More IPOs need to deliver listing pop to revive retail interest: Analysts

The primary market has remained subdued so far in calendar year 2023 (CY23) with just three mainboard initial public offers (IPOs) hitting the Street -- Divgi TorqTransfer System, Avalon Technologies, and Mankind Pharma.

Two of these three IPOs, however, failed to generate interest among retail investors, who have been at the forefront of the primary market activity since 2020.

Mankind Pharma's IPO, for instance, saw 92 per cent subscription by retail investors, while Avalon Tech's retail quota was subscribed 88 per cent.

Analysts say retail investors' enthusiasm fizzled out post the muted listing of a majority of public offers in CY22. The sentiment, they add, may continue until they see some promising listing gains in 2023.

"On an average, IPOs gave around 25 per cent listing gain in FY22 (2021-22). In comparison, most companies that went for IPO in FY23, are trading either below or around the IPO price. This trend, along with subdued market environments both in India and globally, ensured that retail investors refrained from participating in recent IPOs," says Gopal Agrawal, managing director and head-investment banking at Edelweiss Financial Services.

According to data released by PRIME Database, the average listing gain in CY22 (based on closing price on listing date) fell to 10 per cent, in comparison to 32.19 per cent in CY21 and 43.82 per cent in CY20.

Moreover, the average number of applications from retail investors dropped to just 0.59 million during the previous calendar year, as against 1.42 million in 2021 and 1.27 million in 2020.

Overall, around 40 companies had approached primary markets last year, mopping up around Rs 59,412 crore -- half of the Rs 1.18 trillion (all-time high) mobilised by 63 IPOs in 2021. Of these, 12 IPOs got an overwhelming response of over 10 times, while 7 IPOs were oversubscribed over 3 times.

That apart, analysts believe the correction in the secondary market has made stocks attractive there, channelising the retail flow towards stocks offering better risk-reward.

 

"IPO activity is likely to remain muted for the first couple of quarters of fiscal 2023-24 (FY24). We may see some smaller sized IPOs first; and it will be a while before we see larger sized deals," said Pranav Haldea, managing director, PRIME Database Group in a recent note.

Road ahead

Analysts say retail investors may come back to the primary market once the volatility subsides, and subsequent issues register healthy listing gains.

"Post Mankind Pharma's listing, investors may look favourably towards upcoming IPOs, if they are by profitable companies, with their issues being inexpensively priced. One or two more successful issues may ignite retail and high net worth investors' interest significantly," says Deepak Jasani, head of retail research, HDFC Securities.

Shares of Mankind Pharma, the pharmaceutical company which is popular for its Manforce brand of condoms and Prega News pregnancy test kit, closed at Rs 1,430 on its listing day -- up 32.4 per cent over its issue price of Rs 1,080 on the National Stock Exchange. The shares, at present, are hovering around Rs 1,390 levels.

Avalon Technologies' shares, on the other hand, had settled over 9 per cent lower at Rs 396.3 on the NSE versus the issue price of Rs 436 on the debut day. They continue to trade around 17 per cent below the issue price.

Gopal Agrawal of Edelweiss Financial Services, however, cautions that there may be measured primary market action in FY24 given India is approaching general elections in FY25.

"Historically, primary market activity has remained muted in the two-to-three months preceding a general election. Therefore, if the general election happens in H1FY25, the primary activity in the ongoing fiscal would be curtailed to six-to-seven months till January or February. However post-election, one can expect markets to bounce back and see a flurry of offers thereafter," he adds.

The pipeline in the current fiscal (FY24), according to a Prime Database, remains strong with 54 companies planning to raise a combined Rs 76,189 crore and have SEBI approval in place. Crayons Advertising (May 22-25), Tata Technologies, Spectrum Talent Management, Ratnaveer Precision Engineering, Mamaearth, Go Digit Insurance, Snapdeal, and Navi Technologies could be among the companies approaching the primary markets in 2023, reports suggest.