Success of Zomato’s IPO indicates a paradigm shift which will usher an era of the new age investors and entrepreneurs. It will give opportunities to the founders with not so deep pockets to scale and flourish
India’s largest food delivery service Zomato made a stellar debut on the stock exchanges BSE and NSE on 23 July, getting listed at a premium of almost 66 per cent. While the anticipation of a strong listing around this public issue was already immense, it did not disappoint the investors on the D-day. Zomato’s IPO received tremendous response from retail investors, non-institutional investors and the Qualified Institutional Buyers (QIBs) despite caveats sounded by many about expensive valuations of shares and its business still not being profitable.
Such is the euphoria around the IPOs this year. Investors have been making beeline for public issues riding on the strength of the stock markets. While, there have been occasional market corrections, the domestic bourses have only moved from strength-to-strength since the debacle in March 2020 when the Coronavirus Pandemic started making inroads in the country.
Investors have made significant gains on the back of high liquidity across major markets across the world including India and backed by strong quarterly results of top listed companies over 2-3 quarters. There has been no letting-up in the enthusiasm of investors even as many stock market experts and economist have pointed out the gap between the market movement and the current economic situation.
It appears that the investors are unperturbed and the party will not likely stop here. At least 5 IPOs are lined up over the last week in July viz. Rolex Rings Limited, Glenmark Life Sciences Limited, Rex Pipes & Cables Industries Limited, Network People Services Technologies Limited, Gretex Corporate Services Limited.
The returns given by the stocks of IPOs which have got listed over the past one year have been significantly high. This has encouraged investors to participate in the public issues either to get some quick money in the form of listing gains or for long term investment.
IPOs Listed over 1 year period and returns:
Out of the 75 listed IPOs over the last one-year period, 13 stocks have given returns above 100 per cent. The most recently listed GR Infraprojects Limited shares have risen by a whopping 100 per cent in just five trading sessions between its listing date of 19 July 2021 and 23 July 2021.
Happiest Minds Technologies whose stocks were listed on 17 September 2020 have earned a whopping 740 per cent returns for its investors. It is followed by Route Mobile and Angel Broking Limited which have given returns of 510 per cent and 326 per cent respectively. While the former was listed on 21 September 2020, the latter was listed on 5 October 2020. Infact, Angle Broking shares were listed at a discount and its journey since then has been only one way and which is upwards.
The other recently listed IPOs which have given two-fold or higher returns from that of the issue price include Laxmi Organic Industries Limited, Easy Trip Planners Limited, MTAR Technologies Limited, Nureca Limited, Burger King India Limited, Gland Pharma Limited, Likhita Infrastructure Limited, Computer Age Management Services Limited and Mazagaon Dock Limited.
Stocks like Stove Kraft Limited and Equitas Small Finance Limited have given returns of 94 per cent each. While, the former was listed on 5 February 2021, the latter was listed on 20 Nov 2020.
The Duds:
There are certain IPOs which have given insignificant returns as well – the likes of Home First Finance Company Limited, Antony Waste Handling Cell Limited, Mindspace Business Parks REIT and Focus Business Solution Limited which have given returns of less than 10 per cent.
There are also IPOs which have proved to be duds. For instance, Brookfield India Real Estate Trust REIT stocks have given negative returns of 3.2 per cent. Among other IPOs, AA Plus Trade Link Limited (-7.5 per cent), Indian Railway Finance Corporation (IRFC) (-10.38 per cent) and Walpar Nutritions Limited (-27.5 per cent) have given negative returns.
While, one cannot discount the impact of Coronavirus pandemic on the respective businesses and a close examination would reveal if the businesses have also impacted like the stocks. For now, we have not delved into that domain. There is also a caveat that the above analysis is completely focusing on the traction that the IPOs have received over the past one year and the returns most of these IPOs have given. It is not to suggest that the stocks which have not been market movers will continue to remain like this.
Many of these companies have strong business models and fundamentals and may pick up going down the line.
This analysis also does not suggest that those stocks which have given strong returns till now have strong business models and fundamentals and will continue to give high returns.
IPO Market – a Paradigm Shift
This is just the beginning. There is already a lot of buzz building around the IPOs of PayTM and the state-run Life Insurance Corporation of India (LIC).
PayTM will be the biggest IPO in the history of public issues when it is launched. The digital payment system and financial technology arm of One97 Communications has already filed a Draft Red Herring Prospectus with the market regulator Securities and Exchange Board of India (SEBI). The company will be raising Rs 16,600 cr through this IPO – highest ever amount raised via an IPO. Till now, the Coal India Limited (CIL) IPO is the biggest ever public issue, where the company raised over Rs 13,000 cr.
Meanwhile, the IPO of LIC is expected to be even bigger. The government has already indicated that it is planning to complete it within this financial year.
The listing of Zomato is an important milestone for many such new age businesses. The market capitalisation of Zomato crossed the Rs 1 lakh cr mark on 23 July – the day of its listing – putting it into the elite club of Indian unicorn companies. This is indicative of the trend that the current balance sheet will not be the only criteria adopted by the investors to judge the potential of the company.
This also reflects the maturity of the domestic stock markets to accept the business model of new-age companies, a welcome departure from the age-old conventional set-up.
This is a paradigm shift which will usher an era for the new age investors and entrepreneurs. It will give opportunities to the founders with not so deep pockets to scale and flourish.