IPO buzz: 18 out of the top 30 initial public offerings (IPOs) by size did not yield excess returns compared to the returns from the Nifty 500 index, said Bengaluru-based Capitalmind Financial Services’s in its recent report. A study on IPOs was carried out by the Bengaluru-based wealth management firm, which is led by Deepak Shenoy.

According to the study, these IPOs include Life Insurance Corp of India, One 97 Communications Ltd, Reliance Power Ltd, General Insurance Corp of India, SBI Cards & Payment Services Ltd, New India Assurance Co Ltd, HDFC Life Insurance Co Ltd, SBI Life Insurance Co Ltd, Gland Pharma Ltd, Star Health & Allied Insurance Co Ltd, ICICI Prudential Life Insurance Co Ltd, NHPC Ltd, NTPC Ltd, FSN E-Commerce Ventures Ltd, Delhivery Ltd, Nuvoco Vistas Corp Ltd, Bandhan Bank Ltd, and Indus Towers Ltd.

Out of the 30 companies, 8 have shown negative returns, with Reliance Power being the most prominent among them, and also the largest at that time.

Anoop Vijaykumar, Investments & Head of Research at Capitalmind Financial Services, pointed out that in general, large IPOs have faced challenges in providing additional returns for investors. During bullish periods, there is an abundance of IPOs because they receive positive valuations, and towards the end of bull markets, a few major IPOs tend to receive optimistic valuations.

“When the earnings growth to justify those valuations does not materialise combined with a mean-reversion in broader markets, high-profile IPOs end up delivering lower than expected returns,” added Vijaykumar.

The report also highlighted that this includes the impact of dividends and assuming that they were reinvested in the stock.

Out of the top 10, 2 companies have achieved returns higher than those of the Nifty 500. Over a 14-year period, Coal India’s stock price nearly doubled, but its performance significantly improves when factoring in dividends. Nevertheless, it only manages to keep pace with the index.

Outperforming Stocks

Zomato stands out as the sole top 10 IPO to have generated significant surplus returns. Hindustan Aeronautics, Indian Railway Finance Corp, Sona BLW Precision Forgings, and ICICI Lombard are the other major beneficiaries among the top 30.

In the past two years, five of the top 10 IPOs have been launched, with several of them showing strong performance, including Bajaj Housing Finance, Bharti Hexacom, and Brainbees (First Cry), mainly because of favourable market conditions.

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