IPO fatigue. Early signs of IPO fatigue visible

India’s IPO market boom, which began exactly a year ago in March 2020 with the SBI Cards offer, is showing early signs of fatigue.

On paper, 17 public issues have mopped up nearly ₹19,000 crore in about three months of 2021, but dig a little deeper and the weariness is becoming evident. First, four of the last five new listings have flopped on debut, compared to six out of the previous 26 offers since March 2020. Next, subscription multiples for many of the latest lot has dropped to single-digits. Thirdly, stiffly priced IPOs — many of which had earlier sailed through — are under greater scrutiny now. In fact, such is the mood that every second stock that registered listing gain during last one year has slipped below its respective debut day closing price.

The prevailing situation is in sharp contrast to the scenario that existed just a few months ago. At that time, recovery was the buzzword as the Indian economy found itself unshackled after months of lockdown.

The markets, however, had started singing the revival tune much earlier, powered by easy liquidity, modest valuations and optimism that Covid-19 would go away. Fast forward to 2021, where an IPO every third day in March has led to a supply glut. Learning from experience, investors, too, seem to be paying attention to fundamentals today instead of blinding chasing IPOs for listing gains.

Investors waking up

While merchant bankers race against time to help companies raise capital, IPO investors often are driven by the potential to make a quick buck aka listing gains. But that symbiotic relationship is under strain.

Four of the five recent IPOs – Barbeque Nation, Suryoday SFB, and Kalyan Jewellers – have seen subscription multiples of only between 2 and 6 times. This strain is reflected in new listing performance too as Suryoday, Kalyan Jewellers, Craftsman Automation and Anupam Rasayan India shares opened below their issue price on debut and closed their Day 1 in loss.

Before the last five listings, the average debut gain for a public issue stock in 2021 was 38 per cent. This number was almost in line with the average listing gain of 44 per cent in 2020.

Successes like Happiest Minds (up 123 per cent on listing), Burger King India (up 130 per cent), Mrs Bectors Food (up 107 per cent) and Indigo Paints (up 109 per cent) helped promote the ‘listing wealth creation’ story.

The trend was partly driven by high subscription multiples, aided by HNI bidding. In fact, all of these listing gain poster boy IPOs saw an average total subscription of about 150 times, indicating the huge demand.

But, with investors increasingly turning their attention to fundamentals, some high-flying IPOs that earlier recorded big listing gains are coming to terms with the force of gravity.

Within 15 days of listing during which the stock jumped 88 per cent, MTAR Technologies is down 6 per cent. Post a 72 per cent listing gain, Chemcon Specialty is down 31 per cent as investors recognise growth uncertainty, volatile product prices and the overhang of pending litigations for the company. Mrs Bectors Food, after more than doubling on listing day, is down 44 per cent as attention shifts to unsteady financials with growth picking up only in the last six months before IPO.

Similarly, Indigo Paints has fallen 26 per cent after surging 109 per cent on listing day, as investors cut back on expectations from a company that already demanded premium valuations at the IPO stage.

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