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Despite secondary market volatility, IPO charm is here to stay: Analysts

Any price-wise correction in the broader markets, which has seen maximum number of companies hitting the Street this may, may 'temporarily' halt the primary market buzz

Bs_logoDespite secondary market volatility, IPO charm is here to stay: Analysts
Nikita Vashisht New Delhi
4 min read Last Updated : Nov 30 2023 | 10:46 PM IST
Despite the near-term risks from the Assembly election outcome that investors can extrapolate to the general election outcome in 2024, volatile oil prices, asymmetrical global growth, and geopolitical tensions, analysts expect the buzz in the primary markets to remain intact in 2024.

Subscription numbers, however, are likely to be lower as investors remain choosy and subscribe only to those initial public offers (IPOs) where there is valuation comfort, analysts said.

"Investors are going to be very selective in the way they approach IPOs. They will back companies with strong fundamentals, solid business moat, an experienced management team, and sound corporate governance," said Neha Agrawal, managing director and head - capital markets group, JM Financial.
Last week, four IPOs - Tata Technologies, Gandhar Oil Refinery, Fedbank Financial Services, and Flair Writing Indistries - saw cumulative bids exceeding Rs 2 trillion. Among the lot, Tata Technologies garnered the most interest with its share sale getting oversubscribed nearly 70 times, with cumulative bids surpassing Rs 1.56 trillion.

At the bourses, meanwhile, Tata Technologies clocked listing premium of 163 per cent as it settled at Rs 1,314 over its issue price of Rs 500 on November 30. The counter hit an intra-day high of Rs 1,400 -- a rise of 180 per cent over its issue price.

Those of Gandhar Oil Refinery, on the other hand, clocked a listing gain of 78 per cent, while Fedbank Financial Services settled flat against its issue price of Rs 140.

That said, thus far in calendar year 2023, 49 companies have launched mainboard IPOs. Of these, three offers were subscribed over 100 times, while 32 offers (65 per cent) got subscription in double digits, ranging from 12.21 times (Global Surfaces) to 97.11 times (Aeroflex Industries).

That apart, any price-wise correction in the broader markets, which has seen maximum number of companies hitting the Street this may, may also 'temporarily' halt the primary market buzz.


"Trend over the past 30 years shows that any bull run in the secondary market is followed by a euphoria in the primary market. And since the broader markets have seen stellar gains this year, investors are betting big on most IPOs as they largely belong to smaller sized companies. Any correction in this segment may, therefore, dent the sentiment," said G Chokkalingam, head of research at Equinomics Research.

In the small and medium (SME) pack, 150 companies have hit the primary markets so far in 2023. Notably, the IPO frenzy gained momentum at a time when the secondary markets were listless. During the two months ending on October 31, the benchmark Sensex dipped 1.4 per cent , while the Nifty 50 slipped 0.9 per cent.

The two months, however, saw 66 IPOs hitting the primary markets.

Liquidity key

From a long-term perspective, analysts expect the strong resilience of the Indian economy amid a turbulent global set up, coupled with the increased financialisation of savings, to drive liquidity for primary markets.

"Deep primary markets are reflective of strong secondary markets. India's economy has shown a very strong level of resilience amid global turbulence. Therefore, global and domestic investors will continue to chase Indian IPOs from a growth-adjusted returns' perspective," Neha Agrawal of JM Financial said.


According to PRIME Database, the average number of retail applications rose to 1 million in the first half of financial year 2023-24 (H1-FY24) from 757,000 in the year-ago period. Retail participants invest up to Rs 200,000 in an IPO.

Domestic mutual funds, meanwhile, cornered 15 per cent of the total anchor investments (36 per cent of total IPO issue) in the last two quarters, as against the foreign portfolio investors' share of 14 per cent, showed data by Prime database.

Besides, the charm to make a quick buck from strong listing pop may also keep the primary markets buzzing.

"The near-term attention of investors has shifted from secondary market to primary markets amid a flood of IPOs, which provide an opportunity to make a quick buck. Investors should, however, remain cautious against low quality IPOs, which fetch higher valuation amid euphoria," said  Akhil Bhardwaj, senior partner at Alpha Capital.

The core portfolio strategy, he said, should involve participating in secondary markets through SIPs, mutual funds, quality stocks, and/or index funds, while experiment money may go into primary markets.


Topics :MarketsIPOsIndian stock marketsstock marketsTata TechnologiesIPO investorsinitial public offering (IPO)

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