The shares, which were priced at 198p, dropped as low as 189p at once stage before recovering to 191.5p.
The float has provided Monsoon founder Peter Simon with an pounds 88m windfall from the sale of 25 per cent in the company.
Mr Simon was travelling in India yesterday and was so not available to comment on his company's disappointing debut. He and his family trusts will hold the remaining 75 per cent of the company.
"The fall is entirely logical," one dealer said. I can't imagine there was that much demand for a highly priced minority holding. But it's only day one."
One retail analyst added: "It was disappointing, as we expected. Some institutions were in to make a quick turn and they are not going to get it."
Nick Bubb, retail analyst at SG Securities, said: "We were surprised that they priced so aggressively and at that level it made the risk-reward ratio pretty unfavourable."
NatWest Securities, Monsoon's financial adviser, said that turnover in the shares was low, indicating that most institutions had bought the stock for the long term.
It was Monsoon's second attempt at a stock market listing. The company abandoned its float plans in 1996 because of concerns over the ultimate ownership of a Maltese registered trust which had a controlling stake in the business.
Monsoon faced an uphill battle to come to the market because of the volatile retail market, which had been a hit by a series of disappointing Christmas trading statements, and the abandonment of its previous attempt at a listing.
NatWest said the company should be judged on its impressive record, which has seen it increase its profits in each of the last 12 years.
Monsoon, which specialises in distinctive designs featuring strong, colours and an ethnic look, has 103 outlets in the UK.
It also has 181 branches of Accessorize, which sells accessories such as bags, hats and sunglasses.
Monsoon has recruited Graham Frost, deputy chief executive of GUS home shopping, as a non-executive director. This is thought to signal a move by Monsoon into mail order.