IPO Boom in Stock Market- An Insight Story

Recently IPO Boom in Indian Stock Market

 

There is a buzz of public issues in the stock market. The market is strong due to good quarterly results and enough cash. There is a positive sentiment in the stock market, which has more than doubled from the record decline of March last year.  Foreign Institutional Investors (FIIs) have invested 2.2 lakh crore rupees since 2020.

Due to this companies are continuously raising money from Initial Public Offering (IPO). Next week 5 IPOs will be launched, while in 2021, 11 IPOs have been launched so far.

Earlier, in 2020, 16 companies launched IPOs from July to December.

The public issue is going to be booming in the future as market regulator SEBI has approved 16 companies for the IPO. In this, 6 companies have also announced a launch date and 10 are left. According to a report by Axis Capital, among the 10 companies approved by SEBI, Sarvodaya Small Finance Bank, Kalyan Jewelers India, Barbie Nation Hospitality, National Commodity & Derivatives Exchange, ESAF Small Finance Bank, APJ Surendra Park Hotels, Puranik Builders, Montecarlo, Indian Renewable Energy Development Agency, Shree Bajrang Power & Ispat, Mukesh Trends Life Syal, and Jayakumar Construction.

11 public issue launches in 2021 so far

In 2021, companies raised about Rs 13.31 thousand crores from 9 issues. The 11th IPO online travel company Easy Trip Planner of the year closed on March 10, subscribing 160 times on the last day.In March, IPOs of Lakshmi Organic, Craftsman Automation, and Anupam Chem are scheduled to be worth about Rs 2,183.7 crore. 12th IPO Anupam Chem already opened on 12th March and subscribed 1.29 Times on Day 1.

Upcoming IPO Details:

Anupama Chem IPO launched on 12h March. Through this, Company wants to raise Rs. 760 Crore. The company has fixed a price band of 553-555 rupees per share.

Kalyan Jewelers' IPO will open on 16 March. Through this, the company wants to raise Rs 1,173 crore. The company has fixed a price band of 86-87 rupees per share. It will be open till March 18. 800 crore worth of fresh shares will be issued in the issue. Apart from this, the promoters will issue shares worth Rs 375 crore in Offer for Sale (OFS). OFS will hold shares worth Rs 125 crore, promoter’s TS Kalyanraman, and shares worth Rs 250 crore will be owned by Hydale Investment Limited.The initial public offering (IPO) of gaming company

Nazara Technology will open on March 17. Its price band has been fixed at Rs 1,100-1,101 per share. The company intends to raise Rs 582 crore from the issue. The company has appointed ICICI Securities, IIFL Securities, Jefferies India, and Nomura Financial as managers for the public issue.

Nazara Technology is one of the top sports medias and gaming companies in the country. It also has investments in Rakesh Jhunjhunwala as well as Plutus Wealth Management, IIFL Special Opportunity Fund and Turtle Entertainment. The company's business is spread across 60 countries in the world, including India, including Africa, Middle East, South East Asia and Latin America. In FY 2019, Consolidated Technology's consolidated revenue stood at Rs 183 crore. It was 180 crores in 2018.

The issue of Suryoday Small Finance Bank will open from March 17 to March 19. The bank is set to raise Rs 582 crore through an IPO. Its price band has been fixed at Rs 303-305 per share. The bank will issue Rs 1.159 crore fresh issue and 84 lakh shares in Offer for Sale (OFS) under the IPO.

The bank's current investors include International Finance Corporation, Gaza Capital, DWM (International) Mauritius, IDFC First Bank, Kotak Mahindra Life Insurance and Polaris Banyan Holding, which are selling their stake in a public issue. Suryoday Small Finance Bank has raised 150 crores in pre-IPO placements. In pre-IPO placements, the company raises money by issuing issues.

Suryodaya Small Finance Bank will be the fourth NBFC company to launch an IPO. Earlier, AU Small Finance Bank, Equites Small Finance Bank and Ujjivan Small Finance Bank have come out with IPOs, while ESAF Small Finance Bank is also preparing to bring a public issue. It may come in the next fiscal year. Apart from this, Utkarsh Small Finance Bank has also filed DRHP with the market regulator SEBI for issuing the issue.

The loan portfolio of Suryoday Small Finance Bank stood at Rs 3,711 crore as of March 2020, which increased to Rs 3,900 crore by December 2020. 76% of this customer is women. The bank offers commercial vehicle loans, affordable housing loans, and loans to small and medium businesses. The bank's net interest margin (NII) 11.92% percent in the fiscal year 2019-20.

