IPOs emerge as cash cow for investors in 2019, 70% trade above issue price

The primary market has emerged as the cash cow for investors in 2019, amid high volatility in the secondary market, as 70 per cent of the new entrants are trading well above their issue prices, giving returns of up to 95 per cent to shareholders.

Several factors including trade conflict between the US and China, slowdown in the economy, poor investor sentiment and pullout of funds by foreign investors have kept the market volatile, experts said.

They further said that despite the volatility, there is always demand for good initial public offerings (IPOs).

Out of 11 companies that got listed in 2019, as many as eight have registered smart gains ranging from 7 to 95 per cent against the price at which they had issued shares to investors; while the rest three firms have failed to attract investors and are quoting below their issue price, an analysis of the stock performance of the newly-listed firms as of October 4 showed.

IndiaMART InterMESH, which made its stock market debut in July, has seen the steepest rally in its share price and is trading 95 per cent higher than the IPO price on the BSE. This is followed by Neogen Chemicals that has provided 76 per cent per cent return.

The public offers of Affle (India) Ltd and Metropolis Healthcare have given smart returns to their investors soaring about 49 and 40 per cent, respectively.

Besides, Polycab India, Rail Vikas Nigam Ltd, Chalet Hotels and Spandana Sphoorty Financial have risen 24 per cent, 21 per cent, 12 per cent and 7 per cent, respectively, against their issue prices.

In stark contrast, three companies -- MSTC, Sterling & Wilson Solar and Xelpmoc Design and Tech -- have failed to give positive returns.

MSTC, which listed its shares in March, has seen its shares plummet by 24 per cent and Sterling & Wilson Solar, which made its debut August, has seen its stocks fallen by over 23 per cent.

Besides, shares of Xelpmoc Design and Tech dropped by 4.5 per cent against its issue price.

"Over the past one year, markets have not been upbeat due to several factors so there has been a negative sentiment among investors. In such a situation, IPOs are very well priced, giving good opportunity to investors. However, when markets are upbeat, IPOs are generally very aggressively priced," said Narendra Solanki, Head Fundamental Research (Investment Service) -AVP Equity Research, Anand Rathi Shares and Stock Brokers.

Another reason could be some of these companies have clean book, which are attracting investors, he added.

Arindam Chanda CEO at IIFL Securities said, "while stock price is subject to various factors, there is always demand for quality papers".

The BSE's benchmark Sensex, which has seen a highly volatile trend, has gained over 4 per cent so far this year.

A total of 13 companies came out with initial public offerings and collectively raised Rs 11,000 crore so far this year. This was much lower than 24 firms raising Rs 30,959 crore in entire 2018.

Among the 13 companies that hit the capital markets in 2019, IPO of IRCTC and Vishwaraj Sugar Industries closed for subscription on Thursday and Friday, respectively. These two firms will list their shares this month.