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The calendar year 2023 has turned out to be one of listing bonanzas for initial public offering (IPO) investors. On Tuesday, the stock of Motisons Jewellers was listed at an 89 per cent premium to its issue price. Such a huge one-day pop is difficult. However, it has become a norm this year. The average listing-day gain for the 59 IPOs in 2023 is 26.3 per cent, and their average gain to date stands at 49 per cent. Additionally, only four of 59 companies have their stock currently trading below the issue price.
Some of the standout performers among these IPOs include Indian Renewable Energy Development Agency, which surged 219 per cent; Cyient DLM, with a gain of 152 per cent from its issue price; Netweb Technologies at 146 per cent; and Tata Technologies, at 142 per cent.
Analysts attribute these gains in the newly-listed stocks to buoyant secondary markets coupled with the enthusiastic participation of retail investors in IPOs and strong foreign portfolio investor flows (FPIs). Year-to-date, the Nift has risen by 20 per cent, and the Nifty midcap 100 and the Nifty smallcap100 have soared by 46.6 per cent and 55.6 per cent, respectively. In 2023, FPIs purchased shares worth Rs 1.7 trillion, further contributing to the success of IPOs.
The S&P BSE IPO Index, a gauge tracking the after-listing performance of newly listed companies, has risen by 41 per cent this year. The rally in the small and midcap segments has also benefited newly-listed stocks, as most belong to this basket.
"Whenever there is a bull run in the small and midcap stocks, it spills over to the IPO market. This year, 27 million new investors have come to the market, and they primarily invest in small and midcap space. And there is a segment of investors who are active only when we have a boom in the IPO market,” said G Chokkalingam, founder and head of research of Equinomics.
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However, analysts now caution about the prospects of newly-listed stocks, as they fear that the small and midcap rally may have become overheated. Moreover, markets are vulnerable to negative news flows as most tailwinds have already been priced.
"When small and midcaps correct, we will see a dent in the returns from IPOs and issues getting postponed. The valuation gap between small and midcap stocks and largecaps is very steep. Finding single-digit PE stock in the current market is very difficult. In earlier bull runs, finding value in some quarters was still possible. Now, at best, 2-3 per cent of the stocks in the small and midcap space and have valuation comfort," said Chokkalingam.
