IPO investors ride the bull run to strike gold in 2023

Water projects firm Vishnu Prakash R Punglia, the 20th company to launch its IPO in the current year, saw its shares closing at a 47 per cent gain over its issue price on Tuesday.

Such a huge one-day pop is considered rare; however, it has become the norm this year.

The average listing-day gain for these 20 IPOs in 2023 is 34 per cent, and their average gain to date stands at 46 per cent.

Additionally, only one of 20 companies has its stock currently trading below its issue price, while one remains close to its issue price.

Some of the standout performers among these IPOs include Cyient DLM, which surged by 171 per cent from its issue price, Utkarsh Small Finance Bank, with a gain of 94 per cent, and Sah Polymers, which Analysts attribute these gains in the secondary market to sustained buying by foreign portfolio investors (FPIs) and an overall positive market sentiment.

Year-to-date, the S&P BSE Sensex has risen by 8.1 per cent, and the BSE SmallCap and the BSE MidCap indices have soared by 31.2 per cent and 26.7 per cent, respectively.

So far in 2023, FPIs have purchased shares worth Rs 1.4 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 22.4 per cent year-to-date.

Despite initial turbulence, investors displayed selective appetite, causing only reasonably priced companies with sound business models and governance records to hit the markets, according to bankers.

Investors are becoming increasingly discerning and are driving fair pricing for IPOs.

The hype surrounding IPOs is relatively lower compared to previous years, resulting in more accurate valuations.

Markets remain positive with high demand and inflows.

The oversubscription of IPOs is reflected in after-listing demand, leading to price increases,  said Pranjal Srivastava, partner-investment banking, Centrum Capital.

This trend of evaluating each IPO on its individual merit is expected to continue as investors become more discerning.

Not every company that files its draft red herring prospectus ends up conducting its IPO.

Some of them expire. The number of issues versus the number of offer documents filed is quite low,  noted Srivastava.

The rally in the small- and mid-cap segments has also benefited newly listed stocks, as a majority of them belong to this basket.

The small- and mid-cap segments have outperformed the indices threefold; such a significant outperformance is rare.

Many retail investors are invested in small- and mid-caps and often don t conduct risk profiling or asset allocation, observed Chokkalingam G, founder, Equinomics Research & Advisory.

However, analysts now caution about the prospects of newly listed stocks, as they fear that the small- and mid-cap rally may have become overheated.

Moreover, markets are susceptible to negative news flows as most tailwinds have already been priced in.

It is only a matter of time before it fizzles out.

These stocks will likely face a downturn when sentiment turns negative, warned Chokkalingam.