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At a time when the mid-and small-cap counters are struggling to find their feet and the fund mobilisation via the initial public offer (IPO) route hit a four-year low in the first half of calendar year 2019 (H1CY19), stocks of six out of the seven companies that raised funds via the primary market route during this period have given a handsome return.
These stocks have beaten the benchmark index S&P BSE Sensex by gaining up to 61 per cent against their issue price. These six companies are currently valued at Rs 6,272 crore, 19 per cent higher than the Rs 5,275 crore they collectively raised via IPOs. In comparison, the S&P BSE Sensex gained an average one per cent.
Analysts say the outperformance has mostly been on account of a healthy response from institutional investors who lapped up the issues, reasonable pricing and the overall weakness in the mid-and small-cap segments.
“The returns witnessed by recent IPOs are in stark contrast to the poor performance in CY17 and CY18. This is largely on account of recalibration of both investor and promoter expectations to the fall in valuations in mid-and small-cap valuations. The margin of safety that issuers, bankers and investors work with has increased significantly, which has led to the returns that have been witnessed in most IPOs in CY19,” explains Munish Aggarwal, director (capital markets) at Equirus Capital.
Among stocks, Neogen Chemicals is trading at Rs 346 levels, 61 per cent higher as against issue price of Rs 215 per share. Rail Vikas Nigam (RVNL) and IndiaMART InterMESH are trading 32 per cent and 29 per cent higher, respectively as against their issue price.
“There is a lot of institutional investor interest in some of these stocks. One also needs to see how much floating stock is available with the retail investors to trade. Given the run up, it is a good time to partially book profit in some of these counters, but investors do need to check the business prospects and stock valuation before they take this call,” says said G Chokkalingam, founder and managing director at Equinomics Research.
Surprisingly, the outperformance of these stocks comes at a time when the fund mobilisation via the IPO
route hit a rough patch to hit the lowest amount raised in the last four years at Rs 5,509 crore. On a corresponding period basis, 18 companies had mobilised Rs 23,452 crore from the primarily market, according to PRIME Database.
However, the S&P BSE IPO
index has outperformed the market by surging 10.6 per cent, as against 8.5 per cent rise in the benchmark index. While, the S&P BSE Midcap and S&P BSE Small-cap index were down 6 per cent and 7 per cent, respectively.
“H2CY19 is expected to be better than H1CY19, as the hangover of elections and budget is behind us. However, slowdown in consumer demand has emerged as an important consideration for both issuers and investors. We expect the Reserve Bank of India (RBI) to reduce interest rates and the government to take pro-active steps to accelerate GDP (gross domestic product) growth, which should help issue activity in H2CY19,” Aggarwal of Equirus says.