Recent Times, If you have heard of a word “IPO”, its common in General public and it is an ordinary word and if you haven’t, then you will hear it soon. Why it is so? Because people are getting enormous returns from IPO. Formally it is known as Initial Public Offering, which is the popular topic among Friends and Social Groups.
We have been asked many times by clients who even don’t know anything about equity that, “Suna hai Ki IPO me paisa Double hota hai ? Mere ko bhi bharna hai.” IPO is giving extra ordinary returns, is not surprising thing these days but these kind of questions are. It is really an odd question to come across. One day I was at a friend’s home, his Mother asked me,” Have you filled IPL?” I didn’t expect this question from her. She was talking about IPO, I figured it out. She heard IPOs are making money from her lady group. Are IPOs ,these days, giving an extra-ordinary returns for a First time?. I would say not really or at-least it is not the historical moment yet. Below are tables showing IPO history, till now.
From 7 to 17, average Listing Day Return is 18% of 309 companies considered, where Individual performance is far different from average and having relatively more deviations. But looking at history, 2007-2009 time was different than today’s by level of Average Returns of IPO. That time, it had Average return of approx. 25% (Total 139 Companies), while for 2016-17 is 19% (42 Companies). 19% is still lucrative one but not as good as 2007-09. Still 2017 has another part left in its bag which we will see in the coming months. Categorizing level of return on the listing day, the scenario is as below,
(Table: Time Period and Listing Day Returns of Debutante)
It can be observed from the above table, there were 51 Companies whose listing day returns were more than 25% versus 48 Companies from 2010-2017. Still 2007-09 had beaten up the rest of the time. Completely one sided game!!! 2007-09 year time was IPO time where you would have found IPO as trendy word as we are hearing it today. Going with who have made top of the list and who have eroded One Day IPO Park from Seven to One Seven as below,
Only a company which is in Top 10 list which have come up with an IPO in 2017, is debuted by 143%. In Bottom 10 list, 8 Companies are 2011 year debutante and Very opposite to this, 8 Companies were debutante from 2007 which are in Top 10 list. So 2007 was good year while 2011 year was not good for IPO market.
Particularly in 2017, where Avenue Supermart and Salasar Tech have given more than 100% return in a day. On other side, only 3 Companies were closed in negative on its debut. We can’t judge a Company by a Listing Day return like Cricket where World Champion is decided after few matches. If we look individual years wise and average Listing Day returns of IPO companies, it is as below Chart till now. As stated, 2011-13 was time when IPO was not giving good returns on Listing Day, same thing is chart displaying. While 2017 is behind approx. 5% from 2007 Individual year performance and still many IPOs are yet to rock the market.
Chart: Average IPO Listing Day returns (2007-2017)
Few Companies were loser in its IPO times and now Star, while today’s losers (or may be not in Market now) were Star when they came. The Final essence is same as how we judge Companies before buying from Secondary market. Recency Effect of returns (Which is tendency of people to focus on recent events for evaluating something) is where we have to think like wise Investor and evaluate as whole thing. If we consider companies which are more than double in value today, as Star. Companies which have sunk Investor’s money, are Loser Companies. So below Companies are Stars/Losers today but which were not same on their Listing Day:
Sometimes, the Listing Day Returns may create illusion for investors to check companies’ background which is behind it. Companies which were debutantes in last decade among that only 7 companies have given more than 1,000% Absolute returns and out of 7 only 2 have give more than 4000% absolute returns from their issue price, which will be counted on figure tips. Briefing IPO companies from Seven to One Seven as below,
57% companies are out of race to become a Star Company which are loser Companies actually and 20% are Star already, so remaining 23% which can be either of those in Future. The Crux is that 20% would be every ones choice, ignoring a Listing Day criteria. There will be Possibility that from 57%, if some Company becomes a Star then it’s the attraction of Equity Market.
The world’s best-performing new listing in 2016 is a HongKong civil-engineering stock- Luen Wong Group Holdings Limited, soaring 1,438 % on the listing day. If we look at India in Global IPO scenario, India is still Emerging player on which world has its eye on and for Asia Specific Region, India’s role is very pillar sum. Global IPO markets in Q1 2017 saw the highest first quarter by global number of IPOs since 2007. The Asia-Pacific region alone accounted for 70% of global IPOs in January-March 2017. “India has been particularly strong. Bombay and National stock exchanges and their SME markets as a whole led EMEIA by deal number.”-Ernst & Young Global 2017 Report. Globally, only 1.8% IPO is from Telecommunication Sectors which is pointing out that this sector is offbeat currently.
Initial Public Offering where companies ask money from general public for businesses in which they are and purposes to utilize those Funds. As an earning opportunity, IPO has its conceptions that it is giving good returns and easy to realize profit, participate with less amount, probability of overpriced, not for small investors, Institutions’ tool for exits, etc. It is also misconception among people that one can buy shares at cheap price from IPO and which will give you good returns always. One has to do detail study or take proper advise from Investment advisers before approaching it .There is also a luck factor in allotment of shares . Comparing 7 with 17, 2017 is behind in context of IPO market but still second Half is pending. It is possible that 2017 will make history or turn back from now which can’t be said. Most importantly,understand a company and then one should approach the IPO, It is also made out from above number also. No one wants to be part of 57%, while everyone wants to be in 4000% club.
