August has been a terrible month for high networth investors who borrow large sums and subscribe for sizeable quantities of shares in initial public offerings (IPOs) for listing day gains. Barring a couple of IPOs, these investors have lost money on just about every issue they had bid for. Worse still, they were luckless even in issues that listed at a decent premium to the issue. But that seems a problem specific to HNIs and not of the IPO market at large.
The debacles in August does not necessarily mean that the IPO market will slip into a coma. The reason for HNIs’ losses is that their cost of borrowing was higher than the premium at which the shares were listed.
The widely held view is that lack of participation from HNIs could hurt sentiment for IPOs across the board. True, tepid listings over the past few weeks indicate that the market has lost its appetite for overpriced offerings. But retail investors looking to put money in IPOs should not be unduly worried.
It is certainly bad news for companies with shaky fundamentals which till now could demand exorbitant valuations. Investors will be especially wary of companies tapping the market mainly to give an exit to existing shareholders. A flight to quality appears inevitable, as investors become more discerning about where they put in their money.
There are names like Paytm, Policy Bazaar and Birla Sunlife Asset Management, to name a few, waiting in the wings. Some toning down of expectations on both sides—investors as well as companies—too looks inevitable. But quality offerings will still command a premium, so don’t hope for bargains while investing in big names.
And tempering the IPO fever may not be such a bad thing for all classes of investors if the company is good and the issue is reasonably priced. Lesser the bids, the better the allotment ratio.
(Edited by : Abhishek Jha)
First Published: IST