Indian IPOs lit up after listing even as major global markets flashed red

The after-listing performance of domestic initial public offerings (IPOs) above $100 million in India has been better than in many major global markets. 

According to an analysis by Kotak Investment Banking, only 41 per cent of companies listed since 2021 (with an issue size of at least $100 million) are currently trading below their issue price.

By comparison, 59 per cent of IPOs in the US, 65 per cent in the UK, 63 per cent in China, and 64 per cent in Singapore are currently below their issue price.

In terms of after-listing performance, India is only second to Hong Kong and China. The market capitalisation-weighted absolute returns since listing for India is minus 10.6 per cent, for Hong Kong 3.2 per cent, and for China minus 5 per cent. Meanwhile, the same for US and Singapore is minus 34.5 per cent and minus 40.3 per cent, respectively. 

Industry players say if not for the decline in share prices of state-owned Life Insurance Corporation (LIC) of India and Paytm, India’s returns scorecard would have been better than Hong Kong’s.

Shares of LIC, which came out with India’s biggest-ever Rs 21,000-crore IPO, are currently 25 per cent below their issue price.

One97 Communications, which owns Paytm, is trading 74 per cent below its issue price. 

Industry players say the relatively better performance of domestic IPOs is thanks to the outperformance seen in Indian markets last year. While markets like the US and China tumbled last year, India managed to stand its ground.

The Nifty, for instance, rose 4.3 per cent in 2022, even as the S&P 500 Index of the US fell 19.7 per cent and China’s Shanghai Composite dipped 15 per cent.

India’s outperformance vis-a-vis other markets happened in a year that witnessed high inflation, rising interest rates, and a bloody war in Europe.

The global headwinds triggered massive selling by foreign portfolio investors (FPIs), who pulled out a record Rs 1.21 trillion from the Indian equity capital market (ECM). FPIs were net buyers in five of the past six years when the indices gave positive returns. However, strong domestic liquidity helped mitigate the impact of FPI outflows this time around.

Domestic institutional investors bought shares worth Rs 2.7 trillion. The flows from retail investors who invested directly into stocks further helped equities. The number of dematerialised accounts crossed 100 million this year.

S Ramesh, managing director and chief executive officer, Kotak Investment Banking, says, “India has become stronger as far as ECM activity is concerned, underpinned by encouraging participation by domestic investors.”

Leading on, analysts’ short-term returns will be the single biggest factor determining domestic investor interest in IPOs.

“All investors are looking at is how much upside they get in the short run. If the previous couple of IPOs had given them losses, they will think twice before applying for IPOs,” says Ambareesh Baliga, an independent equity analyst.