SBI Cards’ muted listing points to a rocky road for other IPOs

The subdued market debut of SBI Cards and Payment Services after a highly fancied and heavily over-subscribed initial public offer (IPO), barely two weeks ago, underlines the whimsical nature of the Indian primary market. Even as nothing much has changed for SBI Cards’ business in this short span, the shift in market sentiment brought on by the Covid-19 outbreak seems to have been enough to sharply trim the valuations that the market was willing to pay for this high-growth consumer lending franchise. With over-subscription numbers of 45 times on the NII (non-institutional investor) portion, many high net-worth investors are likely to have burnt their fingers, by using high-cost borrowings to bid in this offer. It is also a mystery why qualified institutional buyers (QIBs), who queued up to buy the anchor portion of this IPO and put in bids for 57 times their quota, have suddenly developed cold feet about valuations on listing. For retail folk, this is yet another reminder that their investment decisions in IPOs must be based only on a diligent evaluation of long-term prospects of the business, as grey market premiums cited in the media and QIB over-subscription numbers can prove to be red herrings.

Short-term disappointments for investors in SBI Cards aside, the experience with this IPO shows that despite the substantial maturing of the Indian equity market over the past decade, with a manifold rise in market capitalisation and institutional participation, the domestic primary market remains a fair-weather friend. To succeed, Indian companies are inevitably forced to bunch up their offers to fleeting bull phases, as appetite dries up the moment volatility hits. This very bunching leads to a poor long-term return experience for investors in IPOs. The present volatile phase in the market now threatens upcoming IPO plans of a host of firms who had lined up offers based on the success of IRCTC. Small finance banks who are up against RBI deadlines on listing may now have to bide their time, and value-unlocking plans of the promoters of UTI Asset Management, NSE and Reliance General Insurance may now have to wait. The start-up world, already bracing for a funds crunch on the back of the global risk-off scenario, will need to prepare for additional pain from the stalling primary market, as this delays exits for private equity and venture capital investors from their older investments.

Hiccups in the primary market have the potential to disrupt the Centre’s budget calculations too, which have relied heavily on initial offers of public sector behemoths such as LIC, IRFC, IREDA and National Insurance Company to meet ambitious disinvestment targets both in FY20 and FY21. The whimsicality of the IPO market is just another reason why setting yearly targets for disinvestment and trying to stick to them irrespective of market conditions, can lead to fire sales of valuable national assets.

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