The Hindu Business Line : ‘IPO gradings not an indication of trading prices’

Mumbai, Oct. 21 The IPO grading introduced by the rating agencies some time ago appears to have a little or no influence on the share price of the newly listed shares (whose IPOs were rated) on the bourses.

According to rating agencies Crisil, CARE and ICRA, IPO gradings have nothing to do with the share pricing.

Mr Arun Panicker, Senior Director-Research at CRISIL Ltd, said: “It is a point-in-time product; gradings give an investor a sense of the fundamentals of the IPO and are not a comment on the pricing of the issue. So it is not right to correlate the two.”

These gradings are valid only until the time of the IPO, he added.

A grading of five means a company has strong fundamentals, while a grading of one implies poor fundamentals. Most of the IPOs that hit the markets this year have been rated at three, indicating average fundamentals.

‘Pointers only’

According to Crisil, these gradings are meant to “provide investors an independent, reliable and consistent assessment of the fundamentals of new public issues”.

“This offering may be especially useful to retail investors who are seeking to invest in companies that are unknown in the equity markets.”

Pegging it down

The markets have shed more than half their value so far this year and the primary market is lacklustre.

Last year, the primary market had raked in record amounts but this year the opposite has happened. Almost all the IPOs that have hit the markets in the recent past have had to either extend their closing dates or peg down their price bands or both, as investors stayed away from the primary markets. Other potential issuers have kept their plans on hold, while some have had to cancel their IPOs mid-way.

Performance

Of the 36 companies that have gotten listed so far this year, only five are trading above their listing price. And these companies have either been graded at two or three.

Anu’s Lab is trading at 24 per cent above its listing price of Rs 210. Crisil gave its IPO a grading of two on five. Bang Overseas is at 15 per cent above its listing price. CARE gave it a grading of two. Vishal Information Technologies is trading 95 per cent above its listing price. CARE gave it a grading of three.

The IPOs that obtained a grading of three on five are, on an average, trading at 30 per cent below their listing prices.

IPOs of Emaar MGF and Wockhardt Hospitals, which were graded at four by CARE and Fitch, were cancelled.

Reliance Power, Gammon Infrastructure and OnMobile were also graded at four by Crisil, and are now trading below between 30 and 74 per cent of their listing prices.

Resurgere, Archidply and Sejal Glass were given gradings of one on five. They are, on an average, trading at 70 per cent below their listing prices.