The Hindu Business Line : Low returns post-IPO scaring away investors

Alarm bells are ringing loud and clear in primary market circles. Of late, many stocks are logging only a marginal increase in prices immediately and within days of their IPOs getting listed. For investors who were getting used to making a killing on the very first day in all sorts of stocks, the chances appear to have become slimmer.

The trend, which investors say are scaring some of them away from the IPO scenario, is reflected in stocks like Visa Steel, which was listed on Friday.

The company, which had priced its issue at Rs 57 per share, witnessed a high of Rs 57.80 on NSE on Tuesday before closing below at Rs 55.50.

For retail investors, especially those who earlier flocked to IPOs of smaller cap stocks, this scenario is unwelcome, said sources, referring to a few other recent instances of disappointment.

Mr Tarun Sethia, a senior name in IPO distribution, said that many smaller investors are being caught on the wrong foot, particularly when they are pursuing a quick-exit strategy.

Is the market quickly discounting the smaller-cap scrips that are too aggressively priced?

This, Mr Sethia said, is not quite true across the board. Some of the smaller recently listed counters as well as bigger ones like BL Kashyap have done relatively well on day one and on the trading sessions that immediately followed.

It will be easy to work out a list of the so-called `soft counters' if prevailing prices are examined against their issue prices, feels Mr Naresh Pachisia, Managing Director of SKP Securities.

The broad reference is to cases like Gitanjali Gems, which had touched Rs 226 after listing and is now quoting around Rs 170. It closed at Rs 167 on Tuesday. Stocks, however, should not be judged merely on the basis of a few days' performance, he said.

Trading in recently listed scrips is almost universally marked by high volumes, according to sources.

Two small-cap counters, Triveni Engineering and Gujarat State Petronet, for instance, are very heavily traded. Both have done relatively well by way of appreciation.

While the former is quoting around Rs 93, the latter is trading at Rs 36. Their issue prices were Rs 48 and Rs 27 respectively.

At the other side is Andhra Bank, the sources said, referring to the issue price of Rs 90. On Tuesday the stock closed marginally below Rs 82, a setback for those who subscribed to the recent offer and have stayed invested ever since.

Mr Rajiv Bose of Vedika Securities said: "IPO investors must be quality conscious, especially when it comes to investing in relatively little-known names."

In a market that is generally bullish, it is easy to be swayed by popular sentiments and this may well lead to mistakes, he added.