90% of Indian IPOs in H1 FY23 gave positive returns

How have IPOs performed in the first half of FY23? There are 3 possibilities. Firstly, most investors would be ruing about having invested in the mega IPO of LIC. Secondly, it likely that people are unhappy with the number of IPOs hitting the market compared to last year. Thirdly, companies and investment banks would worry about the large number of IPOs that are being called off. Some examples that come mind are PharmEasy, Macleods Pharma and GO First Airlines. We are not even talking about the digital IPOs, as they have almost vanished in 2022. But amidst all this IPO concerns, there is actually a lot of good news.

Let us first talk about the appetite for the IPOs during the first half of FY23. In H1-FY23, the IPOs overall collected Rs36,218 crore across 15 IPOs. This is about one-third of the total IPO funds raised in FY22 and also much lower than the IPO funds raised in the first half of FY22. But responses have been quite encouraging. For instance, against the Rs36,218 that IPOs targeted to raise in H1FY23, the total bids were worth Rs294,263 crore. Hold your breath; this means that every IPO in FY22 first half, on an average got subscribed 8.125 times. Remember this has happened amidst global headwinds like inflation and growth worries.

But that is the big picture on flows. What about the performance. You would be surprised to know that IPOs had a nearly 90% strike rate in the first half. Out of 15 IPOs that hit the market in the first half, 13 IPOs have given positive returns on point-to-point basis without even considering the time period. The only exceptions were LIC and Tamilnad Mercantile Bank, which still trade below the IPO price. Due to the LIC, your overall capital raising saw erosion in the first half of FY22. However, if you remove LIC, the returns on IPOs in the first half are truly phenomenal. Average returns in IPOs were 32.11% and median at 24.91%.

Which IPOs made the cut and which IPOs didn’t?

The table above captures all the 15 IPOs in the first half of FY23. The barrage of numbers may look intimidating, so let me encapsulate the story into a few brief points.

    • The biggest gainer in the first half was Campus Activewear which more than doubled since its IPO. The biggest loser was LIC, which lost 33.7% of value from IPO price.

    • It was not the size effect because, apart from LIC, the other 4 big IPOs including  Delhivery, Rainbow Hospitals, Paradeep Phosphates and Campus; did very well.

    • Was there a link between subscription numbers and IPO performance? Not necessarily. For instance, Paradeep Phosphates got subscribed just 1.75 times in the IPO but stock is up 58.8% since the listing. It is more about how much companies leave on the table.

So what is the moral of the IPO story in the first half of FY23? Firstly, if investors overlook the LIC IPO, it has actually been a wonderful first half with 13 out of the 15 IPOs giving positive post-listing returns. IPOs have done well irrespective of whether they are substantially oversubscribed or not. Above all, IPO performance has less to do about the size of the issue and more about how much the company leaves on the table. That is the major takeaway for the issuers and the investment bankers.