Last 10 IPO Return Data:


Why is the trend of investors moving towards IPO??

The main reason for the trend of investors towards the IPO is for the profit it generates.
Investors have received returns of up to 141% from the IPO so far listed.

According to the exchange data, Salasar Techno and Astron Paper topped the list of stocks of
above the issue price. Apart from this, Mazgaon Post including Apollo Micro, selected companies and the returns from investors. Both shares were listed 140%
Mrs. Bectors also gave good profit to the investors.

Salasar Techno shares were listed on the BSE at a price of Rs 259.15, with an issue price of
Rs 108 per share. That is, the listing gave the investors a return of Rs 139.95
per share.

Apollo Micro System's stock was listed at a price of Rs 478. The issue price of the stock was Rs 270-275 per share. Investors had gained Rs 203 per
share

The stock of Astron Paper was listed on the exchange at a price of Rs 120.75, with an issue
price of Rs 45-50. Returned 141% per share.

Mrs. Bectors' stock was listed at Rs 501 with a 74% premium. The price band for the IPO was
fixed at Rs 288 per share.

Mazgaon Dock's stock was listed at Rs 216.25.The issue price was 145 rupees.The listing gave
investors a profit of 50% per share.

A Game of Risk:

If you look at the returns on the day of listing, during the last 10 years, during 2020, on
average, investors have received returns of around 36%. By comparison, in 2014
investor inclination towards the IPO. However, there is some risk associated
the return was 22% and in 2017 it was 23%. This is the main reason for the with the new IPO. We will discuss this later, but let's first look at the
return to the last 10 IPOs in 2021.


IPO Name

Listing day Gain

Overall Profit

Antony Waste Handling Cell Limited

29%

-8%

Indian Railway Finance Corporation

-4%

-4%

Indigo Paints Limited

109%

68%

Home First Finance

2%

-1%

Stove Craft Limited

16%

26%

Brookfield Indian Real Estate Trust

-2%

-12%

Nureca Limited

67%

51%

Railtel Corporation of India Limited

29%

54%

Heranba Industries Limited

30%

21%



























The above table clearly indicates how an investor is getting financial benefit with an IPO. In the IPO, the short-term capital gains are higher if we compare the old-fashioned method with the money received. But there are also some disadvantages associated with the IPO. Let's have a look at that.

  1. The company is relatively new, not much is known about it and the people who are selling it are insiders. Therefore, they are going to be the main beneficiaries and their objective is always to sell it at a high price.
  2. The entire process of selling shares in an IPO is in the form of a lottery. This lottery element assumes that if you get an allotment, sell it and run.
  3. Some companies use PR machinery and their seasoning stories to generate huge demand. As a result, the IPO becomes oversubscribed.
  4. Nowadays 80% of companies are demanding higher valuations from investors than their existing peer companies. In some cases, as we cannot compare the fundamental analysis because there is no such peer company to compete.
  5. On the day of listing, market sentiment may rapidly shift towards a bearish trend. There is always a difference of 7-10 days between the IPO application closure date and the market listing date. Market sentiments can change in these 7-10 days, which affects the profit on the day of IPO listing. We personally observed that 90% of companies are launching their IPOs in the bullish market to take advantage of market sentiments or positive sentiments.
  6. A retail investor should know why the promoters are selling their stake to raise money from the IPO. If the purpose of an IPO is growth for their company, the stock provides better returns in the long run. If you check some IPOs which have been launched in the last few years, only 25% of companies are using the money in a better way. Along with the growth and expansion of those companies, they also give good returns to their investors. The remaining 75% IPO is the exit route only for their promoters.
  7. At the time of launching the IPO, some brokers review the IPO and make recommendations to hold shares for a longer period. After seeing the recommendations of the broker, some retail investors keep their shares for a long period and investors' money gets stuck in the long run. We looked at the IPOs launched in previous years and found that around 50% of companies give negative returns to investors. During January-2016 to December-2018, 76 companies launched their IPOs, out of 76 companies, 38 companies gave negative returns. The remaining 38 companies gave positive returns, some of which gave very good returns.

Alpha Eye Thoughts:

We think you should invest in an IPO as and when you get the opportunity but not for the lottery element. Do it just because you will get some allotment in a good company. And we don't think the rules of investing in the IPO change simply because it is being sold for the first time

You should invest in an IPO in the same way that you usually invest in the shares of some company. But its dynamics are different. Luck plays a much larger role. If you are lucky, you really make quick money here.

Still investment is subject to market risk so always research before investing.

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