A recent study of 30 large initial public offerings (IPOs) in India found that over 60% failed to outperform the broader stock market index. Only 12 of the 30 IPOs were able to provide returns higher than the Nifty 500. Furthermore, 8 IPOs delivered negative returns for investors since their listing date.
Two of the worst performing IPOs were from the power sector. Reliance Power shares are down 84% since listing in 2008. Meanwhile, Paytm shares have declined 66% from their issue price when they debuted in 2021. Both have significantly underperformed against the gains in Nifty 500 over the same period.
Among the top 10 largest IPOs by issue size, Coal India and Zomato were the only ones to offer returns exceeding the broader market. Zomato delivered meaningful excess gains for investors. Some others like Hindustan Aeronautics, Indian Railway Finance Corp and Sona BLW Precision Forgings also managed to outperform the index.
The study noted that favourable market conditions helped a few recent large IPOs like Bajaj Housing Finance, Bharti Hexacom and Brainbees (First Cry) to do relatively well since listing. However, in general big IPOs tend to receive optimistic valuations during bull markets which are then difficult to justify when earnings growth does not materialise and markets correct. This leads to underperformance compared to expectations.
Overall, the findings indicate that while some large IPOs may reward investors in the short-run, most struggle over the long-term to beat the overall stock market and deliver value for shareholders. Picking the right stocks even among big debuts remains challenging for retail investors.
