FY22, a mixed bag for IPO investors; 19 companies trading below issue price

Only half of the 52 firms that got listed managed to give Nifty-beating returns

The financial year 2021-22 was a year of mixed returns for those investing in initial public offerings (IPOs).

Only half of the 52 companies that were listed during the year managed to generate Nifty-beating returns; 19 are currently trading below their IPO price, while four are trading at a 50 per cent discount to the issue price.

The benchmark Nifty50 rose 19 per cent in FY22, after climbing 70 per cent in the preceding financial year. This up-move in the secondary market provided a fertile ground for IPOs and a record Rs 1.19 trillion was moped up.

Five stocks — Sigachi Industries, Paras Defence and Space Technologies, Latent View Analytics, Tatva Chintan Pharma, and GR InfraProjects — saw their stocks ending with double their issue price on their listing day.

The mixed performance by freshly listed stocks came against the backdrop of high volatility in the secondary market, particularly during the latter part of the year. The US Federal Reserve’s hawkish turn, sell-off in global technology stocks, and the war between Russia and Ukraine were global events that weighed on the domestic IPO markets.

Of the 15 stocks that ended with losses on Day 1, One97 Communications (Paytm) and RateGain Travel Technologies fared the worst by finishing at a discount of 27 per cent and 15 per cent, respectively, to their issue price.

The highlight of the year was the listing of new-age companies — such as Zomato, PB Fintech, Nykaa, and Paytm. While most of them did well, the excitement fizzled earlier this year as raising bond yields in the US turned investors wary of loss-making companies.

"There was a lot of hype for new-age companies but many of them corrected sharply either on the listing day or subsequently. There was a clear divide regarding these IPOs. Millennials were bullish on these stocks. But in terms of their performance, these companies fell short. The lesson for retail investors is that when it comes to secondary market investments, there should be positive cash flows or visibility of cash flow in the future," said Ambareesh Baliga, an independent analyst.

Analysts said the true beneficiaries of this IPO mania were private equity and venture capital (PE/VC) funds, which managed to liquidate their holdings at attractive valuations.

“As bull markets bloom, euphoria takes over the primary markets, making it an optimal opportunity for promoters and PE/VC investors to demand extravagant valuations for their companies. Irrationality reigns because of the greed for quick money, and all investors rush in to grab a piece of the pie regardless of the price. Investors fail to grasp that when the circumstances reverse, these companies underperform considerably,” said Yesha Shah, head of equity research, Samco Securities.

Market players expect the IPO momentum to continue in FY23, as well, with large companies such as LIC, SBI Mutual Fund, Delhivery and Pharmeasy planning to go public.

However, the exuberance seen last financial year could be missing.

“If there is one takeaway that retail investors should keep in mind from FY22, it should be to resist such hysteria. They should analyse each IPO on its own strengths, keeping in mind that overpriced ones will most likely be available at a lower price once the frenzy wears off,” said Shah.