IPO frenzy fizzling out: What’s behind low subscription rates, tepid listings?

IPO buzz fizzling out: Despite the ongoing excitement surrounding initial public offerings (IPOs), a sense of fatigue appears to be creeping into the IPO market recently. So far in November, Afcons Infrastructure Ltd (2.6x), Sagility India Ltd (3.2x), Swiggy Ltd (3.6x), ACME Solar Holdings Ltd (2.8x), and Niva Bupa Health Insurance Company Ltd (1.8x) have struggled to achieve full subscriptions during the bidding period, with all offers settling at less than 4x bids. Further, the issues lately have been experiencing lacklustre listings.

Market analysts primarily link this fatigue to the prevailing weak sentiment in the overall markets, citing various domestic and global factors that have contributed to the market's decline in recent times.

Initially, issues were fully subscribed within hours of their launch or on the very first day, in contrast to the figures being observed for IPOs lately on the first day. The contribution of retail and non-institutional investors used to be quite overwhelming in the success of the past issues until early October 2024. 

Among the most successful IPOs before the onset of fatigue were Waaree Energies Ltd (76.3x), Diffusion Engineers Ltd (114.5x), KRN Heat Exchanger and Refrigeration Ltd (214.4x), Manba Finance Ltd (224.1x), and Gala Precision Engineering Ltd (201.4x).

Going forward investors are likely to focus on upcoming offerings including Zinka Logistics Solution IPO, NTPC Green Energy IPO, Enviro Infra Engineers IPO, and Avanse Financial Services IPO.

Here's what market experts say

Arun Kejriwal, the founder of Kejriwal Research and Investment Services

Arun Kejriwal, pointed out that when we analyse the last five to ten IPOs, there has been a noticeable decline in subscription levels, as well as a decrease in the returns from IPOs, whether they are negative or only slightly positive. The reality is that the percentage returns have shrunk to their lowest point. Previously, we would see early subscription from retail investors leading to oversubscription right on the first day; now, that is not the case on day one, day two, or even day three, as they are not fully subscribed. This change is due to the fact that, earlier, getting allotment was rare, but now it is more common, and often, there is no good return on the investment. The grey market premiums that once thrived at 30%, 40%, or even 50% of the issue price are currently struggling at around 10%. Consequently, investors are becoming doubtful about whether the minimal potential gains justify making an investment or if they should stay away. All of these factors have contributed to a sense of fatigue within the IPO segment, leading to hesitation in applying for them.

Prashanth Tapse, Research Analyst, Senior Vice President of Research at Mehta Equities

Prashanth Tapse explained that primary market action depends on secondary market performance because the secondary market provides high liquidity to investors to participate in the primary market. Ongoing market turbulence is giving a feverish feeling to the primary market, which is witnessing the fever of lower-than-expected demand and subscriptions from almost all types of investors, followed by poor listing due to the downtrend scenario in the secondary market. The performance of the secondary market is impacting the primary market papers. Other factors are also fuelling this fatigue in the IPO market such as continued selling pressure from foreign institutional investors (FII’s) followed by disappointed Q2 earnings that have surprised the markets.

Disclaimer: The views and recommendations above are those of individual analysts, experts and broking companies, not of Mint. We advise investors to check with certified experts before making any investment decision.