Is listing performance linked to oversubscription?

• HDFC securities
• 06 Dec 2021

It is intuitively OK to say that post listing performance of an IPO is linked to the extent of oversubscription. That looks intellectually appealing but is it really true? There are two sides to this question. Does a company that gets heavily oversubscribed really do very well over the longer period of 6-9 months? Are there cases of companies that struggle to sail through their issues but eventually outperform over time? Let us look at the IPOs of October and November first.

How listing performance links to subscription in the short term

CMP as of close of 23-Nov 2021

If you just look at the IPOs of the recent 2 months, it looks like a clear positive corelation between the extent of subscription and the post listing performance. If you look at the 4 star performers in terms of post listing performance viz. Latent View, Sigachi, Nykaa and Paras Defence, they all saw robust subscription. 

For example, in the case of Paras and Latent View, the subscription was above 300 times and Sigachi was subscribed over 100 times while Nykaa was over 80 times. However, among the four star performers, only Nykaa is a large issue with the others being extremely small issues and also small sized companies.

On the downside, the worst performers like Paytm, Fino Payments Bank and SJS Enterprises just about managed to get between 1 time and 2 times subscription. That has reflected in them giving negative returns due to pricing concerns. 

How listing links to post listing performance over a longer period?

That is the more interesting question? For the sake of simplicity, we will consider the IPOs that closed between Jan-21 and Mar-21 to get a picture of how these IPOs have performed in terms of post listing performance

CMP as of close of 23-Nov 2021

When we looked at the shorter time frame of 1-2 months, the relationship between the extent of subscription and the post-listing performance was quite clear. However, this relationship tends to blur as you take a longer time frame. Consider these.

• With a 117X subscription, Indigo Paints has given 53.6% returns but Home First Finance has given 51.83% in the same period despite being 26.66 times subscribed.
  
  

• Nureca with 39.9X subscription has given 283% returns while Heranba Industries with 83.29X subscription has given just 6.72% returns in the same period.
  
  

• MTAR Technologies gave 225% returns after being subscribed 200.79X but Barbeque Nation gave 206% returns despite being subscribed just 5.98 times.
  
  

• Anupam Rasayan with 44 time subscription has given 46% returns while Craftsman Automation with just 3.82X subscription gave 59% in the same period.
  
  

• Nazara gave 104% returns with 175x subscription while Stove Kraft gave 152% returns with just 18x subscription.

The moral of the story is that as the time frame gets longer the importance of oversubscription becomes less material as the fundamental company level and industry level factors play a much bigger role. It is just back to the basics.