FY24: A rewarding year for investors who put their money in IPOs

The S&P BSE IPO Index, a gauge tracking the after-listing performance of newly listed companies, has risen by 69 per cent in this financial year

Financial year 2023-24 (FY24) has turned out to be a rewarding one for investors who put their money in initial public offerings (IPOs).

Eighty per cent, or 60 of the 75 companies that made their debut on the mainboard this financial year, ended their listing day with gains.

The average first-day gains stood at 28 per cent. Meanwhile, over 70 per cent, or 55 stocks, are still trading above their issue price.

Also, the shares of over 12 companies that listed following an IPO have more than doubled. If one includes the issues of small and medium enterprises (SMEs), the current market price of 70 companies is at least double that of their issue price.

Some of the standout performers on the mainboard were state-owned Indian Renewable Energy Development Agency (Ireda), which has risen 4.2 times; Signature Global, which has gained 3.5 times; Netweb Technologies, up 3.2 times; and Motisons Jewellers, which rose close to three times.

The gains can be attributed to several factors. The buoyant secondary markets, the enthusiastic participation of retail investors in IPOs, and the strong flows from institutional investors played a significant role in these gains.

In FY24, the Nifty 50 ended the session with a 29 per cent gain, and the Nifty Smallcap 100 and the Nifty Midcap 100 index gained 70 per cent and 60 per cent, respectively.

Mutual funds bought shares worth Rs 1.9 trillion while foreign portfolio investors were net buyers worth Rs 2 trillion.

The S&P BSE IPO Index, a gauge tracking the after-listing performance of newly listed companies, rose 69 per cent this financial year. The rally in the small and midcap segments has also benefited newly listed stocks because most belong to this basket.

“The rise in newly listed stocks is a function of demand and supply and grey market phenomena. With every other IPO listed at a higher price, the grey market became very active, based on expected oversubscription. We also saw retail investors increasing their participation across SME and mainboard IPOs. It was seen to be an easy money-making exercise. Selling pressure was contained due to the euphoria in the secondary markets. The markets recovered after a few days of decline, and that extended to newly listed stocks which were bought on dips,” said Deepak Jasani, head of retail research, HDFC Securities.

In March, however, the fortunes of newly listed companies took a turn for the worse as back-to-back five IPOs saw their shares slip below their issue price on the listing day.

The streak — the worst since at least 2018 — came amid a selloff in smallcap stocks.

However, returns from newly listed stocks could moderate. Concern about elevated valuations in the mid-and smallcap space and recent losses will help keep buoyancy in check, say experts.

“The IPO boom is always a result of secondary market ebullience, and it often coincides with midcaps and smallcaps outperforming the benchmark indices. Smallcaps and midcaps will give returns that are closer to the index, or they might slightly outperform the index. Unlike previous years, the number of new investors is flocking the markets, and it will ensure a certain demand for this segment,” said Chokkalingam G, founder, Equinomics.