IPO Fever

It looks like IPOs may be back in favor after a long time

It was a busy week for the IPO markets and it looks like the coming week would be a lot busier. With 2 IPOs completed in the previous week and 3 big IPOs slated to hit the market in the last week of September, the excitement is back in the IPO markets. What is this story?

Yes, the IPO fever is back

The year 2020 was like an IPO drought of sorts. That was also easy to fathom considering the uncertainty created in the market by the COVID pandemic. For example, in the first half of the year, we had just one IPO; that of SBI Cards. In the second half of the year, there was the successful Rossari Biotech IPO and then the Mindspace REITS IPO. In the last 2 weeks, we have seen the IPOs of Happiest Minds and Route Mobile get a stellar response. While Happiest Minds was subscribed 151 times, Route Mobile was subscribed 72 times. Happiest Minds also had a bumper listing at a premium of 111% and a similar listing is expected for Route Mobile also, based on the grey market indicators. The next week is likely to see the IPOs of CAMS, Chemcon and Angel Broking hit the markets and a decent oversubscription is expected in all these cases. The investment bankers are expecting that even excluding the LIC issue, the Indian markets should see IPOs to the tune of Rs.50,000 crore in FY21. That will be the best performance by the IPO market since 2017, when we saw IPOs worth Rs.75,000 crore hit the markets.

Good paper at a good price

If one were to look at the IPOs in the year 2019, the numbers were much lower. However, what stands out is that a majority of these IPOs performed extremely well post listing. In fact, if you look at the last five years, barring some of the grossly overpriced PSU insurance IPOs, most of them have done well. That is largely because, these IPOs have been primarily positioned in emerging growth areas like technology, digital enablement, pharmaceuticals, specialty chemicals, insurance, financial services etc. One more factor that has facilitated this good post-listing show is that IPOs have been conservatively priced to leave something on the table for investors. That has surely helped.

Is it secondary market ennui?

Between January and August 2020, NSDL and CDSL reported a surge in new DP accounts to the tune of 55 lakhs. While this was partly due to interest shown by millennials, it is also due to a degree of secondary market ennui that is creeping into the markets. Secondary markets in India have been like the tale of two markets. A handful of quality stocks are quoting at fancy valuations while the rest of the market is where it was. That has reduced the available choice for small and medium sized investors. The surge in interest in IPOs shows a degree of secondary market boredom. IPOs do stand to gain!

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