Excess liquidity, strong demand add buzz to newly listed stocks

Excess liquidity, strong demand add buzz to newly listed stocks

Investors who have bet on firms hitting the market this year are being rewarded by consistent performance, thanks to the rally in the small- and mid-cap indices has given a boost to share prices.

All 19 companies that have listed on the exchanges in the current financial year are presently trading above their offer price. Only three of these closed below their offer price on listing day, while the remaining 16 had a favourable debut — closing higher than the issue price on the day of listing.

“There is excess liquidity in the market, which is why demand is high and share prices have rallied. This is not restricted to a certain sector, but we can see this trend across the spectrum,” said Rajendra Naik, managing director (investment banking), Centrum Capital.

Naik said the momentum could persist, even though the exuberance in the mid- and small-caps does seem irrational at this juncture.

“Fundamentals are strong and the businesses are good, and this is giving confidence to investors. But how long the momentum sustains remains to be seen,” he added.

Investor confidence in these stocks has also remained firm. Of the 19 companies, shares of just seven are presently trading below the closing price on listing day.

Mankind Pharma’s Rs 4,326-crore offering has been the largest IPO this year so far. The IPO size of SBFC Finance and Concord Biotech also exceeded Rs 1,000 crore each.

The trend last year was similar. Of the 16 firms that went for an IPO in the first half of the financial year up to September 19, only three were trading below their offer price at this point in time.

LIC’s Rs 20,557-crore and Delhivery’s Rs 5,236-crore IPOs were the largest offerings last year. The latter recorded a listing day gain of 10.13%, and is currently trading at 18.2% above its offer price. The picture for LIC, however, has been sombre. Having seen a listing day loss of close to 8%, it is now 31% below its issue price.

A banker who did not wish to be named, said that LIC has been hit on multiple fronts.

“Changes to the tax structure with respect to insurance premiums, as well as the crisis in Adani group stocks both came as a double whammy. While 2022 was overall a bad year for IPOs, the smaller companies managed to tide the storm. With money now returning to the markets, there is renewed vigour and we see interest across categories of investors to lap up shares,” the banker said.

He added that the reversal in sentiment gave a push to IPOs in FY24. In addition, the banker pointed out that many of the companies had prepared to hit the market in the previous financial year, with the plans rolling over to the present year given the time taken to prepare for the offering and file papers with the regulator.