India’s new stock listings are losing their edge as a worsening outlook for global equities leads investors to take profit from high-profile consumer technology stocks that debuted with inflated valuations.
The S&P BSE IPO Index, which tracks firms for two years since their listing, has plunged about 10% since the start of the year and is headed for its worst month since March 2020 when the pandemic took hold.
The slump comes on the back of fading risk appetite for equities as global central banks prepare to tighten monetary policy to quell inflation. In the U.S., more than two-thirds of shares that listed this year are trading at or below their starting prices.
“Easy money will no longer be available, in turn impacting future fund-raising” for Indian companies, said Rupen Rajguru, head of equity investment and strategy at Julius Baer Wealth Advisors India Pvt.
Indian authorities are taking steps to ensure the success of another mega IPO this quarter as the outlook worsens. The country’s firms got nearly $18 billion from more than 110 offerings in 2021, a record year that witnessed the trading debuts of technology driven unicorns such as online food delivery platform Zomato Ltd., beauty retailing startup Nykaa and digital payments firm Paytm.
In a broad selloff that saw the benchmark S&P BSE Sensex Index slump the most in two months on Monday, shares of Zomato plunged 20% while Nykaa lost 13%. Paytm, whose shares have already plunged more than 50% since its $2.4 billion IPO, India’s biggest-ever, lost more than 4%.
Of the 42 companies that debuted in India over the past year and raised at least $100 million, 38% are trading below the listing price, data compiled by Bloomberg show. The picture is even worse for those that raised at least $500 million, with the rate rising to about 46%.
Paytm’s slump has in particular raised questions over inflated valuations sought by some companies, especially private equity-backed technology firms, some of which went ahead with listing despite reporting losses. It also triggered a warning from India’s capital markets regulator, which asked bankers to review due diligence standards and provide better price disclosures for IPOs.
The selling “signals that the era of excess liquidity is likely to end soon,” said Yesha Shah, head of equity research at Mumbai-based Samco Securities Ltd.