Investors bag handsome IPO returns

By Urvashi Valecha,

Investing in initial public offerings (IPOs) in 2020 has been very profitable for investors despite the Covid-19 pandemic. After the initial panic that gripped the markets, the primary market revived soon after the secondary market showed signs of a sustained pick-up. From September onwards, companies such as Rossari Biotech, Route Mobile, Happiest Minds Technologies and Burger King, along with many others, have tapped the market very successfully with returns ranging between 10% and 125%.

The financial year has so far seen stellar listing gains for some companies because the markets have perceived them as good quality companies and pricing for some issues was attractive. Additionally, the rush of new investors in the stock markets since the market crash in March 2020 and heightened liquidity in the markets have also contributed to the strong momentum in the IPO market.

Calendar year 2021 is expected to see heightened activity too as far as fresh issues are concerned. The initial public offer (IPO) activity is expected to be dominated by resilient sectors such as new-age technology, health care and consumer. Experts said the recovering sectors such as hospitality, commercial real estate (REITs) and banking, financial services and insurance (BFSI) are expected to play an important role in 2021.

Out of the 12 IPOs that the primary markets have seen so far, only three have listed with negative gains. They are UTI Asset Management Company, Angel Broking and Equitas Small Finance Bank, which were down by 13.9%, 8.9% and 0.76% on their listing day, data from Prime Database show. The top four IPOs of this year are: Rossari Biotech, Route Mobile, Happiest Minds Technologies and Burger King India, which have from the date of their listing gained 94%, 221.6%, 94.7%, and 232.1%.

According to Bloomberg and NSE data, all the IPOs that have taken place so far this fiscal, even the ones that listed with negative gains, are trading above their IPO issue price.

Market experts said while valuations of companies may be debatable, good quality IPOs has had takers. Sanjeev Hota, head of research, Sharekhan by BNP Paribas, said: “The good quality companies will always have takers in the market. Additionally, the rise of new investors and liquidity in the market could have also contributed to the momentum in the IPO market. Valuations at which the companies are quoting since they have run up could be debatable.”

The markets have seen new investors open their demat accounts ever since the markets crashed in March 2020. The new account openings have increased 135% CAGR over FY20 and FY21 so far. Rusmik Oza, head of fundamental research, executive vice president, Kotak Securities, said, “The type of opening of new demat accounts that have opened in the past in the last 6 to 7 months is one of the reasons for the stellar performance of the IPO markets. Going forward the momentum in the market is likely to continue unless there’s some huge global phenomenon that causes the markets to crash which is unlikely.”