The Indian primary market has witnessed sharply contrasting investor responses recently, highlighting the nuanced and sometimes unpredictable nature of market sentiment. Hyundai Motor India’s debut on the stock exchanges was rather lacklustre, listing at a discount despite a booming year for IPOs overall. This tepid reception, particularly from retail investors, stands in stark contrast to the enthusiastic response garnered by Waaree Energies’ IPO, which was fully subscribed on its very first day.

What explains these divergent fortunes? Several factors are at play. The sheer size of the Hyundai IPO may have induced caution amongst investors wary of mega issues. More crucially, the growth trajectories of the two companies differ significantly. Waaree Energies, riding the wave of green energy adoption, has demonstrated phenomenal revenue growth, averaging nearly 99 percent per annum over the past two fiscal years. Hyundai’s 21 percent growth in comparison appears modest, even if respectable in absolute terms.

Investor preference seems to be tilting towards companies exhibiting rapid growth, even if valuations are stretched. This short-term focus is further underscored by the observation from analysts that retail investment decisions are currently swayed by factors such as issue size and the allure of quick returns. While Hyundai offers a stable business with established consumer demand, Waaree’s high growth potential in a sunrise sector appears to have captured investor imagination, valuation concerns notwithstanding.

Bajaj Group’s Contrasting Fortunes

The contrasting sentiments are also mirrored within established financial groups. Bajaj Housing Finance, fresh from a bumper listing, reported a 21% rise in profit after tax to ₹546 crore for the September quarter. However, its stock performance has been muted, reflecting investor apprehension about shrinking interest spreads and a lower return on assets (RoA). The interest spread for Bajaj Housing has narrowed to 1.9% from 2.3% a year ago, impacting its RoA, which at 2.5% for Q2FY25, is considerably lower than its parent Bajaj Finance’s 5%. This raises questions about Bajaj Housing’s valuation premium relative to Bajaj Finance, despite the parent company’s substantial holding.

Adding to the mixed signals, Bajaj Finance itself has increased its credit cost guidance for the current financial year, citing stress in its rural business and two- and three-wheeler financing segments. While assets under management have grown robustly by 29%, and the company anticipates further growth of 27-28%, the rural B2C loan portfolio is expected to grow at a slower pace of 12-14%. This cautious outlook for rural lending and the increased credit cost guidance indicate potential headwinds for Bajaj Finance, even as it manages overall growth effectively.

Are investors becoming overly fixated on short-term growth and immediate returns, potentially overlooking the long-term value of stable businesses? This current market phase seems to reward rapid growth stories while penalising even fundamentally sound companies facing temporary challenges. The sustainability of this approach remains to be seen as market dynamics evolve.

Image Courtesy: X (Raghav Wadhwa)