Investors Chase High-Risk-High-Return IPOs Of Small Businesses
India’s record year for initial public offerings prodded small businesses to go public as investors were willing to take extra risk for higher returns.
Close to 120 companies have raised money on the small and medium enterprises platforms on National Stock Exchange of India Ltd. and BSE Ltd. so far this year compared to more than 30 listings on the main board on both the exchanges. They mopped up nearly three times more funds than last year, though it’s less than 3 percent of over Rs 65,000 crore raised by their larger peers.
Not much track record and tiny size do throw up potential risks that investors should be wary of, said Mahavir Lunawat, managing director at merchant banking firm Pantomath Capital Advisors that lead-managed 60 SME offers and helped raise over Rs 600 crore. “But a bit of basic behavioural diligence could validate potential multi-baggers. Investing in these IPOs is a high-risk-high-return opportunity.”
The companies were banking on investor interest as benchmark indices scaled new peaks this year. More so after last year’s cash ban that funnelled household savings into stock markets through mutual funds. The Nifty 50 is the second-best performer among major global indices this year.
That rubbed off on the primary market with the S&P BSE IPO index—which tracks the performance of stocks listed on the main board—gaining 43 percent this year. The S&P BSE SME IPO index outperformed, rising 78 percent.
The companies that listed on the main board saw promoters and investors walk away with the bulk of the gains as 83 percent of funds were raised through offer for sale. In comparison, smaller firms mopped up capital for their business. More than 80 percent funds raised on the SME platform came by issuing fresh shares, where the proceeds went to the companies, and not investors.
Demand for shares sold in IPOs has been high on the SME platform as well. Five companies on the SME platform were subscribed more than 100 times.
Here are the top five gainers on SME and main platforms.
On the flip side, losses have also been higher on the SME platform. The top five losers…