Mainboard IPOs: Gainers and Losers in June 2023 Quarter

In the first quarter of FY24 ending June 2023, the mainboard IPOs were few and far between. There were total of 5 IPOs in this quarter (we are only considering IPOs that listed in the quarter). These five IPOs raised Rs9,064 crore and was largely dominated by the IPO of Mankind Pharma and the IPO of the REIT (Nexus Select Trust). Let us focus on how these IPOs ranked in terms of post listing returns and also in terms of subscription. We also evaluate whether there is a linkage between the subscription level and the post-listing returns on the IPO stock?

How mainboard IPOs fared on returns in Q1FY24

 The table below captures the five IPOs ranked on returns post listing. We have not given any weight to the time period or tried to annualize the returns as that can be misleading. We have just presented raw post listing returns in absolute terms.

Data Source: NSE

Out of the five IPOs that got listed in the June 2023 quarter, four have given positive returns on the IPO price while only one IPO is giving negative returns. Out of the five IPOs during the quarter, 3 have given returns in excess of 30% while 2 have given returns in excess of 50%. Mankind Pharma led the way with 57.77% returns post listing, despite being undersubscribed in the retail segment. However, the institutional buying was extremely strong in Mankind Pharma and that buoyed the stock.

Recently listed IKIO lighting is in the energy efficient LED lighting solutions and has been well received post the listing. The stock has gained 53.16% post listing, which is in less than a month. Even Avalon Technologies yielded 31.27% returns post listing, despite a fairly weak start on the listing day. The only mainboard IPO to give negative returns in the quarter is Udayshivakumar Infra, which is down -12.7% from the IPO price.

How mainboard IPOs fared on subscriptions in Q1FY24

 The table below captures the five IPOs that listed in the June 2023 quarter; ranked on the extent of oversubscription. We have considered overall subscription levels and not gone into granular subscriptions of retail, HNI and QIB portion individually. The table below is fairly self-explicit.

Data Source: NSE

When we look at IPO subscriptions, we must also look at size of the IPO since the funds available for churn in the market is limited. For instance, IKIO lighting getting subscribed 67.75 times and Mankind Pharma getting subscribed 15.32 times is fairly even in terms of overall appetite since the size of the issue is much larger in the case of Mankind Pharma. Did the returns get influenced by the extent of oversubscription. Broadly, there appears to be a link in the sense that robust subscription does result in strong performance by the stock post listing. However, there are exceptions too.

For instance, Avalon Technologies got subscribed just about 2.34 times but has yielded smart returns of 31.27%. On the other hand, Udayshivakumar Infra was subscribed 32.49 times but has given negative returns of -12.71%. However, the heavy oversubscription in the case of Udayshivakumar Infra could be due to the inordinately small size of the IPO. The message is that subscription levels do matter, but it is not the only condition to decide on post listing returns. How much the stock leaves on the table for investors also matters a lot in the final analysis.

What we read in the mainboard IPO data?

There are some interesting takeaways from the IPO data on mainboard IPOs in the June 2023 quarter. Of course, there were just 5 IPOs so the numbers are quite small to arrive at something conclusive, but here are some interesting takeaways.

• During the quarter ended June 2023, a total of 5 IPOs raised Rs9,064 crore between them. However, the investors interest in the stocks was to the extent of Rs128,979 crore which means all the IPOs in aggregate during the quarter got subscribed around 14.23 times, which is an attractive level of subscription.
   
• If you calculate the arithmetic returns of five IPOs in the quarter, it stands at a healthy level of 27.44%. However, due to oversubscription, the actual returns would be much lower. What would have happened if you had just blindly invested in all the five IPOs in the quarter by allocating equal amounts? The returns would have been 36.74% on the IPO portfolio, even after accounting for the loss on Udayshivakumar Infra.

What this shows is that the IPOs have emerged now as a distinct asset class. That is good news for the investors, who have had a long time positive association with the IPOs. However, it remains to be seen if the action in terms of number of issues picks up in the September 2023 quarter.