BSE IPO index underperforms Sensex in 2016...

Priya Kansara Mumbai | Updated on January 16, 2018

... despite number of initial public offerings hitting six-year highs

Primary market issuances hit a six-year high in 2016, with 26 companies raising ₹26,494 crore (main-board IPOs), according to data provided by Prime Database. Yet, the BSE IPO index underperformed the S&P BSE Sensex in 2016 with the former ending down a marginal 0.3 per cent and the latter closing the year with gains of 2 per cent.

Heavyweights drag

This is mainly due to some heavyweights, such as L&T Infotech, L&T Technology Services and ICICI Prudential Life Insurance trading 4-10 per cent below their issue prices. The IPOs of these companies had received relatively tepid response, compared to others in the IPO index.

Of the 28 stocks forming part of the BSE IPO index, Dr Lal PathLabs and Alkem Laboratories were listed in 2015, and the rest in 2016. Eight stocks, including the three heavyweights mentioned above, are trading below their issue prices (up to 52 per cent). The remaining 20 are trading above their issue prices (up to 174 per cent), thus outperforming the Sensex. But since the latter are comparatively smaller companies, the overall performance of the index has suffered.

Stock prices of companies such as Infibeam (up 174 per cent), Advanced Enzyme Technologies (up 121 per cent) and Quess Corp (up 106 per cent) have jumped sharply from their issue prices.

Gains not sustained

The BSE IPO index was launched on August 24, 2009. In the last seven years, the index has outperformed the Sensex only thrice — in 2012, 2014 and 2015.

“Close to half of the stocks in the index, including Thyrocare Technologies, Dr Lal PathLabs, Narayana Hrudayalaya, Advanced Enzyme, Infibeam and Quess Corp looked overvalued during their IPOs. And then they went on to list at a premium. Further outperformance in these stocks is not sustainable,” said G Chokkalingam, Founder, Equinomics Research and Advisory. Many IT stocks are currently not favoured by the market. Besides, the insurance sector is getting highly competitive. Hence, the outlook remains grim for the heavyweights in these two sectors.

SMEs turn profitable

On the other hand, the BSE SME IPO index has gained 33.5 per cent in 2016, beating the Sensex by a huge margin. The index was launched on December 14, 2012. Ever since, (in four years) it has consistently outperformed the Sensex, except in 2015.

“Half of the companies in the index have annual revenues of less than ₹20 crore and hence, growth looks bigger as their base is low. I expect the index’s outperformance to continue,” said Mahavir Lunavat, Founder, Pantamoth Capital Advisors, the lead manager of the most number of SME IPOs in India.

Institutional investors have also selectively started taking interest in the IPOs of small companies. “Recently, Union Bank of India invested 5 per cent in the IPO of Agro Phos (I). Earlier, Reliance MF and BlackRock MF invested in Valiant Organics and Ashapura Intimates Fashion, respectively,” Lunavat pointed out.

According to Prime Database, 2016 was a record year for SME IPOs, with 67 companies raising ₹537 crore.

Published on December 30, 2016

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