ABU DHABI: The investors in Lulu shares today (Thursday) extended their ‘stamp of recognition’ to the book-building process, as the closing price matched the issue price of AED2.04, suggesting broad market approval of the IPO valuation.
Lulu shares, trading under the ticker symbol “LULU”, closed at its opening price of AED2.04 after dropping to as low as AED1.99 earlier in the day.
Lulu became the largest traded share on Abu Dhabi Securities Market (AdX) on its maiden trading day – with about 248 million shares changing hands on on the exchange before the closing bell.
The lukewarm performance of Lulu shares on their first day of trading, despite being oversubscribed 25 times, is a curious case indeed, but there are several potential explanations for why the enthusiasm seen during the IPO didn’t carry over to the open market, according to market experts.
Profit-taking
According to experts, often, IPOs with high oversubscription rates attract a mix of investors, including those who hope to make quick profits before the price may go out of hands..
Once trading begins, these investors may sell early to lock in gains, which could put initial pressure on the stock price as they test the waters on the first day.
“This kind of profit-taking can temporarily push down the share price, regardless of long-term interest,” the market expert told businessbenchmark.news during a chat..
Price discovery phase
The initial trading period for a newly listed stock is often a “price discovery” phase, when the market evaluates the company’s fundamentals and assesses whether the IPO price is justified.
Investors may want to wait and observe before buying heavily, leading to cautious trading patterns and causing shares to hover near their IPO price.
While oversubscription indicates high demand for IPO shares, it doesn’t necessarily mean that there will be equally high demand once the shares start trading publicly.
“This is especially true if a significant portion of the subscription came from institutional investors who have specific holding periods or trading strategies that don’t involve immediate post-listing activity,” explained a broker based in Abu Dhabi.
The stock’s closing price at the issue level suggests a balancing act between initial selling pressure and later buyers stepping in to bring it back up.
The result was a “net neutral” outcome, with gains offsetting losses, leading to a flat close for the day.
