FY21 will best be remembered as the year when the Nifty and the Sensex did stage an incredible 100% rally from the lows of the pandemic. Let us not forget another asset class in the capital market that did extremely in FY21; the IPOs.
A shaky start to the IPO year
It was an extremely dull start to FY21 as COVID-19 had gripped the economy by the start of 2020. The SBI Cards IPO did manage to sail through in Mar-20 but that was about the only major IPO ahead of a major lull in the IPO market. The real action in IPOs only began in August and gathered a lot of steam in the third and fourth quarters of FY21. What really marked FY21 was that most of the IPOs got a tremendous response from all classes of investors and all this happened without the government really disinvesting in a significant manner.
How did IPOs perform in FY21?
As we approach the end of FY21, it is interesting to look back at the 25 IPOs that got listed on the mainboard in FY21 from SBI Cards to Heranba, the most recent listing. Only 3 IPOs; Antony Waste, IRFC, and Brookefield REIT are trading at a small discount to the issue price. The remaining 22 IPOs are all at a premium to their issue prices with returns going as high as 375% in the case of Route Mobile and over 100% returns in 3 IPOs and over 40% returns in more than 10 IPOs to date in FY21.
Futuristic stories prevailed
SBI Cards and the Yes Bank FPO may have been the biggest public issues in FY21, but the real performance post IPO listing came from stocks that are more of futuristic and emerging stories. Let us look at some examples. Route Mobile and Happiest Minds were seen as very interesting plays on emerging digital technologies. Rossari and Heranba were seen as an attempt by India to get over the near domination that China has enjoyed in specialty chemicals and are reflective of the changing global mindset today. Burger King was a star IPO listing as it was seen as a niche play on the QSR business. Even unglamorous stocks like Likhitha, Mazagon, and Equitas SFB gained on attractive valuations.
IPOs as an asset class in FY21
Were IPOs as an asset class attractive in FY21? One way to look at it is if you had just passively bought into every IPO that came out in FY21. For the 25 IPOs in FY21, the starting market cap of Rs.58,800 crore has grown to Rs.83,100 crore as of March 2021. That is an overall IPO return of 41.3% in FY21. This is relevant because it is without any stock selection and without worrying about timing the levels of the Nifty and Sensex. That holds an important lesson for investors ahead of FY22. Companies are realizing the importance of pricing their IPOs right and investors should make the most of this trend!