Primary market investors have pocketed up to 130% returns in 2019

Investment in equities via the primary market route in calendar year 2019 (CY19) has made investors rich at a time when the secondary markets have not yielded much return. As many as 82 per cent of the stocks that listed in 2019 are trading well above their issue price and have given a return of up to 130 per cent to investors.

In comparison, the benchmark S&P BSE Sensex has gained around 6 per cent during this period, while broader indices – S&P BSE Midcap and S&P BSE Midcap indices – have slipped 10 per cent and 13 per cent, respectively.

In calendar year 2018, less than half, or 42 per cent, of the issues that hit the primary market recorded a positive return. In CY15, total 55 per cent of the newly-listed registered a positive return followed by 70 per cent in CY16 and 69 per cent in CY17.

Out of 11 companies that got listed in 2019, nine have outrun the market by gaining more than 10 per cent against their respective issue price. MSTC and Sterling and Wilson Solar, however, have failed to give a positive return and are trading lower by 21 per cent and 23 per cent, respectively.

“A number of these companies operate in a niche business segment and have a good business model. That apart, the IPO was priced attractively. As a result, not only the subscription levels were good, but the post-listing gains have been healthy,” explains G Chokkalingam, founder and managing director at Equinomics Research.

Indian Railway Catering and Tourism Corporation (IRCTC) made a stellar debut on the bourses by listing at Rs 644, translating into 101 per cent premium against its issue price of Rs 320 per share on the BSE on Monday. The stock finally ended at Rs 729, a 128 per cent higher from its issue price. It rallied 132 per cent to Rs 744, in intra-day trade today.

Among the other counters, IndiaMART InterMESH, which made its stock market debut in July 2019 (issue price of Rs 973/share), has seen its price more than double. The stock closed at Rs 2,160 today, hit high of Rs 2,310 on October 10 on the BSE. Neogen Chemicals (up 66 per cent) and Affle (India) that has gained up to 61 per cent are among the other top gainers.

“Interest in IRCTC was largely driven by the attractiveness of valuations as demonstrated by the listing gains and may not become a bellwether for things to come in primary markets. IRCTC will help the government divestment to a certain extent as this has disrupted the de-facto assumption that PSU transactions should be avoided,” cautions Munish Aggarwal, director (capital markets), Equirus Capital.

Going ahead, analysts say the stellar response seen for the IRCTC issue should not be taken as a sign of a major shake-up of the primary market and each issue will be treated on its merit by investors.

“Investors will still consider fundamentals and valuations of the every underlying company before deciding to invest or avoid,” Aggarwal of Equirus Capital says.

As an investment strategy, Chokkalingam suggests investors who have made a good return on these listings book partial profit now. He sees a limited upside in these counters given the run up seen thus far.

Aggarwal, too, agrees and says Q2FY20 results and the accompanying management commentary for now will be critical for investors to understand the impact of various initiatives taken by government and the Reserve Bank of India (RBI). A positive outcome, he says, may lead to rapid recovery in primary markets.