IPOs beat benchmark indices on returns in 2016

60% of the firms with public offers yielded double-digit returns

The shares of 72% of the companies that came out with initial public offerings (IPOs) this year have outperformed the benchmark indices in the secondary markets, giving the investors a good return.

While the benchmark indices rose marginally during the year, 60% of the companies that came out with IPOs in 2016 yielded double-digit returns.

The shares of eight such companies are currently trading at more than 50% premium to their issue prices, the data of the National Stock Exchange (NSE) show. Of the 25 companies that were listed in the year, the shares of 18 companies have given positive returns while the rest are trading lower than their issue prices.

On the other hand, the benchmark Sensex yielded a 1.95% return while the broader mid-cap and small-cap indices went up by eight% and 1.7%, respectively. Market participants say this outperformance was on account of the high-quality IPOs.

“The year 2016 was a positive year for IPOs as we saw companies across various sectors listing. All classes of investors including institutions, high net-worth individuals and retail participated. One of the key reasons behind this was that bankers got the pricing right, leaving enough money on the table for investors,” said V Jayashankar, head of equity capital markets, Kotak Investment Banking.

Companies from relatively new sectors hit the primary markets this year. India’s first e-commerce company, Infibeam, listed. Ujjivan Financial Services and Equitas Holdings, both of which went public this year, are micro-finance lenders that received the nod from the Reserve Bank of India to set up small finance banks.

Quess Corp and Teamlease were the first two human resource management companies to list. The year also saw the listing of RBL Bank, the first private sector bank IPO in nearly a decade. Similarly, ICICI Prudential Life also came out with an IPO, the first life insurance player to do so.

During the year, Rs 25,163 crore was raised through IPOs. However, more than two-thirds of this amount was on account of partial exits made by private equity (PE) investors and a little went towards fresh capital.

“This has worked in favour of the IPOs as the existence of PE investors in the companies had given the confidence to various investors, especially high net worth and retail investors, to participate in the offerings. A lot of them were PE-driven companies with good financials and a positive outlook,” said Prithvi Haldea, chairman, Prime Database.

Infibeam, Advanced Enzyme and Quess Corporation are among the best-performing new entrants as their shares have soared more than 100% since the listing.

Some of the big-ticket issues like ICICI Prudential Life Insurance, which was the largest IPO in the markets since the one of Coal India, and L&T Technologies have not given good returns. The shares of ICICI Prudential have lost nearly 10 per cent since listing.

Varun Beverages is among the worst-performing stocks in the pack with a drop of more than 14%. The Gurgaon-based Pepsi bottler had raised Rs 1,112 crore through the public offering.