Sensex Trades on a Volatile Note; PSP Projects IPO Disappoints on Debut

Mon, 29 May 01:30 pm

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After opening the day negative, Indian share markets witnessed volatile activity and are currently trading flat with a positive bias. Sectoral indices are trading on a mixed note, with stocks in the FMCG sector and the consumer durables sector witnessing maximum buying interest. Stocks in the pharma sector and stocks in the realty sector are leading the losses.

The BSE Sensex is trading up by 50 points (up 0.2%) and the NSE Nifty is trading up by 7 points (up 0.1%). Meanwhile, the BSE Mid Cap index is trading down by 0.5%, while the BSE Small Cap index is trading down by 0.9%. The rupee is trading at 64.55 to the US$.

In news from stocks in the IPO space. Construction firm, PSP Projects made a poor debut on the stock exchanges today. PSP Projects share price opened at Rs 192, down by 7% from its issue price of Rs 210 per share.

Its public issue, which was open for subscription during May 17-19, comprised of fresh issue of 7.2 million shares and offer for sale of up to 2.8 million shares.

The company's IPO (Initial Public Offer) was oversubscribed 8.58 times -- with qualified institutional buyers (QIBs) category getting oversubscribed 8.38 times and retail investors 6.47 times. That said, the non-institutional investors portion was oversubscribed by 10.39 times.

Proceeds of the funds raised through the IPO will be used for working capital and funding capital expenditure requirements of the company.

PSP Projects, a multi-disciplinary construction firm, primarily operates in Gujarat, with 70% of its past projects executed in the state. Its clientele includes the government of Gujarat, Sabarmati River Front Development Corp. Ltd, Cadila Healthcare among others.

As of 31 March 2017, its standalone total order book stood at Rs 7,292 million which comprised 17 institutional projects, four industrial projects, four government projects and two government residential projects.

Further, subsidiaries and joint ventures have total order book of Rs 909 million and Rs 1,074 million respectively as of 31 March 2017

Despite these factors, the PSP Projects IPO opened on the bourses to a tepid response.

Two years ago, Tanushree explained why IPO stands for 'Imaginary Profits Only'. Nothing has happened since then to make us change our mind.

In fact, just a few months ago, my colleague Rohan described how the lure of quick profits has made a mockery of the entire IPO process. But he also explained how Investors can profit from IPOs.

It may have been fine if the long-terms returns were decent. But that's not the case.

Poor Returns from Big IPOs

A chart of the historical returns of the biggest IPOs is not a pretty one. We've excluded dividends but adding back the dividends won't compensate for these disastrous returns.

Mind you, these are long-term returns. These IPOs hit the market many years ago: Cairn India - December 2006, Coal India - October 2010, NHPC - August 2009, DLF - June 2007, and Reliance Power - January 2008.

The moral of this story is quite simple. A great IPO story, sold at sky high valuations, is not something to get excited about.

Moving on to news from stocks in the pharma sector. Glenmark Pharma share price is in focus today and surged over 3% in intraday trade.

Glenmark Pharma announced that it had received final approval form the US Food and Drug Administration (USFDA) approval for its for generic version of Bystolic tablets, used in treatment of hypertension.

The ANDA (Abbreviated New Drug Application) approval granted by the USFDA is for Nebivolol tablets, 2.5 mg, 5 mg, 10 mg and 20 mg, the generic version of Bystolic tablets, 2.5 mg, 5 mg, 10 mg and 20 mg of Forest Laboratories, LLC.

Glenmark added that it may be eligible for 180 days of generic drug exclusivity for Nebivolol Tablets, 2.5 mg, 5 mg, 10 mg, and 20 mg.

Citing IMS Health sales data for the 12-month period ended March 2017, the company Bystolic tablets achieved annual sales of approximately $1 billion.

Glenmark's current portfolio consists of 116 products authorised for distribution in the US market and approximately 68 ANDA's pending approval with the USFDA.

Glenmark Pharma share price had plunged by over 30% this month over tepid results and subdued growth.

Other pharma stocks have also taken a beating. Notably, Sun Pharma share price plunged over 12% in today's trade after subdued Q4 results.

The BSE Healthcare Index too, is down by 9.5% over the last month.

The Indian pharmaceutical industry has come under a lot of regulatory pressure in the past few years.

The sector has faced great volatility over the years.

We had written about the current predicament of Indian pharma companies in one of the premium editions of the 5 Minute WrapUp:

• Over the past few years, risk in the US markets has increased. The US Food and Drug Administration has become stricter on products entering US borders. Surprise inspections have increased and companies are being issued warning letters. This has impacted the business and earnings of Indian pharma players, causing major volatility for the sector.

In such a volatile environment, how can earn good returns from the stock markets?

We believe a few super investors could provide the clue. These are the guys who've beaten the markets black and blue and have an eye for multi bagger stocks irrespective of the macro environment.

With respect to which super investors to follow, our Research analysts Kunal and Rohan could be of great help courtesy their project, The Super Investors of India.

To know more about these super investors and their stock picking approach, download a free copy of -The Super Investors Of India.

For information on how to pick stocks that have the potential to deliver big returns, download our special report now!

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