Shares opened at HKD16.60 (USD2.12) in Hong Kong -- down from their IPO price of HKD17.00 -- and dived 3.8 percent in morning trading, falling as much as 5.9 percent to HKD16 at one point.
Investors felt a lack of confidence even before public trading started, selling their shares at a discount on the unofficial "grey market" last week, Bloomberg News reported.
Despite being one of the most anticipated Chinese technology IPOs this year, Xiaomi saw a disappointing valuation of USD54 billion, well below its ambitious USD100 billion target.
Founded in 2010 by entrepreneur Lei Jun, Xiaomi has grown from a start-up in Zhongguancun -- China's "Silicon Valley" -- to become the world's fourth-biggest smartphone vendor at the end of last year, according to International Data Corp.
Lei has described Xiaomi as a "new species" of company with what he describes as a "triathlon" business model combining hardware, internet and e-commerce services. Its products range from smart home gadgets like air purifiers to non-tech items such as pillows and ballpoint pens.
A delay in Xiaomi's plan to launch new so-called Chinese Depository Receipts (CDRs) in Shanghai as well as doubts about the sustainability of its business model were also among reasons for the lower valuation, analysts said.
Chinese authorities devised the CDR programme, under which homegrown companies listed abroad can simultaneously list at home, after watching technology heavyweights Alibaba and Baidu launch on Wall Street.
The plan aims to help development of China's still relatively immature and volatile share markets and allow domestic investors to invest in the country's big tech champions.
Beijing-based Xiaomi is the first firm in Hong Kong to trade with a controversial dual-class structure since listing rules were overhauled to allow weighted voting rights for different sets of shareholders.
Analysts say Hong Kong's technology listings have struggled in recent months, deflating investor interest.
"Nothing can help because the sentiment is no good at the moment. Most of the IPOs listed this year were not that profitable," said Dickie Wong of Kingston Securities, adding he does not see any "upsides" until the CDR listing which would boost interest. (AFP)