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The year 2021 was a breakout one for start-ups. The long-awaited market debuts of Paytm-parent One 97 Communications, food delivery company Zomato, and beauty products e-tailer Nykaa captured the imagination and headlines alike.
But savvy investors were eyeing up the initial public offerings (IPOs) of a very different set of firms, far from the spotlight and headlines. These included the likes of Paras Defence & Space Technologies, Latent View Analytics, Tega Industries, MTAR Technologies, Tatva Chintan Pharma Chem and C.E. Info Systems.
Indeed, the IPOs of these relatively lesser-known—or unknown, in some cases—firms were the gems of 2021 in terms of investor response and market returns. Eclipsing even their better-known fellow debutants.
Take, for instance, Paras Defence & Space. The Mumbai-based defence engineering firm’s IPO was subscribed nearly 214 times, the most among all issues last year. Similarly, the IPO of Latent View Analytics, a Chennai-based digital analytics firm, was subscribed 185.32 times when it opened in November, according to data from Prime Database, a primary market tracker.
Four other issues were subscribed more than 100 times last year. They were of MapmyIndia-parent C.E. Info Systems; speciality chemicals manufacturer Tatva Chintan Pharma Chem; Tega Industries, whose products are used for mining and mineral processing; and MTAR Technologies, a precision engineering solutions firm. This despite the IPOs of Tega Industries and C.E. Info Systems opening in December, typically a lean month for the market. In terms of investment returns, the top-performing debutant stocks quadrupled in value.
Many companies tapped the equity market in 2021 as investor participation and sentiment were at their peak, say market participants. There was ample demand for good quality fresh paper coming to the markets. And that, the experts add, attracted many companies that were waiting on the sidelines for the right opportunity.
The IPOs were comparatively more oversubscribed when compared to the past cycles due to heightened investor interest and greater liquidity. There was a huge inflow from retail investors plus there was a lot of liquidity from institutional investors also. The stock market is one place where the interest level goes up when the prices go up, which is generally not the case with any other commodity, if we may call it that.
While each year has seen its share of highly subscribed IPOs, 2021 was an outlier, says Pranav Haldea, Managing Director, Prime Database. “The IPOs were comparatively more oversubscribed when compared to the past cycles due to heightened investor interest and greater liquidity. There was a huge inflow from retail investors plus there was a lot of liquidity from institutional investors also. The stock market is one place where the interest level goes up when the prices go up, which is generally not the case with any other commodity, if we may call it that.”
But why did investors flock to the lesser-known names? Haldea believes this was due to a combination of two critical factors—the size and quality of the IPO.
SMALL IS BEAUTIFUL
“Issue size of some of the highest subscribed issues was much smaller. But it is not that just because it is a relatively smaller issue, it will get heavily subscribed. A bad company or an overvalued one will still not get subscribed. So, these were small issues and at the same time, well-priced ones too backed by good fundamentals,” says Haldea.
Paras Defence & Space raised Rs171 crore through its IPO. That’s meagre compared with the Rs 18,300 crore that One 97 raised and the `9,375 crore Zomato raised. Similarly, Latent View Analytics, Tega Industries and MTAR Technologies raised between Rs 595 crore and Rs 620 crore.
The common thread is that all these issue sizes are within “the new sweet spot” of `500-700 crore, says Arun Kejriwal of Kejriwal Research & Investment Services. “Call it conjecture or hitting the right number, almost all issues that have done very well are in this category,” he says. “Driving this success is new businesses, whether they are from defence, space, technology platforms or even consumer-oriented businesses. The marketing of these issues helped in reaping success for all stakeholders.”
Driving this success is new businesses, whether they are from defence, space, technology platforms or even consumer-oriented businesses. The marketing of these issues helped in reaping success for all stakeholders.
