Did Your MF Schemes Participate in the IPO Rush?
The year 2020 turned out to be a great year for the equity market despite witnessing one of the worst sell-off phases in recent times. Tracking the smart recovery of the market from the COVID-induced crash, shares of companies that debuted on exchanges this year benefitted immensely.
SBI Cards and Payment Services was the first Initial Public Offering (IPOs) of the year that retail and institutional investors had heavily subscribed. However, its debut coincided with the market crash and the stock listed at a discount to its issue price.
As a result, companies that had lined up its IPOs this year waited on the sidelines for the market to recover.
Market sentiments improved significantly from July when the government gradually started to lift lockdown restrictions and announced various stimulus measures to bring economic activities back on the growth track.
Since then around 15 companies launched IPOs to raise funds. Amid positive market trends and increasing participation from first-time investors coupled with good growth prospects of the companies, many of these stocks made a stellar debut (gaining 50% or more on listing day).
Table 1: Stocks that made a stellar debut on exchanges
| Company |
Premium over issue price |
| Chemcon Speciality Chemicals |
115% |
| Happiest Minds Technologies |
111% |
| Route Mobile |
105% |
| Burger King |
88% |
| Mrs Bector's Food Specialities |
74% |
| Rossari Biotech |
57% |
| Mazagaon Dock |
48% |
| CAMS |
15% |
(Source: nseindia.com)
Mutual fund houses too participated in the IPO frenzy and included these stocks in the portfolio of their various schemes. SBI Cards and Payment Services, Gland Pharma, CAMS, Happiest Mind Technologies, Rossari Biotech, and UTI AMC were some of the IPOs that stood out as fund favourites.
Table 2: Mutual funds’ participation in the IPO rush exchanges
| Company Name |
Holding Scheme Count |
Maximum % Holding |
Minimum % Holding |
No of % Holding < 1 |
No of % Holding between 1 & 5 |
| SBI Cards And Payment Services Ltd. |
116 |
3.90 |
0.00 |
62 |
54 |
| Gland Pharma Ltd. |
113 |
6.73 |
0.10 |
53 |
56 |
| Computer Age Management Services Ltd. |
66 |
4.39 |
0.05 |
49 |
17 |
| UTI Asset Management Company Ltd. |
56 |
3.18 |
0.08 |
36 |
20 |
| Rossari Biotech Ltd. |
41 |
4.43 |
0.35 |
15 |
26 |
| Happiest Minds Technologies Ltd. |
40 |
2.37 |
0.00 |
27 |
13 |
| Route Mobile Ltd. |
19 |
11.81 |
0.18 |
9 |
8 |
| Chemcon Speciality Chemicals Ltd. |
8 |
5.85 |
0.16 |
4 |
3 |
| Mazagon Dock Shipbuilders Ltd. |
5 |
3.03 |
0.01 |
4 |
1 |
Data as on November 30, 2020
(Source: ACE MF)
Similar to IPOs launched up until November, mutual funds were anchor investors for Burger King and Mrs Bector's Food that got listed on exchanges in the month of December.
Notably, most of the IPOs that were launched during the year belonged to pandemic resilient sectors such as Technology, Pharma, and Consumption. Mutual funds lapped up many shares from these sectors amid the pandemic and benefitted immensely. On the other hand, the industry's overweight position in the financial services sector did not turn out to be very rewarding.
Will these bets make the respective schemes worthwhile?
A stellar IPO listing does not always reward investors over the long term and we often observe that gains fizzle out over time when investors book profits. Similarly, a stock that lists at discount to its issue price does not mean it lacks potential because stocks can recover losses in time and reward investors.
While it is important for mutual funds to look for emerging opportunities in a particular stock/sector/theme, as an investor, one should avoid investing in schemes that frequently takes momentum bets to boost short-term gains. Frequent churning adds to the volatility of the portfolio and increases portfolio expenses, which in turn can impact overall returns.
Ideally, one should invest in schemes that focus on stability of business operations, competitive advantage, sustainability of business model, and healthy financial performance, among other parameters while selecting stocks for the portfolio. The scheme should hold the kind of quality stocks with conviction until their full potential has been realized, so it can provide investors with optimum long-term growth of capital.
Moreover, the schemes should not be concentrated to a particular set of stocks and/or sectors, unless it is the stated investment mandate.
Portfolio characteristics of schemes are as important as the performance record and investors must give these aspects adequate weightage while selecting worthy schemes for your portfolio.
What should investors do?
The equity markets are at an all-time high. During market rallies even some not-so-worthy funds can make it to the top of the performance charts. However, such funds could disappoint when the market heads towards a downward trend.
Instead, consider fundamentally sound funds that are driven by stringent systems and processes and do not put investor's money at unnecessary risk. Invest in funds that deliver consistent returns over a 5-7-year period compared to the benchmark and category peers without exposing investors to unreasonable risk.
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Warm Regards,
Divya Grover
Research Analyst
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