Among the plethora of opportunities to invest in newly-listed companies, investors have made more money in companies from consumption-led sectors not only on debut but also over a longer period of time.
Of the 22 big listings that took place in 2017, nine firms are trading substantially above their offer prices (returns of over 20 per cent) while four are trading just above their offer prices but giving return of between 15 per cent and 20 per cent. Most of these 13 companies belong to consumption-related sectors including fast-moving consumer goods, consumer durables, financial services and housing.
Majority of these companies namely Prataap Snacks, Capacit’e Infraprojects, Dixon Technologies (India), Cochin Shipyard and CDSL, among others, have been performing well since debut.
Given the robust monthly sales data of automobile firms, the consumption story seems intact and have been doing better than the cyclical space despite past challenges such as demonetisation and slowdown in the rural economy. Consumption-driven sectors, which were impacted by de-stocking due to implementation of GST, are expected to come back to normal.
India’s largest rating agency, Crisil estimates revenues of consumption-linked sectors, with the exception of telecom, to grow at a healthy 12 per cent in September quarter with re-stocking taking place after the post GST regime.
Another reason for consumption companies’ IPOs doing well is that most existing listed companies factor into their robust growth stories of two-three financial years. According to recent Kotak Institutional Equities report, valuation of most consumer companies (17 out of 24) for FY19 and FY20 ranges between 30-55 times and 25-40 times respectively.
Similarly non-banking financial companies trade at a higher valuation or at par with even large private banks. Reputed real estate companies are also not available cheap. Thus, there seems to be value buying or churning of portfolio happening in some companies leading to huge oversubscription and in turn strong debuts.
Ample liquidity in the system reflected by monthly flows into mutual funds is also a factor for strong demand for consumption companies. In other words, too much money chasing few growth-oriented sectors. There are also some interesting listings such as BSE and CDSL, which drew investor interest.
Companies, which have not done well post listing include the ones in education, telecom, infrastructure and insurance sectors.