India IPO Mania
Resourceful Automobile started trading on the Indian stock market last Thursday, 29th August. This motorcycle dealership has just two dealerships and eight employees. The company raised Rp120mn ($1.4mn) as the IPO was oversubscribed by more than 400 times. The company is an authorised dealer for Yamaha Motor Co.
The retail driven Indian market has performed extremely well. Foreign investors have also been significant buyers as India’s index weighting continues to climb. Over the past four years to the end of August the MSCI Indian Index rose 110% which compares to the miserly 11.7% and 5.9% returns of the MSCI Emerging Market and the MSCI Asia ex Japan indices. On both, a price to book and a forward price to earnings basis, India is more than twice as expensive as the emerging market universe.
Can this be justified? Many would say yes. The demographic profile of India is a powerful tailwind for growth compared to others in the Asian region while the rollout of infrastructure projects continues unabated despite the weaker showing of the Modi administration in the recent election.
Despite being over 400 times oversubscribed the stock price of Resourceful Automobile has already fallen below the IPO price. It closed today (the fourth day of trading) at Rp112.95 (IPO price Rp117) on turnover of just US$13,000.
Out of the more than 200 companies that have listed in India this year, some two-thirds have raised less than $10mn according to Bloomberg. A frothy IPO market is always food for thought.
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