NEW DELHI: When shares of HDFC Asset Management Company listed at a 58 per cent premium to its issue price on Monday, it joined the league of nearly four dozen companies that delivered in excess of 50 per cent listing gains in last 12 years since 2006.
But there is a catch! Such stellar listings have almost always been followed by a prolonged slump.
Only a half of such debutants (with big gains) held above their listing prices even for one week, forget one month or three months. And nearly two-thirds of such stocks traded below listing prices six months post listing, data compiled from PRIME Database showed.
History shows investors with short-term horizons have always failed to make money on such issues.
Even in the case of HDFC AMC, analysts had raised red flags before listing, even when they were bullish on business prospects.
“The market is ignoring valuations. It is very hard to justify the kind of pricing that they are willing to pay for HDFC AMC. I would not be very surprised, if you find the stock much cheaper a year down the line,” Anand Tandon, an independent analyst, told ETNow.
On Thursday, the HDFC AMC stock traded 1.6 per cent down from its listing price at Rs 1,710.
Tandon said the AMC business itself is very attractive. “AMC per se is an excellent business to be in, but at some stage, you have to look at valuation. If you like the HDFC Group so much, there is a case to be made for buying either the life insurance business, which has similar characteristics, but a much more sticky set of clients, and where valuations are perhaps cheaper than the AMC at this stage,” Tandon said.
Of the 45 listed firms that saw over 50 per cent listing gains in last 12 years, 22 traded below listing prices within a week, 25 slipped below listing price after a month, 24 after three months, and 28 after six months, data available with PRIME Database showed.
As per IPO norms, the anchor investor portion in an issue gets locked in for 30 days from the date of allotment.
Investors who want to invest freshly in the HDFC AMC stock should wait for two or three weeks for the price to rationalise, said Payal Pandya of Centrum Broking. Pandya said investors should buy the stock in a staggered manner over the long term.
Among the stocks that failed to hold on to listing gains in first week were Lokesh Machines, Meghmani Organics and Reliance Petroleum (this Mukesh Ambani company was later merged with Reliance Industries).
On the other hand, Allied Computers International, Everonn Systems, Power Grid, ICRA, Religare Enterprises, Mundra Port, and Burnpur Cement, among others, climbed further in the first week after stellar listing gains.
Stocks with strong listings tend to lose steam after six months of their debuts.
Apollo Micro Systems which listed at Rs 478 was trading at Rs 129 after six months, which was below even the issue price of Rs 275.
Shares of Edelweiss Capital, Mundra Port, Zylog Systems and Sobha also traded below listing prices in six months. However, Avenue Supermarts, Dixon Technologies and Info Edge continued to amaze investors.
Short-term trends for most mega listings became muted after sometime, but if fundamentals are strong, stocks do offer solid returns in the long run.
HDFC AMC is India’s most profitable asset management company. Managing Director Milind Barve told ET Now that his AMC had spent a significant amount of strategic effort on managing cost in a manner that the operating profit margin is maintained.
“Maintaining strong, high operating profit margin and building on the retail franchise are our secrets.
We continue to build on the high margin, high quality equity business and, most importantly, manage the costs. The high profits and higher return on equity are consequences of that,” he said.
Brokerage Nomura India last week initiated a bullish view on India’s asset management companies (AMCs), given the strong growth opportunity and improving operational metrics, which it believes are more structural and less cyclical.
“We expect a 20 per cent CAGR in AUMs over FY18-25 with improving equity mix, as the sector is one of the key beneficiaries of the rising financial savings mix, while penetration levels are still extremely low. In our view, operating leverage and improving equity mix should take care of yield pressures, while strong AUM growth should help improvement in profitability,” it said.
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