Private equity-backed stocks do better in a volatile market

Shares of diagnostics chain Metropolis Healthcare listed on the stock exchanges at Rs 959.55, nearly 9 per cent  higher than its issue price of Rs 880 per share. The share was trading at Rs 1,042 on Wednesday, up 18 per cent from its issue price. Another PE-backed stock and B2B marketplace Indiamart was also up 18 per cent.

The stock market may have been choppy this year, but PE-backed IPOs have done better. Of the 17-odd private equity (PE)-backed IPOs since January 2018, seven have seen a price increase over their listing price: five are up around 20 per cent while Aavas Financiers is up 77 per cent.

Girish Vanvari, founder, Transaction Square feels that a presence of PE in a company gives lot of confidence to institutional investors. "Many of the stocks which have done well (Aavas or Metropolis or TCNS Clothing) capture the India story at the grassroots,’’ he says. 

Some stocks such as Aavas or Bandhan Bank have also done well because of growth in their micro markets and capital requirements are linear. "They are catering to the financing needs at the bottom of the pyramid or are in burgeoning market like healthcare services,’’ says an equity 5analyst. 

Interestingly, PE-backed companies which went public over the last 12 months have done better than those which got listed earlier. The Bombay Stock Exchange’s Sensitivity Index (Sensex) is up 2.76 per cent this year and 8.83 per cent since January 2018. In the Nifty 100, 37 stocks advanced and 62 declined since January 2018. 

If one includes 2017, there are other stocks which have done well: Bandhan Bank (Rs 464, up 24 per cent since IPO), Newgen Software (Rs 296, up 21 per cent), MAS Financial Services (Rs 608, up 32 per cent) and HDFC Life (Rs 533, up 84 per cent since its listing in November 2017).

Sanjeev Krishan, partner & leader — deals, PwC says a bunch of PE investees which went public have done reasonably well in the public markets in recent times. "It is partly due to the sectors to which these investees belonged and partly due to the maturity of their business models, particularly across the pharmaceuticals, financial services and technology sectors,’’ he says. 

"Listed companies in the industrials, consumer and healthcare sectors have struggled in recent times owing to sector headwinds and some of these are suffering from slowing consumption growth and the lack of private investments too,’’ adds Krishan.