Only 50% of IPOs gave positive returns in FY2015-16

Priya Kansara Mumbai | Updated on January 20, 2018


Steep pricing is the chief reason for weak debut & subsequent performance

Even as FY16 set a multi-year record for initial public offers after a long hiatus, half of the companies that listed this year are trading below their issue prices.

Half of the 24 companies, which got listed in FY2015-16, are trading below their issue prices. They are trading 1-53 per cent lower than their issue prices. The rest 12 companies are trading above their issue prices — in the range of 6-99 per cent. Nifty 50 has declined close to 10 per cent in FY16.

Sans fundamentals

Pricing is seen as the chief reason for the poor performance of listing company shares on the bourses on Day 1. According to market experts, pricing has been quite steep even for fundamentally weak companies. Narayana Hrudayalaya and HealthCare Global Enterprises are examples.

Steep pricing was also the result of many of these companies that were listed being backed by private equity (PE) investors who have high valuation expectations. PE-backed companies such as Coffee Day Enterprises listed at a discount and ended in the negative on Day 1.


The extent of subscription is another reason, which, in turn, is a factor of the company’s fundamentals. For example, the top three losers among newly-listed companies were Adlabs Entertainment, MEP Infrastructure Developers and UFO Moviez India. These companies had seen muted subscription of one-two times on concerns about their business prospects and/or pricing.

On the other hand, many among the gainers, such as VRL Logistics, Dr Lal PathLabs and Alkem witnessed stupendous response. Investors who were not allotted enough shares during the IPO rushed to the secondary market to pick up these shares, lifting their stock prices.

As for the link between the performance of the broader market and the stock’s performance on debut day, no strong connection is visible. For example, HealthCare Global Enterprises saw weak debut on Wednesday and closed down more than 19 per cent despite Nifty ending the day up 1.8 per cent.

Infibeam may plummet

Rahul Shah, Vice-President, Group Advisory Leader — PCG-Equities, Motilal Oswal, continues to like Alkem, InterGlobe, Dr Lal PathLabs, SH Kelkar and Navkar Corporation among the gainers and finds value buying opportunity in Inox Wind and Power Mech Projects among the losers.

Two more companies namely Infibeam Incorporation and Bharat Wire Ropes are yet to be listed on the stock exchanges. Market experts believe that Infibeam will list at a discount of roughly 20 per cent on steep pricing.

According to database firm Prime Database, capital raised through IPOs, including those by small and medium enterprises, touched a five-year high of ₹14,772 crore while the number of companies that listed through the main-board IPOs (that is, excluding SME IPOs) was also at a four-year high of 24.

“FY16 has been a good year for IPOs as performance of a few good ones, such as VRL Logistics, PNC Infratech and Syngene International formed a base for others,” said Kunj Bansal, Executive Director, CIO — Equity at Centrum Wealth Management.

Published on March 31, 2016

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