive subscriptions and bumper listing gains, thanks to copious liquidity and an IPO drought since March. Companies such as Happiest Minds Technologies Ltd and Route Mobile Ltd saw their shares more than double on listing.
Amid the recent volatility, the market is waiting for two IPOs opening next week—UTI AMC Ltd and Mazagon Dock Shipbuilders Ltd—looking to raise a total of ₹2,604 crore.
“One of the things that can happen, if this volatility continues into the next week, is that we will see a slowdown in the number of IPO launches. It will also impact investor appetite. In case volatility continues, you will see a dip in terms of institutional and retail appetite, as retail investors follow institutional cues," said Pranav Haldea, managing director of Prime Database group.
He added that the IPO pipeline is not very strong, as several companies have faced the adverse impact of covid. If the stock market continues to correct, these companies could be forced to rethink their IPO launch plans.
“We have seen only four fresh IPO filings in the last three to four months. The launches that have happened are from older filings and sectors that have not got impacted due to covid-19. About 25 companies have Sebi approval, but one needs to see if they will be launching as several of them are from industries such as retail and hospitality which have been affected adversely," said Haldea.
The volatility may crimp participation by both retail and high net worth investors, an investment banker said on condition of anonymity.
“We could see lower subscription numbers and muted listing day gains if the market remains volatile. Retail investors won’t be so gung-ho on IPOs if broader markets are going down," he said.
To be sure, not everyone is worried; two investment bankers advising the UTI AMC and Mazagon Dock share sales, respectively, told Mint that demand remains strong.
“Market volatility is a concern. But we haven’t seen any impact on institutional demand. We have a robust institutional book with mostly long-only investors, and the IPO is well covered," said one of the bankers cited above.
Ravi Dubey, a partner at law firm IndusLaw, said investor interest for IPOs will depend on the listing gains and the post-listing performance of recent IPOs. “Listing day gains of recently closed IPOs will be a guiding factor for HNI and retail investors. Robust stock performance by new issuers amid market volatility indicates a strong interest from HNI and retail investors in IPOs for some time," he said.
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