IPO Insights 2024: Mainboard Stability Meets SME Potential

Investor interest in the primary market has surged significantly, as reflected in robust subscription levels and the increasing inclination of companies to go public. This trend was particularly evident in 2024, with the launch of 170 SME IPOs and 50 mainboard IPOs, the latter raising ₹70,000 crore. Mandar Wagh delves into a comprehensive analysis of the performance of both IPO categories, shedding light on the intricate interplay between market reception, investor demand, subscription dynamics, listing gains, earnings reports and post-IPO performance 

In 2024, the performance of the Indian stock markets painted a varied picture. Benchmarks like the BSE Sensex and Nifty 50, which significantly outperformed major global indices in the previous year, remained in a narrow range until May 2024, delivering modest returns of just 2-3 per cent. However, after a sharp decline on the day of the Lok Sabha election results, these indices rebounded strongly, soaring by around 15 per cent over the next three months and reaching new record highs. 

The rally was fuelled by optimistic comments from the US Federal Reserve about potential interest rate cuts, a decline in the dollar index and bond yields, and continuity in the political establishment paving the way for predictability of reforms. As the Indian economy continues its robust rebound from global uncertainties, IPOs remain a favoured option for companies aiming to raise capital, scale operations, and boost their market visibility. The BSE IPO index, which tracks the performance of newly listed companies on the exchange, has climbed around 32 per cent year-to-date, highlighting robust investor interest in the primary market. 

In 2024, there were 50 mainboard IPOs and 170 SME IPOs, with most receiving an overwhelming response from investors, as evidenced by high subscription levels. Consequently, many of these IPOs delivered multibagger returns to the fortunate investors who were allotted shares and continued to remain invested. Let’s explore the differences between mainboard and SME IPOs, focusing on their unique opportunity and risk profiles, regulatory environments, key factors behind the remarkable success of IPOs, and their performance in 2024. 

Understanding Mainboard and SME IPOs 

Mainboard IPOs and SME IPOs cater to different segments of the market, each with unique characteristics and appeal. Below is a table highlighting the key differences to help you better understand the concept. 

Two IPO Worlds: Risks and Regulations 

Investor sentiment towards mainboard and SME IPOs highlights varying risk tolerances and market approaches. Mainboard IPOs, which are preferred by institutional investors, have benefited from a focus on stability and lower risk. These stocks with a relatively lower volatility, combined with their larger market capitalisations and established business models, appeals to investors with a conservative risk profile. On the other hand, SME IPOs have attracted a different set of investors. Retail investors and high-net-worth individuals (HNIs) seeking high-growth opportunities and willing to embrace higher risks, have shown significant interest in this segment. 

This trend is particularly pronounced in bullish markets, where the prospect of substantial returns drives investor behaviour. As SME IPOs gain traction as a mainstream asset class among investors, regulators are implementing measures to formalise the market with additional checks and balances. In a recent step, the leading exchange, NSE, has capped the listing price of SME IPOs at a 90 per cent premium, irrespective of grey market trends. Regulators aim to protect investors from excessive speculation and potential losses. 

The grey market, where securities are traded unofficially before their listing, can often inflate prices based on speculative demand rather than fundamental value. By setting a limit on the listing premium, regulators help investors avoid overpaying for stocks that may not sustain their initial price levels. It also contributes to the stability of the SME IPO market. Excessive volatility, driven by grey market activities, can undermine investor confidence and create an unpredictable trading environment. 

By standardising the initial pricing, regulators and exchanges help ensure a more stable and predictable market, encouraging long-term investment and supporting the sustainable growth of small and medium enterprises. Mainboard listings offer stability with moderate listing gains and are subject to an upper circuit limit to curb excessive volatility. This ensures a balanced approach, appealing to investors seeking steady returns and lower risk. 

The IPO Market Performance in 2024 

Market Reception, Subscription Levels and Listing Gains
The type of issue, whether the proceeds benefit the company or selling shareholders, along with the stated objectives of the issue and their achievement, the company’s financial performance, management guidance, lock-in period and the involvement of prominent investors, if any, typically influence the investor perception of the company. One of the important metrics used to measure the success of an IPO is its subscription levels. 

These levels serve as a crucial indicator for investors when deciding whether to invest in an IPO, offering valuable insights into market sentiment and demand. Examining the distribution of subscriptions among retail investors, high-net-worth individuals and institutional investors provides additional insights, as widespread interest across these groups signifies strong overall demand. 

When an IPO is oversubscribed, it indicates strong demand, which can create a scarcity of shares and often leads to the stock trading at a premium in the secondary market, providing early gains for investors. Conversely, an under-subscribed IPO may signal limited investor interest, potentially due to market conditions or concerns about the company’s perceived weaknesses, which could result in less favourable performance after the IPO. 

The tables clearly show that IPOs, whether mainboard or SME, tend to list at a significant premium when they receive higher subscriptions, while those with lower subscription rates typically debut on the exchanges at a discount or with only a modest premium. While Vibhor Steel Tubes Ltd. and BLS E-Services Ltd. led listing gains in the mainboard segment with over 100 per cent, several high-potential SME IPOs have increased investors’ wealth by up to four times on their listing day itself. There were exceptions, such as Ola Electric Mobility Ltd. 

This company, despite having a total subscription of only four times, debuted with notable gains and doubled investors’ wealth within just a few trading sessions. This performance was fuelled by announcements like the launch of three new motorbike variants and the integration of ‘Krutrim AI’ into its electric vehicles, etc. Similarly, Varyaa Creations Ltd., an SME stock, recorded an 80 per cent gain on its listing day despite a lower subscription rate, driven by impressive top-line and bottom-line growth for FY24 that enhanced investor sentiment. 

