'Whenever markets rally, the IPO pricing gets aligned to the prevailing market conditions.'
Sundar Sethuraman reports.
Some investors feeling lucky to get an allotment in a hot-selling initial public offering could be holding on to their shares for returns later.
They must consider revising their plans.
Shares of IPO companies that listed over the past six months are down an average 20 per cent from their peaks, data provided by Prime Database shows.
In comparison, the benchmark Nifty 50 and also the Nifty Midcap 100- are down less than 5 per cent each from their peaks.
Shares of 18 out of the 22 companies that listed since September 2020 are above their issue price.
That is a positive sign, but the post-listing euphoria for many of these stocks has fizzled out.
Shares of Antony Waste, Mrs Bectors Food, Chemcon Speciality and Burger King are down about 40 per cent each from the highs they recorded post listing.
For instance, Mrs Bectors Food and Chemcon Speciality have seen their stock price more than double following their stock market debut. However, currently they are up less than 30 per cent over their IPO price.
Not all companies have fizzled out though. Stocks like Happiest Minds, CAMS and Gland Pharma are currently less than 10 per cent below their highs.
"Posting listing, whether a stock goes up or down depends on whether there is institutional investor backing. If there is an institutional buyer, shares go into stronger hands from say retail or high-networth individual," says Arun Kejriwal, founder, Kejriwal Research and Investments Research.
"This is good for the stock. In cases, where there hasn't been enough follow up buying by institutional investors or stocks had run up too much on the back of speculation, we have seen the rally fizzle out," he adds.
Amid the current IPO boom, this data gives a cautionary tale.
Experts said investors shouldn't blindly subscribe to all IPOs even if the grey market paints a rosy picture.
"Whenever markets rally, the IPO pricing gets aligned to the prevailing market conditions," says an investment banker requesting anonymity. "If secondary market sentiment worsens or if investor price in lofty growth expectations, there could be a chance of disappointment."
"If the gains are too good to be true, investors should take money off the table."