InvestorQ : Does IPO oversubscription really make a stock list at a premium?
Arusha Ray made post

Does IPO oversubscription really make a stock list at a premium?

Answer
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Mahil Khan answered.
1 year ago


There is not established relationship but the table below should give an idea to you.

Name of IPO

Issue Price

Market Price

Oversubscription

Gain / Loss (%)

HDFC Life

Rs.290

Rs.383

4.90 times

32.07%

Khadim India

Rs.750

Rs.672

1.90 times

(10.41%)

New India Assu

Rs.800

Rs.553

1.19 times

(30.88%)

MAS Financial

Rs.459

Rs.638

128.39 times

39.01%

Matrimony.com

Rs.985

Rs.900

4.44 times

(8.63%)

Dixon Tech

Rs.1766

Rs.3225

117.80 times

83.00%

Apex Frozen

Rs.175

Rs.849

6.14 times

385.14%

Cochin Shipyard

Rs.432

Rs.546

76.19 times

26.39%

AU Small Fin Bk.

Rs.358

Rs.677

53.60 times

89.11%

GTPL Hathaway

Rs.170

Rs.165

1.53 times

(2.94%)

Data Source: NSE

We can draw the following conclusions about the relationship between oversubscription and the listing price. Here are some key takeaways…

It can be seen that paltry oversubscription levels are related to weak post listing price performance. Take the cases of GTPL Hathaway, Khadim and New India Assurance. While New India Assurance was a very large issue by size, in all these cases the oversubscription was marginal due to valuation concerns. The price performance has been flat to negative in all these 3 cases.

While substantial oversubscription is a good sign, it does not guarantee post listing performance. For example Dixon Tech was oversubscribed 117 times and has given 83% returns since listing while MAS Financial with a larger oversubscription of 128 times has only given 39% returns since listing. Similarly, Cochin Shipyards with 77 times oversubscription has just given 26% returns since listing.

Size has been an issue for post-listing returns. For example, HDFC Life despite a 4.90 times oversubscription has only given about 32% returns whereas Apex Foods which 6.14 times oversubscription has given an incredible 385% returns since listing. All these go to prove that smaller companies that get oversubscribed tend to be more fleet-footed and can give better returns post listing.

There is also a very strong sectoral and structural play in most of these post listing performances. For example, insurance companies have struggled because there has been a glut of insurance listings and also most of them appear to be fully priced in the absence of any benchmarks. Companies like Apex Foods that operate in sea-food had the benefit of being in the right place at the right time.

Even in a tough industry, individual merit does count. The examples are stocks like MAS Financial and AU Small Bank which have outperformed despite operating in a highly competitive industry amidst a difficult operating environment. We broadly conclude 3 things. Firstly, companies with tepid oversubscription tend to underperform post listing. Secondly, success of IPO post listing is about being in the right space at the right time than anything else. Lastly, IPOs with aggressive valuations tend to take a hit post listing and that is seen almost invariably.