Half of November’s IPOs trade below issue price; Read below to know why

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  • November 24, 2021
IPO fall

Even as the stock market witnessed a correction, the primary market has reportedly seen some hiccups, with four companies that made their debut on the stock markets this month are trading below their issue price. 

Paytm IPO sees fall

As many as seven companies have gone public this month, including One97 Communications, which is the parent firm of payments platform Paytm. The shares of the company dropped by 40% over two days from the day of its listing. Paytm’s issue price was INR 2,150, and it got listed on the BSE at a discounted INR 1,955 or a fall of 9%. On the NSE, the stock got listed at INR 1,950 at a discount of 9.3%. At close, the shares of the payments platform were at INR 1564.15, a drop of 27.24% from the initial public offering price. The drop eroded investor wealth worth INR 38,000 crore. 

On November 12, fintech firm Fino Payments Bank’s shares were listed at a discounted INR 544 per share or nearly 6% on the NSE vis-a-vis its IPO issue price of INR 577 per share. On the BSE, it traded at INR 548 a share upon listing. While on the NSE it touched a high of INR 582.95 intraday, on the BSE, it touched a high of INR 583.35 and a low of INR 535.70 intraday. The Fino Bank Payments IPO was subscribed a lukewarm two times. 

Another company whose shares are trading below the issue price is auto ancillary company SJS Enterprises. The company’s shares got listed at INR 540 below its issue price of INR 542 a share on the BSE. It opened at the issue price of INR 542 on the NSE. But after listing, the stock was at an intraday drop of INR 515.10, which was 5% lower than the issue price on the BSE. On the NSE, it hit an intraday low of INR 515. 

Although Sapphire Foods, which operates Pizza Hut and KFC, which debuted on November 18, is listed at a premium, it hit a low of INR 1160, a 13% discount below the IPO price. Upon debut, the stock was priced at INR 1350 apiece on the NSE, a premium of nearly 14.5%. On the BSE, it was listed at an 11% premium at INR 1311. The IPO price was INR 1180. 

Here’s a list of four companies that listed between Nov 12 and Nov 18, 2021, and how they have performed since. 

Company and date of  listing IPO issue price (in INR) IPO listing price (in INR) on NSE At close on Nov 23 (in INR)  on NSE
Paytm  (Nov 18) 2,150 1,950 1,494.70
Sapphire Foods (Nov 18) 1,180 1,368 1,148.95
SJS Enterprises (Nov 15) 542 542 453.75
Fino Payments (Nov 12) 577 544 443.15

The above table shows that SJS Enterprises which is listed on par on the NSE and Sapphire Foods listed at a premium from their issue price. However, all the four companies that have gone public are trading below their listing price, as of November 23.

So, why have the IPOs not met expectations?

India’s primary market has had a good run this year, raising $9.7 billion via initial sale of shares till the end of September 2021 as per reports. Accordingly, this has been the highest such a mop-up for the first nine months of the year over the last 20 years. However, the stock market debut of Paytm has raised questions on the over-the-top valuations that many companies are seeing. 

Also, it is reflective of the volatility in the secondary market, which has been experiencing a correction lately. It may be recalled that the BSE benchmark index, Sensex, hit an all-time peak of over 62,245 and the Nifty touched the 18,604 mark on October 19. Ever since the Sensex has shed over 3,000 points while the Nifty has dropped nearly 1200 points. 

Market correction

On November 22, the benchmark indices Sensex and Nifty crashed 1,170 points and 348 points respectively amid mixed cues on the global front. News of the US Fed Reserve’s taper program have raised concerns over lower liquidity, experts note. Furthermore, crude oil prices have been high. Further, the Nifty is trading 22X one-year forward earnings, which is higher than its average because of the prospect of economic growth. A stronger US dollar has also meant a flip for the emerging markets. All these factors have contributed to the market correction. 

According to a Care Ratings study cited in news reports, out of the 87 firms that have raised funds, 40% are trading at discount. The recent IPOs that have been trading below issue price would mean that many companies may seek to make realistic pricing of their initial offers, experts note. For instance, reports note that even after the 27% fall on the day of listing, Paytm valuation was over 19 times financial year 2023 estimated price-to-sales, which is higher than the valuation of global firms. 

Conclusion

Four companies that have listed on the stock exchanges between November 12 and November 18 have traded below listing price over the past few days, owing to the correction in stock markets and mixed global cues.

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