What ails co shares? They're falling below IPO price

Mumbai, Mar 29 Even as the capital market is flooded with IPOs these days, company shares continue to fall below their IPO prices for several reasons.

Most IPOs these days are not 'Fresh Issue' of equity by the company, rather they are 'Offer for Sale', wherein existing shareholders exit and encash their investments.

So, the benefit for significant incremental growth accruing to the investing shareholders is limited, with only steady state of growth for the business.

Thus, post IPO no significant growth play exists to keep driving the share prices up. Hence, the upside gets tested and over by the time of listing of the stock.

"Recent IPOs have not performed very well. There is a fair amount of volatility for past 2-3 weeks in the secondary market, which has impacted the listing performance of IPOs," says Pranav Haldea, managing director, Prime Database.

There is a very strong pipeline of IPOs which have received SEBI approval or have filed with SEBI for approval. If the sentiment turns bearish, we will see a slowdown in the primary market activity as well, he said.

According to Haldea, FPIs have invested heavily into Indian equities over the last one year. However, rising Covid cases might play a dampener. With reduced listing gains, IPO finance will also take a hit.

Markets are presently bullish. Most IPOs come fully priced in terms of valuations, with limited upsides thereafter. Therefore, post the IPO, the sustainability of share prices above listing price gets limited, resulting in weak share prices.

Most investors and/or traders participate in the IPO to benefit from the opportunity to make quick and short term gains by investing into the IPO. They flip and profit the stock. Institutions, Retail and HNIs are all trying to book profits fast, resulting in higher supply and less demand for the shares taking the price down.

With the country's Capital Markets being bullish, there is a rush of Companies looking to get their shares public. Investors will want to participate in most of the good companies. They end up churning their portfolio from one IPO stock to another booking some profits.

"Our view is that the IPO market remain vibrant. Once valuations get reasonable for investors, there will be even more participation in the IPOs. Some historic IPOs like LIC of India are expected in the next fiscal which should ensure IPO Markets will continue to do well. Being selective and long term can help investors make money," Gurunath Mudlapur, Managing Director, Atherstone Capital Markets Limited said.

For most good IPOs large amounts are financed by NBFCs resulting in IPOs getting subscribed by 100 times or more. HNIs investing on borrowed funds into an IPO many times have found it hard to generate positive returns after providing the cost of borrowing. It is pertinent to note that hype may not justify the fair price of a stock in long term.