Will the Indian stock market tank post the Hyundai IPO? What history suggests

Large initial public offers (IPOs) have, at times, not been good news for the Indian stock markets that have corrected once the issue closed. The stock market correction, in some cases, was even driven by a black swan event.

Take the case of Reliance Power as an example. The bidding for Rs 11,563.20 crore book-built issue (price band of Rs 405 to Rs 450 per share) of Anil Ambani-controlled Reliance Power was open for subscription between January 15 and January 18, 2008.

The Reliance Power IPO was subscribed 73.04 times. The issue was subscribed 14.87 times in the retail category, 82.62 times in the qualified institutional bidders (QIB) category, and 190.02 times in the NII category, data shows. The shares of Reliance Power IPO got listed on BSE, NSE on February 11, 2008.

 

The Indian stock market (Sensex), meanwhile, slipped 3.1 per cent in the ensuing one-month post Reliance Power's listing to 16,123 levels, suggests Bloomberg data.

Calendar year 2008 also saw a black swan event in the form of collapse of Lehman Brothers, which triggered a 4.5 per cent one-day drop in the Dow Jones Industrial Average (DJIA). It was the largest decline back then in DJIA since the attacks of September 11, 2001, and had a cascading impact on the global financial markets as well.

Back home, out of the last seven big IPOs to hit the Dalal Street (D-Street) since 2007, the Sensex has lost ground five times post the stocks of these companies debuted at the exchanges.

IPOs in India

Some of the prominent ones include LIC in 2022 (Sensex down 5.4 per cent in one month post listing), Patym (2021; 6.4 per cent drop) and Coal India (2010; 4.4 per cent fall in Sensex).

Analysts attribute this market fall to a variety of reasons, including rich valuations of the markets back then, black swan events and the overall liquidity.

In the case of SBI Cards, for instance that debuted in March 2020, the markets were struck by a black swan event - the onset of Covid-19 pandemic that saw most global equity markets, including India, sink.

So, will Hyundai Motor India's proposed mega issue of over Rs 20,000 crore see the markets correct soon after?

Analysts do not think so.

Kranthi Bhatini, director - equity at WealthMills Securities, for instance, believes that this time could be an exception and the market may not fall post the Hyundai IPO given the positive sentiment and liquidity comfort.

“The market is flush with strong liquidity, backed by surplus cash with Domestic Institutional Investors (DIIs), and foreign institutional investors (FIIs), too, have turned net buyers again. Additionally, systematic investment plan (SIP) flows have been very strong, reaching almost $2 billion on a monthly basis. Hence, fund managers are kind of obligated to infuse these funds in the market else risk underperformance," he said.

Gaurang Shah, senior vice-president at Geojit Financial Services, too, shares the same sentiment and expects liquidity to remain abundant despite the mega Hyundai Motors India Limited (HMIL) IPO, which in turn is likely to keep the markets buoyant.

“How the markets react to an IPO depends upon the pricing and the business opportunity of the company. At the time of the Reliance Power IPO, there was excess hype about the issue. Now, with new regulations in place, the valuations / IPO pricing will be justified. Given the quality of the paper (Hyundai IPO), I don't think there will be any dearth of liquidity or appetite among investors for this issue. Market valuation at the time of LIC, Paytm, Nykaa etc. issues was also over the top and these issues were priced very aggressively. Once the markets corrected, it also took these stocks down with them. I don't think the Hyundai IPO will see a similar fate,” he said.