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IPO Market 2022: Not all issues gave comparable returns to boom seen in secondary market

Madan Sabnavis | Updated on: Tuesday, April 05, 2022, 10:00 PM IST

While it was a boom time, around 50% were trading at discount against the listed price, while almost 39% of the 91 issues were at a discount to the issue price.
/Representational image |
While it was a boom time, around 50% were trading at discount against the listed price, while almost 39% of the 91 issues were at a discount to the issue price. /Representational image |
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The IPO market was a big success story of FY'22 with a plethora of issuances as companies rushed in to raise funds. A rising Sensex helped the cause as investors were optimistic in their outlook. There was a slowdown for sure when the war like environment developed in the beginning of February which also made the government defer the big LIC disinvestment.

There were 127 issuances for Rs 1.14 lakh crore. Of these issuances data is available on the prices for 91 companies which accounted for Rs 1.13 lakh crore. While the issuances were large and several stocks witnessed phenomenal gains in this period, it was not uniformly spread.

The table below gives a frequency distribution of the percentage gain or fall from the issue price for these 91 companies.

Frequency distribution of companies based on price gain/loss as of March end over issue price

Frequency distribution of companies based on price gain/loss as of March end over issue price | BOB Research

As can be seen above almost 40 of the issues gave investors negative returns over the issue price, while another 17 percent less than 10 percent. Attention clearly is on the big gainers and hence more than a quarter (27.5 percent) gave returns of above 50 percent, which is impressive. The conclusion that can be drawn is that not all issues gave comparable returns to the boom seen in the secondary market. The Sensex had increased from 49,509 in March 2021 to 58,568 in March 2022, which is an increase of 18 percent. Interestingly some of the companies made a splash on the day of listing but could not maintain the momentum subsequently and delivered lower returns as at the end of March 2022.

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Frequency distribution of companies by change in price in March end over listing price

Frequency distribution of companies by change in price in March end over listing price | Source: BOB Research

When looked at post listing, half the companies delivered negative returns while another 21percent less than 10 percent. A little less than a quarter actually gave returns of above the Sensex (thought he base for calculating returns would vary for companies depending on their listing).

The conclusion that may be drawn is that the IPO market though robust did not give equivalent returns to all companies. While some gained a lot on the day of listing 20 companies ended the day at a discount. The timing was however critical as during the phase when the Sensex crossed 60,000 the IPOs too benefited substantially.

In terms of spread across industries, the IPOs were fairly even as the table below shows.

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(Madan Sabnavis is Chief Economist, Bank of Baroda)

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Published on: Tuesday, April 05, 2022, 10:00 PM IST