The volatility witnessed in the secondary market segment recently has taken its toll not only on the primary market offerings (IPOs) but has also weighed heavily on the share prices of the newly listed companies.
The stock market was pushed to heavy volatile zone following presentation of Union Budget on July 5, 2019. Since then we have seen alternate bouts of heavy selling (more) than recovery (short cutting) in the market.
In this mayhem, newly listed IPOs in calendar year (CY) 2019 (only 8 listings) have suffered. The loss is so severe that 50 per cent of the newly listed IPOs have already traded below their issue price, two are almost on the verge of breaking their issue price level and only two are standing firm. (see table)
Since presentation of the budget the benchmark indices, S&P Sensex of the Bombay Stock Exchange (BSE) is down by 2,163.09 points (5.79 per cent) while Nifty-50 of the National Stock Exchange (NSE) has lost 863.35 points (7.81 per cent). They respectively closed at 37,350.30 and 11,047.80 points on Friday last.
As a result of moderate to heavy denting witnessed in the share prices of newly listed IPOs, the potential issuers who have firmed up plans to hit the market are rethinking whether to go ahead or shelve the issue.
Investment banking sources said, there are about 50 draft red herring prospectus (DRHP) filed with the Securities and Exchange Board of India (Sebi). The approval (go ahead with the IPO), for some of them is expected to expire in couple of months from now. If the market volatility persists for some more time, which is likely to be the scenario, then these companies will be left with no alternative other than to call off the issue and go for some other source to raise the resources.
In CY19 till date only Rs 10,049 crore has been raised from primary market and there are only four months left in the calendar year. Looking at the secondary market sentiment, the revival seems a distant dream. In comparison, CY18 saw Rs 30,959 crore being raised through 24 IPOs, Prime Database said.
Another fall out of the sluggish IPO market pointed out by one of the banker was also interesting. He said, this could also take its toll on the ambitious disinvestment target set by the finance minister Nirmala Sitharaman in her maiden budget. She has set to raise Rs 1,05,000 crore through divesting public sector undertakings (PSUs) stake, to keep in check the burgeoning fiscal deficit at a target of 3.3 per cent of the gross domestic product (GDP).