When the markets are at peak, every company wants to encash their profits by raising money from investors at premium valuations. We are witnessing a huge hype in the market with increased greed among investors. In this post, we will try to analyze some of past IPO facts and understand the where the IPO is going. As our banks are constantly reducing interest rates every year, therefore, investors are left with few choices of investment. They are pouring money into markets to get good returns on their investments.
In 2016, around 26 companies raised around 26,372.48 crores from the primary markets.
Let us look at IPOs of 2016
The major contributor, ICICI Prudential Life Insurance raised around 6000 Crs. Do you think the IPO mania was over in 2016?
Coming to present the year 2017, so far 27 companies have raised and 2 IPOs are going through subscriptions. In 2017, till date companies have raised around 34,465.17 crores from primary markets
All major insurance companies (HDFC Standard Life Insurance, General Insurance Corporation of India) will go for IPO this year itself and will raise around 25,000 crores from the primary market. Two of them already got listed this year on heavy valuation against their peers. A high valuation leaves very less on an investor table.
Now, let us try to see what were the listing gains and the subscription of IPOs released in 2017.
In the above graph, subscription data is mentioned in the circle for respective IPO. For eg., BSE was subscribed 51.2 times at the end of last day of IPO.
Surprisingly, Salasar Techno Engineering Ltd IPO received a maximum number of bids against an IPO of an issue of 35 crores and eventually, it also listed on huge premium with gains close around 140%.
Having seen this IPO boom shows investors are too much in euphoria. But how long will this euphoria last?
Here is the trend of money raised through IPO from the year 2007 to 2017.
It clearly shows after reaching the top of 33,000- 36,000 crores of raising money by IPOs, companies have slowed down raising money. But the question is Why?
Let us see how was market ie Nifty50 performing during the same duration.
In the year 2007, the market crisis started which lasted till early 2009. From the year 2009, the market seems to be recovering again. We again saw the increase in IPOs offering in that year. In late 2014 the Nifty50 made a new debut to 8000 levels and with that IPO market also started to boom.
Now in the present year, 2017 we are again at new high so is the IPO market. We can see that every other IPO is getting oversubscribed and giving a decent listing gains. In 2017, an IPO has given an average return of 23% just on its listing.
Now, as long as the market remains healthy, IPO market will boom. We can witness much more IPO oversubscription for some more time but it is already getting saturating.
Why will IPO boom be going to fade out in near future?
According to a report by Livemint IPO markets are getting frenzy as more and more PE investors are encashing their stake in the companies. In 2017, PE (private equity) funds sold shares worth $1.17 billion which is highest in recent times.
As soon as the market starts getting corrected these listing gains or quick money for investors will start to fade out. The pain point is that no one can predict when the market will get corrected or crash. It is investor’s responsibility that he/she does not apply for every IPO which comes for an offering. An investor should go through financial history and management background before going for an IPO. He should develop a decision based on facts available to him. Brokers usually have a biased opinion and we should ignore them.
Remember companies only raise money to benefit themselves. Any company going for IPO chooses its favourable time and also selects the valuation of IPO. There have been a lot of cases in which IPO does leave anything for the new investor as they are being offered at premium valuations. Therefore it is very important an investor should evaluate IPO properly.
Happy investing and thanks for reading.