A trader takes a nap at a securities trading firm in Shanghai, China. (Photographer: Kevin Lee/Bloomberg News) 

Investing In IPOs Has Been Injurious To Wealth So Far This Year

Initial public offerings haven’t enriched investors so far this financial year amid volatility in the market.

Of the 10 maiden offers launched this year, shares of only three companies are trading above their issue price and two are above their listing price. The outliers: HDFC Asset Management Co., RITES Ltd. and Fine Organics Industries Ltd.

This comes at a time when concerns over an escalating trade war, higher crude oil prices and a depreciating rupee have led to a 3.3 percent decline in the broader NSE Nifty 500 Index. Also, a change in mutual fund investment classification and the liquidity crisis among non-bank lenders following a default at Infrastructure Leasing & Financial Services Ltd. contributed to the selloff.

Dinesh Engineers Ltd. had to withdraw its IPO after keeping bids open for three days due to weak demand. While state-run Garden Reach Shipbuilders & Engineers Ltd. extended the closing date of its issue by two days, property developer Lodha Developers postponed its listing plans as a rout in stocks deepened.

To be sure, 26 of the 43 companies that listed in the previous financial year, too, are trading below their issue price and 34 are below their listing price.

Trading Below Issue Price

Share prices of several prominent companies have also dropped substantially from their issue price due to the recent turmoil in the market. Investors of Ortel Communications Ltd. and Adlabs Entertainments Ltd. lost more than 90 percent of their wealth. Corporate governance issues have eroded nearly 50 percent of investors’ money from Manpasand Beverages Ltd. and PC Jeweller Ltd.

Inox Wind Ltd., QuickHeal Technologies Ltd., BSE Ltd. and Coffee Day Enterprises Ltd., among others, are a few larger companies trading below their issue price.

Small finance banks such as Ujjivan Financial Services Ltd. and Equitas Holdings Ltd. are trading 65 percent and 55 percent, respectively, below their lifetime high after the Reserve Bank of India clarified that promoters of such lenders must list their banking units separately within three years of operation in line with the regulator’s licensing requirements.

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