18 Of Top 30 IPOs By Size Fail To Generate Excess Returns: Report

Mumbai: Eighteen out of the top 30 IPOs by size have failed to generate excess returns when compared to the returns from the CNX500 index, according to a report.  

Capitalmind Financial Services, a wealth management firm, said in a report that 8 of the 30 have delivered negative returns, including Reliance Power, the most high-profile, which was also the largest at the time.

Only two of the top 10 have generated returns greater than the CNX500.

Coal India just about doubled in price over 14 years but does much better with its dividends. Even then, it just about matches the index.

"Zomato is the only top 10 IPO that has delivered meaningful excess returns. The other big winners out of the top 30 are Hindustan Aeronautics, Indian Railway Finance Corp, Sona BLW Precision Forgings and ICICI Lombard," said in a report.

The report further said that five out of the top 10 IPOs are from the last two years. Most of them have done well, including Bajaj Housing Finance, Bharti Hexacom, and Brainbees (First Cry), thanks in no small measure to a favourable market.

Capitalmind Financial Services' Investments & Head of Research Anoop Vijaykumar said: “Overall, big IPOs have struggled to deliver excess returns for the investors. IPOs abound in bull markets since they get optimistic valuations and most late-stage bull markets are characterised by a few large IPOs which tend to be valued optimistically."

"When the earnings growth to justify those valuations does not materialise combined with a mean-reversion in broader markets, high-profile IPOs end up delivering lower than expected returns,” he added.

By industry, financials have traditionally dominated public market fund-raising. Even in 2024, 27 per cent of funds raised were by financials. However, consumer companies (cyclical and non-cyclical) have emerged as the largest industry category in 2024, thus far. Consumer companies have contributed 34 per cent of the funds raised in 2024, followed by financials at 27 per cent and industrials at 14 per cent.