Investors fell over one another to invest in them, but have tripped. More than half of the listed initial public offering (IPO) stocks in the last six months are trading below their issue prices, indicating that long-term capital chasing such primary offers has not been put to good use. Out of the 13 IPOs since December 2017, investors in seven are sitting with losses up to 29%. The number of dud listed IPO stocks would be higher if we include shares of two companies that are hanging by the skin of their teeth in the marginally positive territory, shows a DNA Money analysis.

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IPO market intermediaries, including institutional investors, and investment bankers, say that in many cases rich valuations were sought in the IPOs by promoters citing previous examples. Also, topsy-turvy secondary markets have also taken sheen off the post-listing performance.

A combination of factors, including concerns of over-valuation, have dragged IPO stocks that had a poor listing further down. ICICI Bank Group’s ICICI Securities, which had a listing loss of 14%, is now down 29.01% compared to issue price of Rs 520. State-owned defence manufacturer Hindustan Aeronautics Ltd, which suffered a listing loss of 7%, is down over 10%. Investors who bought shares of another state-run defence equipment maker Bharat Dynamics at IPO of Rs 428 have seen the stock slip below Rs 390. Similarly, IPO investors in healthcare services provider Aster DM have to contend with 9% losses, after the stock saw 5% listing loss.

“Over-valuation of many IPOs has happened in last 6-9 months. The subscription numbers will tell you the story. With less than 2-3 times subscription in many cases, such IPOs saw extremely weak demand. In some cases, the government or the private sector company had to ask sister concerns to step in at the last moment to save some IPOs,” said the chief investment officer of a life insurer, which is an active buyer of IPO issues.

In some cases, volatile markets have eaten into post-listing gains of IPO stocks. After witnessing a stellar debut, shares of Apollo Micro Systems closed 65% higher to issue price of Rs 275. Today, the stock languishes at Rs 209-210 levels, down over 20% from its issue price. In case of Galaxy Surfactants, the stock after making a decent 15% listing upmove, has now erased all its gains. Amber Enterprises, after witnessing a listing gain of 44%, is now 33% over its issue price. Stocks of Newgen Software and Future Supply are less than 2% above their respective IPO prices.

“Valuations have become quite tight. About 2-3 years back you would find fair value. As the market started getting more interested, promoters and bankers started pricing issues very high. To justify, they were discounting earnings two years ahead, etc. Interest was building up from FIIs and domestic institutions. Then you saw people losing money on IPOs. Now the whole thing has turned, with people starting to go back on IPO plans, not getting the book built, lowering valuation target by 20%,” says the CEO of a mid-sized mutual fund, which has moderated its expectations from IPOs.

Out of 13 new issues, IPO investors in companies including Bandhan Bank and HG Infra are sitting with good gains despite volatility and other factors.

(By Kumar Shankar Roy, DNA Money)