The year 2020-21 has been a tumultuous one, to say the least. On March 20, 2021, when the Nifty had touched a low of 7,610, it would have been tough to even imagine the kind of rally that we got to see over the last year. But it did happen. What is more surprising is that even in the midst of all this uncertainty, the IPO market has done very well, any which way you look at it. Oversubscriptions to IPOs have been phenomenal, the listings have been robust and more importantly, the prices of these IPOs have held well after the listing.
25 IPOs in a little over 7 months
OK, you can argue that there was a full year for the IPOs but that was not the case. Fiscal 2021 began in the midst of the gloom of the lockdowns and the imminent slowdown. However, investors substantially kept their faith inequities. Not only did the retail and the non-institutional portion see phenomenal oversubscription, but the retail spread of IPOs was also visible from the surge in Demat accounts. If you look at the surge in Demat accounts with the NSDL and CDSL over the last 1 year, then the Demat accounts have grown from around 3.7 crores to 4.3 crores and that has largely driven the retail appetite in direct equities. IPOs have been a classic onboarding point for these investors.
While there were a total of 25 IPOs during the year so far that are already listed, and there more to come by the end of March, what is interesting is that 22 out of the 25 IPOs are currently quoting above their issue price. The table below captures the gist of the super performers among the IPOs which have given a return of more than 100% since listing.
Data Source: NSE (Closing price as of 05-Mar)
The table captures the 5 best performers in terms of returns out of the 25 IPOs in the current fiscal year to date that is already listed. That is a whopping 88% success ratio, so your chances of going wrong on IPOs are very low. Apart from these 5 super performers, there are another 13 IPOs that have yielded returns in excess of 30% in a short span of time. That gives you a quick idea of how the IPOs have done in the Indian context in the midst of a tough year.
What was the driver of post-listing returns among IPOs in FY21?
Out of the 25 IPOs, the 3 companies that have given negative returns over the IPO price are Antony Waste Handling, IRFC, and Brookefield India REIT. The losses in these cases are relatively small and nothing to really panic about. Let us look at the two factors that really drove super returns in IPOs.
The first factor was novelty and futuristic ideas. Route Mobile was the star performer with returns of 385% largely because it operates in the higher end of the telecom space. Ashok Soota has the formidable reputation of being at the helm of Wipro and then creating Mindtree from scratch. Not surprisingly, his Happiest Minds Technologies was the next best performer with 224% returns. A 95% digital footprint is hard to resist.
IPOs like Rossari Biotech, Likhitha, and Burger King returned over 100% on the back of decent valuations and competitive pricing. Investors saw niche value in IPOs like Gland Pharma, Chemcon, Equitas SFB, etc. The list can go on.
What if you had treated IPOs like a passive fund?
One advantage is that IPOs are a kind of pull approach. You don’t need to time them; you don’t worry about the market levels and you don’t worry too much about management background as only limited information is available. Let us look at the returns if you had just passively put a fixed sum in each of the IPOs during the current financial year.
The 25 IPOs to date in FY21 would have yielded 43.2% returns in FY21 if you just allocated money to each IPO. If you look at this figure, you would surely look at IPOs more charitably.
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