Majority of initial share sales, or IPOs, that opened in the past ten years have given negative returns despite a dramatic improvement in market sentiment and one of the biggest bull runs in the history of the Indian stock market this decade.

Data analysed by ET shows that 100 out of 164 IPOs since 2008 are trading below their issue price. Of the remaining stocks that have given positive returns, only 44 companies have given double-digit returns. The benchmark Sensex, on the other hand, has doubled during this period.

Market participants say while IPOs offer some upside to investors post listing, the rally usually fizzles out in most of the scrips. Hence, investors who tend to hold these stocks for a longer period have greater probability of making loss. Further, investment bankers are increasing pitching expensive valuations for the companies due to ample liquidity. This leaves little money on the table for IPO investors.

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“Many companies which present a rosy picture of fundamental performance prior to the IPO do not live up to the pre-IPO fundamentals and so tend to underperform post the IPO,” said Ravi Muthukrishnan, head of institutional Research at Elara Capital. “Since most companies fail to live up to the pre-listing price, investing in any IPOs may not be the right strategy. Investors should spend time to understand the present and future prospects of the company and invest only if such companies are reasonably priced,” Muthukrishnan added.

Infrastructure and real estate stocks lead the list of wealth destroyers with companies such as Gammon Infra, Shriram EPC, DB Realty, Reliance Power, Jaypee Infratech losing more than 90% of their share value since the IPO. Most of these companies listed during 2008 — the bull-market prior to Lehman crisis that eventually snowballed into a global recession. There was a strong demand for infrastructure companies before 2008 since the sector was witnessing strong growth amid foreign investment rush into India. However, after the recession the demand shrunk swiftly impacting the profitability of the infra and real estate companies.

The list also comprises some of the prominent share sales that have happened during the 2017-18 bull market. For instance stocks like CL Educate, S Chand, General Insurance Corporation (GIC), Precision Camshafts and ICICI Securities have all lost over half of their value from their IPO issue prices, data showed.

Majority of the public sector undertaking (PSU) IPOs have disappointed investors during the period. Coal India’s shares are still hovering around its issue price even nine years after the IPO. The Coal India IPO was among the biggest capital offering in recent years Similarly, Hindustan Aeronautics, Cochin Shipyard and New India Assurance are all trading below the IPO price.

“Some IPOs may have been priced aggressively, but the share performance also depends on various other parameters including industry outlook, quality of business and management. For example, the real estate and infrastructure sectors have been through a tough phase in the last 10 years, so many smaller companies’ IPOs may not have done as well in these sectors,” said Pratik Gupta, MD, Deutsche Equities India. “In the case of PSU IPOs, there have been many company-specific issues and overall sentiment for PSUs has not been great in a market environment that has favoured growth and quality over value,” said Gupta.





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