IPO watch: Why is there lukewarm response to Rs 8,983-crore worth issues? Analysts decode

Primary market is back in action after a slumber with four mainboard issues opening this week to raise a total of Rs 6,688 crore via their primary stake sale, along with two listings of Borana Weaves and Belrise Industries, which mopped nearly Rs 2,295 crore last week. However, the listing gains and response for these issues has been muted so far. Even the grey market premium is not signaling any strong listing pop for them.

Three IPOs namely- Belrise Industries, Schloss Bangalore (The Leela Hotels) and Aegis Vopak Terminals are eyeing to raise a 8,450 crore out of cumulative funding of Rs 8,983 crore by the issue companies. This is nearly 95 per cent of the total fundraising. However, the former one delivered a muted listing pop on Wednesday, while the latter two have struggled for subscription during the first two days.

While the listing of Belrise and Borana Weaves has been below the expectations of the street, the ongoing issues have seen a sharp fall in their premia in the unofficial market. The grey market premium (GMP) for Schloss Bangalore and Aegis Vopak are suggesting a flat listing, Scoda Tubes and Prostarm Info Systems have also taken a hit in their respective GMPs.

Analysts tracking the primary market cite multiple reasons for this low interest in the IPO market including aggressive pricing of the issue, recent correction in the market, jittered market sentiments and no room for upside in the current IPOs. Such factors limit the interest in the IPO space.

Kranthi Bathini, Director of Equity Strategy at Wealthmills Securities said that majority of the companies, which launched their IPOs in the last three years, are available below their listing price. Majority of the investors look forward to the listing gains and exit after listing.

"Investors have turned selective in choosing the IPOs as valuations are fully priced and the business model suggests returns in the long run, leaving little to no-room for short-term gains. Thus, investors prefer to buy them at reasonable valuations after listing from the secondary market, once the selling pressure is over," he said.

Echoing the similar tone, Mahesh M Ojha, AVP- Research, Hensex Securities said that valuations of the current issues are quite rich. They leave nothing on the table for investors, who make no money listing. On the other hand, investors expect to make some money through IPO on listing and valuations of most of the recent IPOs does not support this notion.

"A number of good companies are available in the listed market at a cheaper valuation, which further diminishes the IPO appeal," Ojha said. "Also, the current market sentiment is jittered, with no clear trend. Thus, there is limited interest in the IPO market for now."

The GMP for Aegis Vopak Terminals and Leela Hotels have fallen to Rs 1 each, suggesting a flat listing for both the issues. Both the issues shall close for bidding today.

Prostarm Info Systems has dropped to Rs 19 on the second day of the bidding from Rs 25, Scoda Tubes has seen a GMP fall to Rs 18 from Rs 22 on the day one of subscription. The former one shall close for bidding on Thursday, May 29, while the latter one shall conclude on Friday, May 30.

Astha Jain, Senior Research Analyst at Hem Securities said that the market has remained in a doldrum lately with no clear movement. "One can not expect any major momentum in the primary market, until the secondary market moves higher. Tepid listing of recent debutants like Borana and Belrise are also denting the sentiments.