Mad IPO rush unnerving; but too many curbs not the solution
The capital market is a place where sentiments are a strong driving force. Those who have been in the market know that in the short term, positive (or negative) sentiments outweigh fundamentals, macro or micro. The current IPO (initial public offering) market is a case in point.
IPOs are getting listed with 80–90% premium, and some of them are attracting a subscription of more than 100 times. There’s little or no sense to the maddening rush to subscribe to these IPOs.
And why would investors complain if they are getting around 90% returns on the listing day itself?
Some call for interventions by regulators to put a leash on the IPO market, which many a time has burned big holes in investors’ pockets. But excessive regulatory interventions are not only not advisable but also, at times, not enough to tame the exuberance.
This year, of the 52 IPOs (14 mainboard and 38 SME IPOs),37 have listed with gains and the rest have listed below issue price. The ratio of those listing gains to those listing losses has been quite similar in the last three years, with the gains higher than losses. But markets can be great levellers. The roll of the dice may not always be in the investor’s favour, and she could be stuck with a stock that gets listed at a heavily
discounted price.
Regulators have, in the past, done their bit to curb the unnecessary exuberance in the IPO market. Two years ago, RBI put a cap on NBFCs’ financing of IPOs, while Sebi last year tweaked the IPO allocation rules for high net-worth individuals (HNIs). These changes, it seems, have failed to deter the mad rush for IPOs. Recently, the IPO of ideaForge was listed with 95% gains. The IPO was subscribed 110 times the shares on offer. Netweb Technologies is listed at 89.4% premium. The IPO was subscribed 90.55 times.
The demand for IPOs reflects the overall market sentiment. The equity markets, since April, have risen by 12–15%. The IPOs during the period rode on that euphoria. Of course, some of the companies whose IPOs got bumper listings do have good fundamentals and may not have commanded the premium they got. However, the equity market is not only about good fundamentals but also about riding a bullish trend.
Sometimes, regulators should let the markets teach investors important lessons.