Among firms that tapped the primary market this year, over 85% were trading above their issue price as of 15 October
With the exception of Sterling and Wilson Solar Ltd and MSTC Ltd, all other stocks were trading above their issue price
Fewer companies went public in 2019 as volatility rocked the market, but the ones that did performed better after listing than their peers in the last two years, as issuers reduced their valuation expectations.
Among companies that tapped the primary market this year, over 85% were trading above their issue price as of 15 October, compared to 46% in 2018 and 40% in 2017, data from stock exchanges showed.
IRCTC Ltd was trading at about 119% premium, Indiamart Intermesh Ltd 115%, Neogen Chemicals Ltd 78% and Affle India Ltd 57%, data showed.
With the exception of Sterling and Wilson Solar Ltd and MSTC Ltd, all other stocks were trading above their issue price.
Investment bankers attributed the performance of these stocks, in a year when secondary markets have been volatile, to better pricing at the time of their public offerings.
“From a trend point of view, IPOs are now getting more fairly priced than earlier, and that trend should continue for the upcoming IPOs," said Satyen Shah, head of investment banking at Edelweiss Financial Services.
“Over the last two years, IPOs had some exuberance in pricing because of a good market environment and strong investor demand. In the last 12 months, on the back of a volatile market environment, IPO valuations have been factoring in some volatility risk offering greater margin of safety for investors," he added.
Indian markets have remained volatile this year due to a combination of global and domestic uncertainties, including US-China trade tensions that have led to a tariff war between the two countries, an impending Brexit and volatile oil prices.
The investor sentiment was further dampened by domestic concerns such as a depreciating rupee, credit crunch, consumption slowdown and lower economic growth.
While pricing has certainly helped IPOs perform better this year, according to investment bankers, the quality of companies hitting the primary market and their differentiated business models are also important factors.
“While IPO valuations have become more conservative, the companies that are getting listed are also of a superior quality and with some unique selling points, compared to last year. Investors have been more selective and thrifty in the present market and a combination of these factors has led to a better post-listing performance of the recent share sales," said Mukund Ranganathan, executive director at Motilal Oswal Investment Banking.
“As a result of this, most of the IPOs that have hit the market in 2019 are trading at a premium to their issue price giving handsome returns to investors; this has boosted investor confidence, especially retail and HNI (high-net-worth individual) investors, and will be a big positive for IPOs even as issuers continue to look for greater capital markets stability," said Shah.
According to Vikas Khattar, managing director and head of equity capital markets and financial sponsors coverage at investment banking firm Ambit Pvt. Ltd, the differentiated business models of the companies going public is also attracting investors.
“For instance, in case of Indiamart, the company is the only such e-commerce B2B (business-to-business) marketplace platform to get listed. IRCTC, too, is one-of-a-kind as it has a monopoly on railway ticketing and catering. A differentiated offering, therefore, is one of the other big reasons why these stocks continue to hold investors’ fancy," he added.
So far in 2019, only 13 companies have gone public and raised around ₹10,709 crore as of 14 October, compared with 24 IPOs that raised ₹30,959 crore in all of 2018.