Post-Listing Performance: Sustainability Over Time
While listing gains offer a short-term perspective, the performance of a stock over several months post-listing provides valuable insights into the sustainability of investor interest and the company’s long-term market potential. The first earnings report following an IPO is a pivotal moment that can heavily impact a company’s stock performance and shape investor sentiment, influencing its trajectory in the public markets. 

This report acts as a litmus test for the expectations set during the IPO, offering the company its first chance to deliver on promises and meet or exceed market forecasts. Achieving strong results can bolster investor confidence, potentially driving up the stock price, attracting new investors, and encouraging existing shareholders to increase their stakes. Conversely, underwhelming performance can erode investor trust and lead to a decline in stock value. 

Moreover, the initial earnings report establishes a benchmark for evaluating future performance. Investors and analysts rely on this report to assess the company’s ability to achieve its growth objectives and financial targets. It also sheds light on key operational metrics, such as revenue growth, profitability and cost management, providing deeper insights into the company’s business model and operational efficiency. 

Additionally, the management’s commentary and forward guidance can reveal valuable information about the company’s strategic priorities, upcoming initiatives and market outlook. Earnings reports also offer management the chance to update investors on strategic developments, including new product launches, market expansion efforts, or cost-reduction strategies. In most cases outlined in the tables where current gains significantly surpassed listing gains, a clear trend of strong earnings performance was evident. 

For Jyoti CNC Automation Ltd., the difference between current and listing gains is 247 per cent, driven by a surge in the stock price following strong FY24 results and stake acquisitions by Axis Mutual Fund, Morgan Stanley and Societe Generale. Conversely, Vibhor Steel Tubes Ltd., despite strong subscription levels and 195 per cent listing gains, struggled to maintain investor interest. The stock experienced an initial correction of over 40 per cent due to significant profit booking and the gains further declined following weaker sequential and year-overyear results in the June quarter. 

A similar trend was observed in several SME companies, such as Purv Flexipack Ltd. and Euphoria Infotech (India) Ltd., where stock prices notably declined following lacklustre financial results. Also, recent IPOs often experienced a strong debut, prompting swift profit booking as investors seized gains quickly. This behaviour was particularly notable amid global uncertainties and geopolitical tensions, which shaped investor psychology and drove rapid capitalising on profits. 

Sectoral Trends
Sectoral trends have played a pivotal role in shaping IPO performance. IT and software companies, such as Unicommerce E-Solutions Ltd., BLS E-Services Ltd. and Orient Technologies Ltd., delivered exceptional results. This performance was fuelled by renewed confidence in the IT sector, strong recovery predictions for upcoming quarters, and optimism stemming from anticipated interest rate cuts by the US Federal Reserve. The positive sentiment was further enhanced by technological advancements and increasing digital transformation across multiple industries. 

In parallel, sectors benefiting from government focus and initiatives also attracted significant investor interest. Iron and steel companies, including Vibhor Steel Tubes Ltd. and Vraj Iron and Steel Ltd., capitalised on increased infrastructure spending and supportive policies. The infrastructure and energy sectors, especially those involved in renewable energy and solar, saw a surge in investment due to growing emphasis on sustainable development and energy security. 

On the other hand, investor interest was notably subdued in the healthcare sector, including companies such as Entero Healthcare Solutions Ltd., GPT Healthcare Ltd. and Clinitech Laboratory Ltd. Despite the sector’s crucial role, the lacklustre performance reflects broader market hesitations and uncertainties, which may have dampened investor confidence in healthcare-related investments. Stocks in the agro-products and food industry are currently trading at losses. This includes companies like Gopal Snacks Ltd. and MVK Agro Food Product Ltd. 

Some of the other companies include Italian Edibles Ltd., Sameera Agro and Infra Ltd., TGIF Agribusiness Ltd. and Vishwas Agri Seeds Ltd., are currently trading at losses. Overall, IPOs in the automobile and telecommunications sectors have performed notably well, driven by strong sectoral growth and positive market sentiment. In contrast, chemicals, hospitality and financial services companies have experienced a mixed bag of investor sentiments, with performance varying widely based on individual company fundamentals and broader market conditions. 

Future Outlook and Investment Strategies for Savvy Investors
Looking ahead, India’s IPO market is primed for robust growth, with both mainboard and SME segments expected to attract diverse companies. The digitalisation of industries is accelerating, driven by advancements in technology. Government initiatives that support entrepreneurship, skill development, innovation and ease of doing business are also enhancing the appeal of IPOs. Coupled with an evolving regulatory environment and increasing investor interest, these factors create a vibrant and dynamic market. 

As companies across various industries seek public funding, the IPO landscape in India is poised for continued expansion and opportunity. Renowned companies such as NSE, Hyundai Motor India, Bajaj Housing Finance, Snapdeal, Swiggy, OYO, boAt, Mobikwik, FabIndia and National Infrastructure Trust are set to launch their IPOs in the near future. Investors interested in IPO opportunities can explore both mainboard and SME listings based on their investment strategies, expected returns and risk tolerance. It is crucial to conduct thorough due diligence before investing. 

The key factors to consider include the nature of the issue and the specific purposes for which the company is raising capital, as this sheds light on how the funds will be utilised and the company’s strategic direction. Analysing the company’s historical financial performance, current order book and growth potential provides insight into its stability and future prospects. Additionally, assessing the valuation of the IPO in relation to the company’s financials and market conditions is essential to avoid overvaluation risks. 

While grey market premiums can be enticing, they should not be the sole basis for investment decisions. Instead, focus on actual market demand and subscription levels. Depending on the company’s fundamentals, investors may choose to invest for immediate listing gains or hold for long-term growth. For comprehensive insights and analysis on the upcoming IPOs, including the factors mentioned, visit DSIJ’s website to make well-informed investment decisions and capitalise on promising opportunities in the IPO market.