Half of Newly Listed IPOs Fall Below Their Issue Price Amid November Market Crash

In November, four out of seven companies that made their stock market debut saw their shares plummet below respective issue prices amid a sharp correction in equity markets. Paytm’s parent company One97 Communications, SJS Enterprises, Sapphire Foods, and Fino Payments Bank are among the affected shares.

On Monday, 22 November 2021, benchmark indices crashed for the fourth day in a row, leading to the broader market bleeding profusely. With investors losing as much as Rs. 7.86 lakh crores, the overview for the IPO market seemed to be gloomy.

Let us take a closer look into the recent downturn for IPOs.

Recently Listed IPOs That Took the Biggest Losses

At the end of its debut day, Paytm witnessed the worst ever plunge of any newly listed company worth over Rs. 1,000 crores. India’s biggest IPO, which raised Rs. 18,300 crores, crashed 27% closing at Rs. 1,564 from its issue price of Rs. 2,150. As its market capitalisation fell from Rs. 1.39 lakh crores to Rs. 1.01 lakh crores, investors lost around Rs. 38,000 crores worth of wealth.

The shares of One97 Communications, the parent company of Paytm, plummeted by 19% to Rs. 1,271 on 22 November 2021. It then recovered to Rs. 1,359.60 ending the day at 12.9%. With this, the stock was down 36% below its issue price, lowering its market cap further to Rs. 88,184.67 crores.

Meanwhile, the shares of Fino Payments Bank saw a decline of 19% to Rs. 366 on the BSE. The stock debuted on 12 November 2021 and was trading lower for the fifth straight day. The fintech company was down 37% from its issue price of Rs. 545.25.

SJS Enterprises also saw a flat listing, with shares falling 5.93% on its debut day from its issue price of Rs. 542. Over the weekend, the losses widened to 13.49%. Another IPO, Sapphire Foods, is trading at Rs. 1,159.85 as of 24 November 12:37 IST, lower than its issue price of Rs. 1,180.

Besides these IPOs, a total of seven recently listed IPOs have been trading at their lowest levels since listing. This includes Cartrade Tech, Shyam Metalics and Energy, Aditya Birla Sun Life Assets Management Company, Windlas Biotech and Chemcon Speciality Chemicals.

What Does this Mean for Investors?

The recent market rout following Paytm’s debut has raised doubts about upcoming IPOs like MobiKwik and OYO. The completely overblown valuations of companies like Paytm point to an unsustainable market trend. It may also dent investors’ risk appetite leading to closer scrutiny and high cautions with IPOs.

The latest market trend could derail the LIC IPO, which is set to be India’s biggest initial public offering in history. MobiKwik, Paytm’s smaller rival, may also delay its IPO as it is struggling to find foreign institutional backers.

The company had filed its draft papers in July, but its valuation dropped by 30-40% in the coming months. In addition, there are many doubts about fintech business models, which could see MobiKwik not going ahead with its IPO.

With markets entering a consolidation phase, experts say this is when the true test of a company’s mettle will be tested. Only those who can deliver profits would no doubt come out with flying colours. As such, companies with ‘frothy’ valuations and unclear business models may likely not do well in the current market.

Analysts point out many flaws of loss-making companies like Paytm, like complicated organisation structure, churns in top management and a thinly staffed board with 75% of its members outside India. Hence, many of them do not see a favourable outlook for this payment and digital wallet company.

Frequently Asked Questions

1. What are Paytm’s main strengths?

Paytm is the leading digital ecosystem in India, with a GMV (gross merchandise value) of around Rs. 4 trillion in FY21. The company offers various financial services and technology-led digital products. In addition, the company has a huge customer base and strong brand positioning.

2. What are the possible causes of Paytm shares declining?

Paytm has several weaknesses- An inability to deliver profits, lack of profit-making plans, complicated organisational structure, related-party transactions, etc. Moreover, with the overall market being in a consolidation phase, investors do not want to risk their savings on such a company.

3. Did the benchmark indices recently crash?

Yes. As of 22 November 2021, both benchmark indices crashed for the fourth day in a row. Sensex plummeted by 1170.12 points or 1.96%, while NSE Nifty declined by 348.25 points or 1.96%.