PNB Housing Finance's Rs.3000 crore IPO was India's second-largest this year, after private life insurer ICICI Prudential Life Insurance (which raised over Rs 6,000 crore).
PNB Housing Finance was oversubscribed 29.55 times during October 25-27. Public sector lender Punjab National Bank (PNB) had a 51% stake in PNB Housing Finance, which drops to around 35% post the IPO. The shares of the company, whose issue price was Rs. 775, rose as much as 16.1 percent on their market debut today. The stock opened at 860 rupees on the National Stock Exchange, and rose to a high of 900 rupees, and is currently trading at Rs. 893.
Big IPOs: Retail investors need to break the habit of jumping ship
This is as good a time as any to caution retail investors: don't jump ship too fast. One problem for retail investors is their short-term outlook towards the big IPOs. Let’s take the example of Mahanagar Gas, which debuted in June earlier this year and saw a 23% gain on listing day. If you look at the shareholding pattern, Mutual Funds and FIIs increased their stake in the company since IPO by 1.4% and 8% respectively (September filings).
By September however, three months after IPO, retail investors had halved their stake, from 10.66% to 4.69%. Investors exited the stock on listing gains despite strong profits and margins in the June quarter. Since September Mahanagar Gas has gained another 20% in price (Chart 1).
Chart 1: Mahanagar Gas’ issue price was Rs. 421 and is now trading at Rs. 721 a share.
A similar story is playing out with Advanced Enzymes, which debuted at 35% over its issue price of Rs. 896 per share. The stock is now trading 116% above its issue price (chart 2), and again, its retail investors that are reducing their stake in the stock since its IPO - Mutual Funds and FIIs have expanded their holdings.
Chart 2: AdvEnzymes has gained over 100% of its issue price since listing in June
Retail investors need to look beyond listing gains for IPOs with strong fundamentals. The short-termism among retail investors results in a loss of potential stock value.
PNB Housing Finance, the newest kid on the street, has a strong balance sheet, and had reported a growth rate of 68% in its loan book between FY 13-16. Even accounting for a more bearish housing market today, the company is likely to see double digit growth in the coming quarters, with analysts of the housing finance space predicting a 20-25% expansion in the coming periods.
The housing finance space has low penetration, and companies including PNB Housing are now expanding into the West and the South, with a focus on smaller loan sizes to expand the customer base. This large under-penetrated housing finance market is likely to keep PNB Housing’s balance sheet well in the green.
For companies with strong fundamentals, it is the announcements and quarterly result events that drive real stock price gains, rather than the listing momentum. A message to retail investors would be - hold off from the itchy fingers, and keep the faith in the good ones.
