Sunday, October 16, 2011

State of IPOs listed in the last 2 months

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There were quite a few IPOs which opened for subscription in the last quarter. 6 of these have got listed since September so far. Most of them either had a disastrous listing or had a decent listing but are performing badly now.

Consider Brooks Labs which is at Rs 24.5, a 75% discount to its issue price of Rs 100. Or, the recent listing of Tijaria Polypipes which got listed at Rs 18, a 70% discount to its issue price of Rs 60. Out of the 6 IPOs which got listed since September, 4 of them are in the negative zone, 1 is hovering around the issue price and 1 is in the positive territory. The only positive IPO has been that of Prakash Constrowell which is trading at Rs 184, a 33% premium to its issue price of Rs 138.

So, what is the reason for such poor listing?

One can argue that the global markets are facing a tough situation and because of conditions in US and Europe, there is lot of volatility due to which recent IPOs are facing a tough time. However, this argument would have hold good had IPOs been listing at 10% to 20% discount to its issue price. However, volatility alone does not justify 70% to 75% discount as in the case of Tijaria Polypipes and Brooks Labs IPO. This clearly points to poor fundamentals and / or expensive valuation. This also highlight the role played by IPO leading managers and registrars because the IPO just does seem to be priced correctly.

Though some of the recent IPOs did not have lot of retail investor participation, but SEBI should still consider investigating IPO pricing and valuation because a 70% drop on the listing day does seem to point that something is terribly wrong. Quite a few retail investors would have lost money in these IPOs. A move to cap the up move or limiting the downside would be good idea for the listing day. However, that would not prevent the stock to move significantly after the listing day. Due diligence of the IPO leading managers and registrars should be strengthened.
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