SME IPOs are outliers this year despite a sharp sell-off in the market

Initial public offerings (IPOs) by small and medium enterprises (SMEs) have fared better than those on the mainboard this year in terms of post-listing performance. Sample this: The stock prices of 47 companies that have listed on SME bourses this year are up 32 per cent on average. Nearly 60 per cent of these are currently trading above their issue price.

Shares of five companies are currently trading at double that of their issue price, despite a sharp sell-off in the market. These companies are Empyrean Cashews (shares up 656 per cent over IPO price), Globesecure Technologies (265 per cent), Cool Caps Industries (244 per cent), Maruti Interior Products (114 per cent), and Vaidya Sane Ayurved (105 per cent).

These companies belong to niche sectors — such as processing cashew nuts, manufacturing of bottle caps, and Ayurveda-based health care centres. Shares of nine SME IPOs are currently down more than 30 per cent over their issue price.

There have been only 15 mainboard IPOs this year. Of them, seven are currently trading below their issue price; three are down more than 20 per cent. The average gain for these 15 companies is 18 per cent. Adani Wilmar is the best-performing IPO with a 171 per cent gain over the IPO price, followed by Veranda Learning Solutions, whose shares are currently up 66 per cent — despite dropping 4 per cent in debut trade.
 

The last mainboard IPO to list was Aether Industries on June 3. Since then, there has been a prolonged lull as companies are holding back their listing plans due to volatility in the markets.

SME IPOs seem to be unperturbed by the volatility as 15 SME IPOs have got listed since June. Of these, only three are currently below their IPO price; three others have gained more than 50 per cent.

“While volatility in the market impacts all companies, SME IPOs are a slightly different asset class. These are niche stories from smaller towns. If investors can spot the right story, they can make good returns on these investments. However, blindly investing in SME IPOs has proved very risky in the past. Our advice to investors is to study a company thoroughly on its own before placing bids on such IPOs. As compared to the main board, there isn’t much research coverage on SME IPOs. Mostly, people invest based on hearsay, which is dangerous,” said an investment banker.