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Are the IPO bound stocks more in demand in the unlisted market?

Are the IPO bound stocks more in demand in the unlisted market?

There has been a slew of e-commerce, tech, fintech companies that have hit the market via the IPO (Initial public offering) route, some have found thundering success, while others fell flat. The number of companies queuing up to float IPOs has been increasing rapidly, this has led to increased interest in certain unlisted companies as well.

Changing landscape of IPOs:

Ben Graham once quoted, “The individual investor should act consistently as an investor and not as a speculator.” However, in this era of instant gratification, there are more individuals who are looking at trades that can earn them quick bucks. IPOs have emerged as an interesting arena for making such quick money over short timeframes. Exiting an IPO upon listing, which is commonly known as flipping, is gaining prominence. There is also a growing trend of investors looking at entry options in these unlisted companies via private equity right before the IPO. This positioning gives them additional leverage to gain substantial returns upon listing.

In the Union Budget FY2022-23, the surcharge for all types of assets was capped at 15% irrespective of the quantum of Long Term Capital Gains (LTCG). This is likely to promote long term investment in start-ups, this change in regime brings the surcharge on unlisted shares on par with listed shares.

Additional Read – Top 5 investment lessons learnt during the pandemic!

Most recent IPOs and their performance:

In the last 2 months of the year 2021 alone, there were ~22 IPO listings, out of these 15 of the IPOs are currently  i.e. as on 27 Jan 2022, profitable with many of them clocking over 25% returns in less than 6 months. Around 16 of them provided gains on the day of listing, almost 10 of them provided over 25% listing gains. These numbers indicate the reason for many investors to look at IPOs as a means to gain supernormal returns.

Table 1: IPO performance of companies listed between November – December 2021

Company NameListing DateIssue PriceListing Day GainProfit/Loss (as of 27 Jan, 2022)
 CMS Info Systems Limited31-Dec-212169.91%25.83%
 Supriya Lifescience Limited28-Dec-2127442.46%78.61%
 HP Adhesives Limited27-Dec-2127422.24%45.53%
 Data Patterns (India) Limited24-Dec-2158529.03%25.88%
 Medplus Health Services Limited23-Dec-2179640.81%51.22%
 Metro Brands Limited22-Dec-21500-1.29%22.78%
 C.E. Info systems limited21-Dec-21103335%43.63%
 Shriram Properties Limited20-Dec-21118-15.76%-14.41%
 Rategain Travel Technologies Limited17-Dec-21425-19.88%-11.88%
 Anand Rathi Wealth Limited14-Dec-215506.09%7.68%
 Tega Industries Limited13-Dec-2145360.15%18.61%
 Star Health and Allied Insurance Co Ltd10-Dec-219000.76%-13.58%
 Go Fashion (India) Limited30-Nov-2169081.54%39.33%
 Tarsons Products Limited26-Nov-2166226.89%0.66%
 Latent View Analytics Limited23-Nov-21197148.02%158.63%
 One 97 Communications Limited18-Nov-212150-27.25%-57.41%
 Sapphire Foods India Limited18-Nov-2111803.06%7.04%
 S.J.S. Enterprises Limited15-Nov-21542-5.93%-27.48%
 Sigachi Industries Limited15-Nov-21163270.40%112.21%
 PB Fintech Limited15-Nov-2198022.74%-20.80%
 Fino Payments Bank Limited12-Nov-21577-5.50%-32.37%
 FSN E-Commerce Ventures Limited10-Nov-21112596.15%47.72%

Source: Moneycontrol; Jan 27, 2022

There were others such as Paytm IPO which listed at a loss of 27%, the price continues to dip and it currently[UW1]  (as of 27 Jan 2022) trades at a loss of over 50%, despite the hype, this was one of the worst-performing IPOs in the last quarter of the year 2021. Needless to say, there is a need to meticulously look at the valuations before investing in IPOs.

Upcoming IPOs and the buzz surrounding them

The pre-IPO market is getting immense attention from investors, many of the companies which are likely to be listed in the near future are already turning into multi-baggers.

Table 2: Upcoming IPOs:

Company NameIssue Size In ₹ Crores (Tentative)
LIC70,000
Adani Wilmar4,500
MobiKwik1,900
Ixigo1,600
Penna Cements1,550
Fincare Small Finance Bank1,330
Sterlite Power1,250
Bajaj Energy5,450
Delhivery7,460
OYO8,430
Pharm Easy6,250
Ola7,300
Byju’s4500
Go Airlines3,600
NSE10,000
Studds Accessories450
SwiggyNA
SBI Mutual FundNA

Source: Moneycontrol; Jan 27, 2022

  • Mobikwick, Fino Paytech, Lava International, Five Star Finance are some of the fintech stocks which are queuing up to float their IPO. However, the damp performance of PayTM IPO has reduced their premium in the pre-IPO market.
  • LIC is planning an issue size of Rs. 70,000 crore, this is likely to be one of the largest IPOs in the market, it is a part of the divestment plan by the Government.
  • After the Zomato IPO was well-received, Swiggy’s IPO is the most awaited IPO in the food delivery industry.

Additional Read – Are you a budding entrepreneur? Here are some wealth management strategies

The lower probability of gaining allotment in IPO is driving investors to flock to the unlisted markets. Pre-IPO investing comes with risk, it is better to avail the help of professionals like the ones at TATA Capital Wealth to help you assess the risk of the company and invest in accordance with your risk appetite.

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