IPO Investment Risks - Invest Cautiously in Primary Market

Published on Tuesday, May 1, 2018 by Dilip Davda | Modified on Wednesday, November 13, 2019

IPO Investment Risks - Invest Cautiously in Primary Market

I have given rationales on primary market in my previous article Is Primary market in dilemma?. I had mentioned few cases that of Jhandewala Foods and Lemon Tree on their subscription and listing performance, ICICI Securities, Midhani.

In general, HNI response to any IPO is considered as the barometer for its listing performance. But in the above cases, we found some strange and new style emerging. QIBs hectic support in Lemon Tree which was ignored by HNIs and Retail made a sound debut and also continued northward move creating new highs indicating the understanding of hotel industry investment rationale of QIBs. In case of ICICI Securities ongoing imbroglio of ICICI Bank-Videocon matter dented the sentiment. On one hand, ICICI Sec. a well known national brand failed to garner one-time subscription, on the other end, a small regional brand Naman owner Jhandewalas Foods got 268 times oversubscription and it opened in upper circuit on expected lines. But the great surprise is those investors who wanted to buy this share at Rs 55 (offer price) and gave superb response with historic subscription were missing for follow up support post listing when it trades at discount to offer price. This history got repeated in a few other cases like Hindcon, Tasty Dairy, Moksh Ornaments, Zodiac Energy, ANI Integrated, Total Transport, Accord Synergy. Some of them are even today trading below the offer price i.e. Hincon, Zodiac, Accord. Mind well, this is despite mandatory market making for these SME IPOs.

Main Board IPOs

CompanyIssue sizeIssue PriceQIBHNIRetailsOthersTotal List PriceHighLowLTP 30.04.18
Rs CroreRs Per share(Excluding Anchor)Rs Rs Rs at BSE Rs
Lemon Tree1039563.880.120.12NA1.1961.69157.375.4
Sandhar Techno56633214.56.391.31NA6.14345399.5305.8391.1
Bandhan Bank447337538.6813.891.06NA14.56485540455512.6
Hindustan Aero414412151.730.030.390.210.99116911841085.11124.2
ICICI Secu40175201.040.360.890.340.78431.1462.7400420.6
Bharat Dynamics9614281.50.51.370.41.29360421.9360403.35


CompanyIssue sizeIssue PriceQIBHNIRetailsOthersTotal List PriceHighLowLTP 30.04.18**
Rs CroreRs Per share(Excluding Anchor)Rs Rs Rs at BSE Rs
Jhandwalas Foods16.015521.68466.6988.58NA263.096694.437.863.6
Hindcon Chemi7.73281.39154.81124.18NA129.5733.633.624.2527.95**
Tasty Dairy24.44450155.3240.6NA91.9250.75544045.95
Focus Suits6.491857.61281.5381.86NA172.1521.642.921.632.1
Vasa Retail4.8305.18175.44261.24NA200.623679.63654**
Moksh Ornaments11.03370.67119.2686.16NA96.0444.462.4530.637.25**
ICE Make23.715717.59398.6149.48NA255.9668.4124.9568.491.5**
Zodiac Energy10.14520.08155.961.66NA102.0662.463.4526.932**
ANI Integrated25.661005.54343.2876.37NA199.12120190.4596125**
Total Transport17.014521.78151.62120.66NA127.34547441.445.45**
Accord Synergy5.83600.65110.19204.37NA138.257293.141.547**


Section connected with primary market is trying to find out the answers for it, but have not yet ascertain the main cause. Simple excuse is given for greedy pricing. When we are talking about greedy pricing, nowadays we find merchant bankers trying for mainboard P/Es for SME prospects and that is setting bad examples.

Even if one talks of GMP (in market terminology it is Grey Market Premium) but in my opinion, it is Grossly Manipulated Prices), then if anyone takes study on this count, may IPOs have rather fared totally against and on unexpected lines. Generally, GMP market is having hand in gloves operations by vested interest parties. So GMP criteria for subscribing IPO is totally misleading and not advisable as well as in the past one year and half year or so we have not seen GMP reflection post listing in many cases.

On SME IPO front, I would like to give one more case i.e. of Sarveshwar Foods. This IPO had for the first time four merchant bankers acting as joint lead managers and as per normal practice followed for SME IPO subscription, this IPO should have been subscribed over 5 times at least, but it could garner only around 1.6 times subscription and raised eyebrows of market men.

According to observers, to curtail speculative aspect on listing, SEBI has now introduced 'ST' group for SME IPO and post price discovery in initial hour on the debut day, now there is 5% upper or lower circuits for initial one week for SME listing. However, if SEBI is keen to curtail speculations on the first day then it should do away with this kind of price discovery drama on debut day. Instead, price discovered from IPO allotment should be treated as the previous closing and on it, the circuit as application should be implemented. SME IPOs have entry barriers while making application as well as while trading post listings.

For main board or SME IPO, issue pricing should be the main criteria and any investment in public offer should be considered for medium to long term investment. Investors looking for listing gain should opt secondary market for their short term game plans and keep away from IPO route, as opined by observers.

I would like to mention that knowing health hazard from tobacco products as the caution is given that 'Tobacco consumption in any form is injurious to health' and despite such warning people continue their tobacco product consumption, similarly, for stock market, any investment is 'subject to market-related risk' and investors should bear this in mind and should invest with proper study and knowledge about their investment.

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About Author

DISCLAIMER: No financial information whatsoever published anywhere here should be construed as an offer to buy or sell securities, or as advice to do so in any way whatsoever. All matter published here is purely for educational and information purposes only and under no circumstances should be used for making investment decisions. Readers must consult a qualified financial advisor before making any actual investment decisions, based on information published here. Any reader taking decisions based on any information published here does so entirely at its own risk. Investors should bear in mind that any investment in stock markets is subject to unpredictable market-related risks. The above information is based on RHP and other documents available as of date coupled with market perception. The author has no plans to invest in this offer.

(SEBI registered Research Analyst-Mumbai).

About Dilip Davda

Dilip Davda, a freelance journalist

Dilip Davda is veteran journalist associated with stock market since 1978. He is contributing to print and electronic media on stock markets/insurance/finance since 1985.

Dilip Davda is a leading reviewer of public issues and NCDs in the primary stock market in India. The knowledge he gained over 3 decades while working in the stock market and a strong relationship with popular lead managers makes his reviews unique. His detail fundamental and financial analysis of companies coming up with IPO helps investors in the primary stock market. Dilip Davda has a special interest in analyzing the SME companies and writing reviews about their public issues. His reviews are regularly published online and in news papers.

Email: dilip_davda@rediffmail.com


1. Sinewave   I Like It. |Report Abuse|  Link|May 22, 2018 11:47:55 PMReply
Nice article.
Eye opener facts covered.