The secondary market has disappointed everyone with four negative weeks in a row now. Last week again, the Nifty was down 278 points and the Sensex was down 749 points. That is a meaningful drawdown, and it is on expected lines given what has been happening globally.
Iran’s exchange of fire breaks down sentiment globally, and we felt the tremors here too. The picture is still not clear on that front. Crude oil has been boiling further and has touched about $97 a barrel, which is a genuine concern for an economy like ours that imports the bulk of its energy needs.
On the currency side, RBI’s action of inviting funds into the banking system has helped pull the rupee back somewhat, and it is trading around Rs 94.50 to the dollar.
But the primary market b(l)ooms
While the secondary market struggles, the primary market is going about its business with hectic activity, if anything, it’s accelerating. Last week we saw almost 18 floatations in all: three mainboard IPOs, six SME IPOs and nine rights issues.
This week the tally goes even higher, to about 19 primary issues, comprising 12 mainboard IPOs, four SME IPOs and three rights issues.
And the wait for the big one is finally over. NSE has received clearance for its IPO and is tentatively looking at opening around September 21. The market is eagerly awaiting the formal announcement, which will set the tone for subscription levels and where the grey market activity around it goes from here.
Last week’s listings: mainboard held up, SME did not
Last week’s listing performance was on expected lines given where secondary market sentiment stands. On the main board, we had six listings, five of which opened in positive territory and one in the red. On the SME side it was a different story: three positive listings against five negative ones.
Individually, Annu Projects was down 27% on opening, a rough one. Hy-Tech Engineers was up 42%. Symbiotec Pharmalab listed almost flat. Skyways Air Services was down 10%.
On the stronger side, Lumino Industries opened with a 34% premium, ESDS Software Solution opened with a 74% premium, and Priority Jewels opened with a 13% premium. On the SME front, Kwick Forensic Solutions was the highlight, opening at a 67% premium.
So overall, mainboard IPOs clearly had the better week compared to SME. My view remains unchanged: stay very alert on SME IPOs right now.
Pricing and market operations in that segment are genuinely out of gear, and it’s difficult to predict what will happen on listing day. If an SME issue looks pricey to you, stay away and save your money.
Mainboard IPOs, on the other hand, are offering some real opportunities, most of the ones lined up have decent fundamentals and reasonable technical setups.
Nine IPOs opening on a single day
For the coming week, brace yourself, there are nine IPOs opening on one single day. That’s from the mainboard alone.
Breaking down the full week: on the 7th we have one mainboard and one SME IPO opening, on the 8th three mainboard IPOs, on the 9th six mainboard and three SME IPOs together (that’s the nine-in-a-day I mentioned), and then one mainboard IPO each on the 10th and 11th.
Rights issues are quietly piling up too
One trend worth flagging: rights issues are queuing up to raise money from the market as well, and there’s a regulatory reason for that. SEBI has relaxed the rules so that any rights issue below Rs 50 crore doesn’t require a merchant banker’s involvement.
But we’re now seeing rights issues of Rs 70 crore, Rs 80 crore, even Rs 100 crore, coming to market without a merchant banker mandate, which is a bit more of a grey area than it should be.
Most of these rights issues appear to be going toward debt repayment and working capital, not toward genuine business expansion. And that’s the real concern, there’s very little visibility into how tightly the use of these funds is controlled or regulated.
In some SME IPOs, as much as 75-80% of the funds raised have gone straight into working capital, with the rest earmarked for general corporate purposes. SEBI has now mandated third-party monitoring of fund usage, and many companies have started appointing observers accordingly, but doubts remain.
Participants keep citing working capital needs, and high-priced IPOs are frequently used to clear company or promoter debt rather than fund new plant, machinery or products, the kind of investment that would actually grow the business.
Where I’d look for the coming week
Mainboard IPOs are likely to win the game again this coming week, there are some genuinely good companies in the pipeline, even if pricing is on the higher side across the board.
Names investors could consider include Glass Wall Systems, Kanohar Electricals, Karamtara Engineering, Manipal Payment and Services, Asset Reconstruction Company (India), and Rentomojo.
These look like reasonable propositions in my view, but as always, do your own due diligence and consult your financial advisor before committing. Don’t look at GMPs, but due your own fundamental review.
On the SME side, I’m honestly not comfortable with any of the issues lined up for next week. Pricing is on the higher side across the board, and the underlying segments aren’t strong enough to justify it.
Stay disciplined, stay selective, and remember that mainboard and SME are behaving very differently right now, treat them accordingly.