There is nothing to be particularly shocked about Tata Capital stocks declining 2.4 percent below the company’s IPO issue price of Rs. 326 per share a day after its debut in intraday trade on the Bombay Stock Exchange. Tata Capital, a Tata Sons subsidiary, made a flat debut on Dalal Street on Monday, October 13. In fact, eight of the 12 mainboard IPOs that hit the market this month were trading below their issue price. As of this month, numerous companies in the Indian market that went public in 2024 and 2025 are trading well below their initial public offering (IPO) price.
As usual this trend is attributed to market volatility, investor caution, and, in many cases, aggressive IPO pricing. Few can blame ordinary investors if they point fingers at the country’s securities and exchange board (SEBI) for failing in its most important function of protecting investors while promoting the development of the securities market, and regulating its activities.
Between January and September, this year, a total of 56 IPOs raised Rs 75,384 crore as against Rs 64,011 crore raised in the same period of last year. The current year’s major deals include HDB Financial Services (Rs 12,500 crore), Hexaware Technologies (Rs 8,750 crore), and NSDL (Rs 4,010 crore). The IPO market is booming in India. In the last 12 months, new share issues by companies raised nearly Rs, 1.7 lakh crore.
The IPO market is experiencing a remarkable surge, despite a generally struggling broader stock market. This is a matter of concern. Punters are jumping on the bandwagon. The bettors are following the crowd rather than making an independent choice based on personal research or conviction. The sentiment is generally pejorative, suggesting that these followers are driven by opportunism rather than genuine belief. In financial markets, this herd-like behaviour can lead to price bubbles, where the price of a security rises simply because many investors are buying it, attracting even more buyers.
Shares of a number of companies that recently went public are now trading at a big discount, varying from 50 percent as in the case of Gurunanak Agri to Solarworld Energy (10 percent). Others include Glottis (42 percent down from its issue price), BMW Ventures (38 percent down), Chiraharit (38 percent down), Om Freight Forward (28 percent), NSB BPO (21 percent), Mittal Sections (28 percent), Ganesh Consumer (12 percent). The share price of the much-hyped Joro Institute was down 24 percent from its issue price of Rs. 890. At the same time, at least a dozen companies that had their IPOs in 2024 continue to underperform through the current year.
The current market price of the Capital Small Finance Bank’s shares is over 32 percent down from the issue price of Rs.468. Carraro India’s shares are down 49 percent from the company’s IPO price of Rs.704. The shares of Popular Vehicles and Services are now down 58 percent from the company’s IPO price of Rs.295. Bazar Style’s shares are down 42 percent from its IPO price of Rs.389. The Godavari Biorefineries’ stocks are down around 51 percent from the company’s IPO price of Rs.352. The market price of Western Carriers (India) is 45 percent down from its IPO price of Rs.172. Tolins Tyres’ shares are down 42 percent from its IPO price of Rs.226. Other such underperformers in the market include Akme Fintrade India, Ecos India Mobility Hospitality, Saraswati Saree Depot, and Norther ARC Capital. Few will disagree that the stocks of these companies were highly overvalued at the time of making the IPO.
Unfortunately, the underperformance of many early 2025 listings failed to influence investors to become more selective and valuation-conscious. SEBI does not directly control or fix the price of an Initial Public Offering. Maybe, it believes that the market, based on a book-building process, should determine the correct price despite the fact that SEBI had time and again implemented regulations to ensure fair pricing and protect investors from potentially overpriced IPOs. SEBI’s regulations are meant to promote fair IPO pricing through a disclosure-based regime.
Most IPOs in India use the book-building process, where the final share price is determined based on the bids received from institutional and retail investors within a pre-announced price band. Companies are supposed to provide extensive information in their Draft Red Herring Prospectus (DRHP), including business operations, financial health, risk factors, and pricing methodology, allowing investors to make informed decisions. SEBI mandates lock-in periods for promoters, significant shareholders, and anchor investors. This prevents early exits that could cause sharp price drops after listing. As of 2025, a portion of anchor investor shares must be locked in for 90 days. The regulator is also supposed to crack down on inflated IPO subscription figures.
However, many feel that SEBI should more directly control IPO pricing. SEBI’s direct intervention could shield inexperienced retail investors from “faddish” or overly hyped IPOs that list at unsustainable valuations, like the Paytm IPO in 2021. It may be time to also hold merchant bankers accountable for overvaluation as they are heavily involved in such an exercise. Stricter price controls could put pressure on merchant bankers to be more realistic rather than setting aggressive prices to secure an exit for early investors.
Many discreet investors, who take a long-term approach to investing focussed on sustainable growth and the preservation of wealth across generations, rather than focusing on short-term market fluctuations, feel that Indian stock prices have little link with companies’ financial performance. A company’s financial health is a crucial determinant of its stock price over time. The securities watchdog would do well to be more focussed on enhanced disclosure and investor protection mechanisms instead of a “hands-off” approach to price-setting. (IPA Service)
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