16 Feb 2022

IPO stocks touch new lows in the stock markets

In the midst of the market sell-off, the one segment that has been the worst hit are the recently listed IPO. Just a few months back, if you were to tabulate the returns of IPOs in 2021, it would have been a sea of green. Today, it is a sea of red with majority of the IPOs of 2021 quoting below their issue price or, at least, way below their recent peaks. This is not just about the digital IPOs, but even about the regular non-digital IPOs too.

How the digital IPOs fared post listing?

Here is a quick update on some of the major digital IPOs that dominated the market in the year 2021.

1) Paytm became the biggest IPO ever at Rs.18,300 crore. Against the issue price of Rs.2,150, the company never crossed Rs.1,955 post listing. Currently, it trades at Rs.864, a discount to issue price of -59.8% over the issue price.

2) CarTrade was the earliest digital IPO to tap the market and has been another big disappointment. Against the issue price of Rs.1,618, the stock never managed to cross Rs.1,500 post listing. It currently trades at Rs.629, a discount of -61.1% to issue price.

3) Zomato appeared to largely immune to the sell-off in digital stocks but that too has joint the bandwagon of falling stocks. Against the issue price of Rs.76, Zomato listed at a premium and rallied all the way to Rs.169. From that level, it dropped more than -50% and is currently at Rs.82, just above the issue price.

4) Finally, Nykaa may have had a robust listing and is still above the issue price, but the damage has been huge. Against the issue price of Rs.1,125, the stock listed at Rs.2,206 and rallied all the say to Rs.2,573. From that point, the stock has corrected -41.11% to Rs.1,515. It is well above issue price, but the confidence damage has been huge.

Damage to the non-digital IPO plays too

This damage was not just limited to the digital stocks. It has spilled over to other IPOs too. For instance, Glenmark Life Sciences is down -26.5% below the IPO price. Krsnaa Diagnostics has dropped 33.8% from the IPO price. Even cement company, Nuvoco Vistas has dropped over -31% from the issue price of the IPO. Of course, there are also the likes of Aditya Birla AMC, which is now down -29% below the IPO issue price.

Amidst all this chaos, there were two huge disappointments on the insurance front. Firstly, Policybazaar (PB Fintech) listed at a premium of over 20%, but currently trades at a discount of -22% over the issue price. The current price of Rs.764 is a full -48% down from the peak. The other disappointment was Jhunjhunwala backed Star Health. The issue got subscribed less than 80% and is currently -18% below the IPO price and -25% from the peak.

What explains this carnage in IPO stocks?

Loss making proposition were OK when the economy was in fine fettle. Today, there is rampant inflation and the uncertainty of Fed rate hikes. Obviously, investors do not want to bet their dollars on loss making companies with deeply back-ended revenue models. That is the reason for the sell-off in many of the digital and even non-digital IPOs.

The second aspect pertains to the good old flight to safety and that is where much of the IPO pricing froth is coming off. The downside is that it has made a lot of IPO issuers sceptical about tapping the primary markets and are just waiting in the side lines. Hopefully, things will change once a few players come ahead to bell the cat. And a few adventurous investors wake up and realize that there are bargains strewn along the way.

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