There’s more to IPOs than listing day pop or fizzle

For retail investors, the appeal for IPOs is on the rise given the lure of strong listing gains as reported in the case of some of the recent issues. However, caution is required especially in times of high market volatility. The key question is how many companies can retain their listing gains and add to them as time passes. According to an ETIG analysis of the main board companies that were listed since the beginning of 2020, nearly half of the companies which posted listing gains of 50% and above failed to keep up the tempo.

There were 48 companies in the sample that earned listing gains of 50% and more. Of this, the returns of 23 companies as of September 30, 2024 were below their respective listing gains. It means nearly half of them were not able to retain their listing gains. The return period varies from company to company and depends upon the listing date. September 30 was taken as a cut off date to avoid the effect of heightened market volatility on stock returns in the first week of October. The benchmark indices have lost over 3% in the first four days of October.

The analysis also shows that not all is lost for the companies that fail to generate listing gains. In the sample, 36 out of 53 companies or two out of every three companies that failed to earn listing gains, were able to generate returns as of September 30, 2024. For instance, among the recent IPOs that were either listed below or at the offer price, Aadhar Housing Finance, EPACK Durable, Ola Electric Mobility, and Zaggle Prepaid Ocean Services gained in subsequent trades.

In 2024 so far, companies including Vibhor Steel Tubes, BLS E-Services, Premier Energies, Bajaj Housing Finance, and Unicommerce eSolutions have posted triple digit listing gains. IPOs serve as an effective channel for investors to seek exposure to either lesser known businesses or to companies that have been privately held. Of the 250 companies in the sample that have been listed since January 2020, 135 or 54% have earned 50% or more returns and 84 or 33% have earned triple digit returns.