Kejriwal Research & Investment Services
Indeed, even some digital-first companies fared well. The IPO of online travel company Easy Trip Planners, which raised `510 crore, was subscribed nearly 88 times, while that of mobile games maker Nazara Technologies, which raised `583 crore, was subscribed 96.22 times.
Smriti Tomar, Co-founder of Stack, a personal finance app for millennials, points out an interesting trend that has been playing out. “While in the overall economy big companies are doing fairly well, in the primary market, the performance has lately been inverse, with smaller companies like Tega Industries stealing the show with higher subscription and also showing listing day gains much higher than what was expected of them.” But while the companies may have been small, it was the large influx of retail investors that also helped the IPO market pop.
RISE OF RETAIL
More than a million new investor accounts were created each month last year, according to National Stock Exchange data. In all, a record 15.8 million new accounts were registered between January and November.
“2021 was the year that witnessed a massive addition in the number of Demat accounts and the emergence of risk-taking retail investors as equity markets put up a brilliant show,” says wealth manager and angel investor Deepak Ahuja. And these investors knew what they were looking for. “The majority of retail investors still look for strong metrics such as bottom line, sound financials, the historical growth of the business, utilisation of capital, and an overall long-term vision. This is also why the market witnessed a massive oversubscription of smaller IPOs with strong business metrics,” explains Ahuja.
The effect of retail investors was corroborated by the fact that the retail category of three IPOs was subscribed more than 100 times (see Retail Love). “The unprecedented liquidity levels backed by a record number of new investors form the desired depth and breadth of the Indian capital market,” says Mahavir Lunawat, Founder, Pantomath Capital, a top mid-market investment banking firm.
However, not everyone agrees on the correlation between record new investors and subscription numbers. “While the peak number witnessed on subscription during the year was around 3.5-3.7 million, the average number has been closer to 1.8-2 million. This average number is not very significantly higher than the average in the previous years,” says Kejriwal.
What’s irrefutable is that domestic institutional investors (DIIs) and retail individuals kept liquidity flush last year. Stock exchange data shows that DIIs were net buyers for the ninth month in a row last December. Foreign portfolio investors, on the other hand, were subdued, with their net purchases of nearly $3.8 billion in 2021 well below the $23 billion in 2020.
The unprecedented liquidity levels backed by a record number of new investors form the desired depth and breadth of the Indian capital market.
SMALL SIZE, BIG RETURNS
Stock market investors reaped strong gains in 2021. The benchmark Sensex gained 10,503 points, or nearly 22 per cent, last year and was among the best-performing of all leading equity indices globally. But it was a mega year for IPO investors as well, especially for those that put money in the smaller issuances. Just look at the returns.
Take Paras Defence & Space, for example. The stock opened at Rs 475 on October 1, as much as 171 per cent higher than its issue price of Rs 175. It rocketed to close at Rs 730.50 on January 17, over 317 per cent, or four times, its issue price. Similarly, MTAR Technologies has also soared more than 300 per cent since its listing in March 2021.
But the best-performing debutant of 2021 is the one that raised the least—Nureca. The healthcare company raised a mere Rs 100 crore, but its stock has risen around 400 per cent since its debut in February last year.
In fact, the top-performing IPOs of 2021 were those of firms with relatively small issue sizes. In stark contrast, companies that boasted of the biggest IPOs—One 97 and Star Health & Allied Insurance—are trading below their issue price as of January 17. In fact, of 2021’s top 10 IPOs by issue size, shares of seven companies are currently below their respective issue prices. Retail investors, ideally, would want to stay away from such loss-making firms as they would from those that have a huge debt load or no tangible product, says Ahuja.
It’s clear that when it comes to attracting investor attention, business fundamentals and strong metrics will continue to be far more crucial than a brand name or headline-grabbing actions. That’s some food for thought as you decide on whether to invest in the IPO of a BYJU’S or an Ola or OYO this year or back the likes of a Penna Cement, Chemspec Chemicals or Popular Vehicles and Services.
Story: Ashish Rukhaiyar
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