- विज्ञापन -
New Delhi: If you’re thinking about investing in Indian Initial Public Offerings, or IPOs, you might be wondering if it’s a good strategy for building wealth. The answer depends on your financial goals, risk tolerance, and how long you plan to stay invested. Let’s dive into the pros, cons, and historical trends of investing in Indian IPOs, so you can make an informed decision.
First, let’s take a look at some of the potential benefits of investing in IPOs. For starters, IPOs often offer the chance for high initial gains. Some IPOs experience substantial price surges on their listing day, giving early investors the opportunity to make quick profits. But that’s not all. A small subset of IPOs from fundamentally strong companies have turned into multibaggers, offering long-term growth and substantial wealth over time.
Another benefit is that IPOs are often launched during bullish market conditions, which can give early performance a nice boost. But, of course, it’s not all sunshine and rainbows. There are also significant risks involved.
One of the key risks is underperformance. Studies and market data show that a significant portion of IPOs fail to outperform broader market indices, like the Nifty 50, over the long term. In fact, research from the last 20 years reveals that more than 65% of Indian IPOs have underperformed the Nifty 50 index.
Another challenge is volatility. IPOs can be subject to hype, leading to overvaluation at launch, and a correction can follow soon after. Plus, there’s selection bias—while success stories are highly publicized, many IPOs fail to deliver, and some even get delisted.
Let’s take a look at how Indian IPOs have performed over the past two decades.
Research suggests that over 65% of Indian IPOs have underperformed the Nifty 50 index. A study from May 2022 found that:
1. 27% of companies were either delisted or merged.
2. 38% of IPOs delivered negative returns.
3. 18% provided returns comparable to fixed deposits (5–7% annually).
4. Only 16% of IPOs turned into multibaggers.
Despite the general trend, some IPOs have achieved extraordinary returns. Take PI Industries for example, which saw a 6,48,500% return, or Bajaj Finance, which delivered a 1,33,600% return over 20 years. However, these are outliers.
The performance of IPOs also varies with market cycles. For instance, during the 2002–2007 bull market, 11% of IPOs became multibaggers, whereas the post-2008 period saw fewer standout performers.
In the short term, IPOs often experience a surge in prices due to high investor enthusiasm and market hype. For instance, in 2021, IPOs like Zomato and Nykaa saw significant listing-day gains, with Nykaa jumping 80% on the first day. However, Paytm experienced a 9% loss on debut, highlighting the risks.
The story is however different over the long haul. According to research:
1. After one year, 60% of IPOs traded below their issue price.
2. After three years, only about 35% outperformed the Nifty 50.
3. Long-term success depends on the company’s fundamentals, market conditions, and sector growth.
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To back up our points, here are some insights from studies and research on Indian IPOs:
• Sehgal and Sinha (2013): Their study on IPOs from 1992-2006 found that the average listing-day return was 17.4%, reflecting significant underpricing, but returns varied widely.
• Chittorgarh.com (2021 Boom): Analysis from Chittorgarh.com shows that in 2021, IPOs like Zomato, Nykaa, and Paytm delivered short-term gains, but Paytm notably underperformed.
• PwC India IPO Report (2019): This report found that 35% of IPOs from 2009–2018 outperformed the Nifty 50 after 3 years, with sectors like consumer goods and financial services showing better returns.
• Prime Database Analysis (2004–2022): Over 435 IPOs, 27% were delisted, 38% delivered negative returns, but 16% turned into multibaggers.
Now let’s talk about the Key Takeaways
In the Short-Term: IPOs often offer listing-day gains, but these aren’t guaranteed. A strong market and high subscription levels can lead to positive returns, but there’s always the risk of significant losses, as seen with Paytm.
In the Long-Term: The majority of IPOs tend to underperform market indices over the long term. However, a select few can generate exceptional returns, like Bajaj Finance, which grew at a 50% Compound Annual Growth Rate over 20 years.
Given the high risk and mixed performance of IPOs, relying solely on IPOs for growth could be dangerous. A diversified portfolio that includes established stocks or index funds can balance the risk and potential reward.
To conclude, Investing in Indian IPOs is a high-risk, high-reward strategy. While many IPOs underperform, a small fraction of strong performers can provide life-changing wealth. If you’re willing to research deeply, understand market cycles, and stomach volatility, selective IPO investing could enhance your portfolio. However, for more consistent returns, looking at broader market indices like the Nifty 50, which has delivered a 12–16% Compound Annual Growth Rate over 20 years, might be a safer bet.
