Will India’s stock market tank post Hyundai’s IPO? What history suggests
Large initial public offerings (IPOs) have at times not been good news for Indian stock markets, which have corrected after the issue closed. In some cases, the stock market correction was even caused by a black swan.
Take the case of Reliance Power as an example. The bidding for a book-built issue of Rs 11,563.20 crore (price band of Rs 405 to Rs 450 per share) of Anil Ambani-controlled Reliance Power was open for subscription between January 15 and January 18, 2008.
The Reliance Power IPO was subscribed 73.04 times. Data shows that the issue was subscribed 14.87 times in the retail category, 82.62 times in the qualified institutional bidder (QIB) category and 190.02 times in the NII category. The shares of Reliance Power IPO were listed on BSE, NSE on February 11, 2008.
Calendar year 2008 also saw a black swan event in the form of the collapse of Lehman Brothers, which led to a 4.5 percent one-day decline in the Dow Jones Industrial Average (DJIA). At the time, it was the biggest drop in DJIA since the September 11, 2001 attacks, and also had a huge impact on global financial markets.
At home, out of the last seven major IPOs that took place on Dalal Street (D-Street) since 2007, the Sensex has lost ground five times after the shares of these companies debuted on the stock exchanges.
IPOs in India
Some of the prominent ones include LIC in 2022 (Sensex fell 5.4 percent in one month of listing), Patym (2021; 6.4 percent decline) and Coal India (2010; 4.4 percent decline in Sensex ).
Analysts attribute this market decline to several reasons, including the rich valuations of the markets at the time, black swan events, and overall liquidity.
For example, in the case of SBI Cards, which debuted in March 2020, the markets were hit by a black swan: the onset of the Covid-19 pandemic that saw most global stock markets, including India, sink.
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Will Hyundai Motor India’s proposed mega issue of over Rs 20,000 crore send the markets into a correction soon after?
Analysts don’t think so.
For example, Kranthi Bhatini, director of equities at WealthMills Securities, believes that this time could be an exception and the market may not fall after Hyundai’s IPO, given the positive sentiment and liquidity comfort.
βThe market has strong liquidity, supported by excess cash among domestic institutional investors (DIIs), and foreign institutional investors (FIIs) have also returned to being net buyers. In addition, systematic investment plan (SIP) flows have been very strong, reaching almost $2 billion on a monthly basis. Therefore, fund managers are more or less obliged to launch these funds or risk underperformance,β he said.
βHow markets react to an IPO depends on the company’s pricing and business opportunities. At the time of Reliance Power’s IPO, there was an exaggerated hype about the issue. With new regulations in place, valuations/IPO prices will be justified. Given the quality of the paper (Hyundai IPO), I don’t think there will be a lack of liquidity or investor interest in this issue. The market valuation at the time of LIC, Paytm, Nykaa etc. issues was also exaggerated and these issues were priced very aggressively. Once the markets corrected, it took these stocks with them. βI don’t think Hyundai’s IPO will meet a similar fate,β he said.
First print: June 21, 2024 | 10:03 am IST