Losing steam: IPO bets of wealthy investors turn sour in August

Overall, HNIs have profited in 16 out of 27 IPOs in 2021

For much of this year, wealthy investors had made a killing on the initial public offerings (IPOs) that hit the market with some regularity. This month, however, most of their bets have gone awry.

Up until July, 14 of the 19 companies that made their debut on the bourses made money for these investors on day one, after taking into account the financing cost and significant oversubscription. In other words, three out of every four new listings gave the bang for the buck.

In August, the win-loss ratio has reversed, with six of the eight listings so far making losses. Losses in Rolex Rings, CarTech Trade, Glenmark Life Sciences, and Krsnaa Diagnostics ranged from Rs 46 to Rs 210 per share. Aptus Value Housing Finance, which listed on Tuesday, made losses of Rs 25-50 on debut.

Devyani International and Exxaro Tiles, which listed on the same day as Krsnaa Diagnostics and Windlas Biotech last week, are the only ones to ring up small gains this month.

“The listing pop this month belied expectations, taking many investors by surprise,” said Pranjal Srivastava, partner (ECM), Centrum Capital.

“Net-net, however, high net-worth individual (HNIs) would have still made money had they invested across all IPOs this year.”

Overall, wealthy investors have profited in 16 out of the 27 IPOs this year. Seven of the 11 IPOs that made losses had seen their HNI quota getting subscribed in excess of 100 times. Only those public offerings that saw bids for more than three times than that on offer in the non-institutional, or HNI category, were considered for analysis. Financing rates were assumed to be 7-9 per cent.

Investing huge sums in IPOs using borrowed money is typically done to make listing gains and exiting on day one, said experts.

“It is a gamble and may not always pay off if the gains are not enough to cover interest cost, or worse, there are no gains at all. Investors using this route are not looking at the company fundamentals or its long-term prospects as they plan to sell on listing. Over the past few months, this strategy has worked well for many HNIs, given the bullish market mood,” said Pranav Haldea, managing director, PRIME Database.

Predicting listing gains is not an exact science and the company’s intrinsic value, the demand-supply equations for the unlisted shares, and the overall market euphoria can dictate the extent of gains after listing.

“At times there is a lot of PR activity around a company and its prospects before and during the IPO, which can significantly impact the demand,” said Altaf Siddiqui, managing director and CEO, Enrich Advisors.

A lot of HNIs turn to grey market premiums to get cues, which may or may not work in their favour. In the case of Krsnaa Diagnostics, for instance, grey market premiums of Rs 300-350 indicated that the stock would list at Rs 1,254-1,304, a 31-37 per cent premium to its issue price. The stock, however, opened at Rs 1,025 and touched a high of Rs 1,099 on listing day. Similarly, CarTrade Tech was expected to list at Rs 1,700-1,800 but was not able to breach the issue price of Rs 1,618 on debut.

A K Prabhakar, head of research at IDBI Capital, said investments in recent IPOs had become nothing but speculative trades and only those who could time their exit could succeed.

“This is a euphoric market and IPOs are commanding rich valuations similar to those seen in 2007-08. But it may be difficult to sustain these kinds of subscription levels and listing gains for long,” he said.

This year the HNI quota of 14 IPOs was subscribed more than 100 times against 12 in 2007. The IPO rush is likely to continue, with Paytm, Nykaa, Ixigo, MobiKwik, PB Fintech, Emcure Pharma and LIC set to tap the market this financial year.

Investors who have burnt their fingers in recent offerings, however, may become more selective and delve deeper into the companies’ fundamentals before investing, said experts.