PremiumThe euphoria that has gripped the initial public offering (IPO) market since last year showed some signs of abating, as some stocks made less than stellar public debuts while the grey market premiums for ongoing share sales narrowed sharply.
The euphoria that has gripped the initial public offering (IPO) market since last year showed some signs of abating, as some stocks made less than stellar public debuts while the grey market premiums for ongoing share sales narrowed sharply.
Investors have recently reaped bumper gains in a host of IPOs. Shares of GR Infraprojects and Tatva Chintan Pharma Chem more than doubled on debut, while Zomato and Clean Science and Technology gained 65% and 76%, respectively. Investors were, however, disappointed with the listing of Glenmark Life Sciences Ltd and Rolex Rings Ltd that gave relatively modest gains on their First day of trading.
Emboldened by soaring stock prices, many investors, usually high net worth individuals, borrowed money to invest in IPOs. But such leveraged bets make sense only when the returns on the stock are more than the borrowing cost. With rising borrowing costs and less than stellar debuts, many investors are staring at substantial losses.
The weak debuts have sent warning shots to investors that the Indian IPO gravy train may go off the rails.
Last week, four IPOs raised a combined ₹2,107 crore, and this week, another four are raising money from the primary market.
A trader who did not want to be named said at the peak a week ago, grey market premiums of CarTrade Tech (IPO price ₹1,618), Nuvoco Vistas Corp. (IPO price ₹570), Chemplast Sanmar ( ₹541), Devyani International ( ₹90) and Krsnaa Diagnostics ( ₹954) were at ₹800, ₹55, ₹160, ₹64 and ₹450, respectively. On Wednesday, the premium had declined to ₹130, ₹7.5, ₹22, ₹40 and ₹270, respectively.
“Grey market premiums (GMPs) are falling because of too many IPOs at the same time, fund crunch with institutions, NBFCs, HNIs and retail, and too much greed. The IPO market is adjusting GMPs to a realistic value," said Ritesh K. Gupta, an adviser at IPO Mantra, a primary market advisory firm.
Some analysts said premiums are falling steadily from their peak amid concerns of expensive valuations. “Premiums have fallen because the quality of companies that are coming up have also gone down. The issue sizes are also big, with most of them either giving exits to investors or promoters, or just paying off debt. So, no money is going to the company. If that is not the case, then the IPO is just to list at a premium as seen by the objects of issue of some IPOs. Also, recent Glenmark and Rolex Rings listings and HNI losses through IPO funding in some IPOs have made players cautious," said an analyst, requesting anonymity.
To be sure, some analysts say GMPs are just a vanity figure, and one is better served to look at fundamentals by reading the draft IPO documents in depth.
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