IPOs gave over 50% average returns in Calendar 2022

If you thought that IPOs in the year 2022 have been a disappointment, just think again. You have possibly been giving too much weightage to the performance of the LIC IPO. Of course, that was the largest IPO in Indian history and had scored of retail participants, including policyholders, putting their hard earned money in the LIC IPO. However, the macro story is a lot better. Despite the underperformance by a handful of IPOs, if you consider the simple average of returns given by IPOs in 2022, it was a healthy and robust 50%. That is amazing. 

What is more gratifying is the fact that during this same period, the benchmark Sensex index has given just about 1.6% returns, so you would have been far better off investing in IPOs on a allocation basis rather than just trying to buy the Sensex or the Nifty. During the current calendar year 2022, a total of 51 IPOs raised a total sum of Rs38,155 crore. Of course, that was largely dominated by the Rs20,500 crore LIC IPO. The IPO collections have been relatively tepid in 2022 as the same period in 2021 saw Rs64,768 crore of IPO fund raising.

According to a study by Bank of Baroda, there were just about 8 big ticket IPOs in the current year. This was led by the names like LIC and Delhivery and followed by others like Patanjali and Adani Wilmar. Majority of the IPOs were much smaller in size. In contrast, the year 2021 had seen some big ticket digital IPOs like Zomato, Nykaa, Policybazaar and the largest of them all (Paytm) raisin funds in the market. In comparison, the only large digital IPO in the year 2022 was the IPO of Delhivery Ltd.

In a sense, the year 2022 had to carry the burden of 2021, as per the findings of the Bank of Baroda report. For instance, IPOs last year gave average returns of 74% up to September 2021, but the tide turned after the big ticket digital IPOs came into the primary markets in the last quarter and spoilt the show. The surge in the Sensex from 40,000 levels to 60,000 levels resulted in companies raising a record amount of Rs121,680 crore from the primary markets in the whole of 2021, which was also the first time these numbers were done.

The sentiments were largely soured by a plethora of 2021 IPOs that have disappointed the markets post listing. Here are some of the big losers of 2021. One97 Communications (Paytm) is down 67% from the IPO price while Zomato is down 20.7% and Policybazaar is down 49.3%. Among other 2021 IPOs to disappoint to date; Star Health has given up 18.2%, CarTrade has given up 60.1% and Nuvoco Vistas has given up 34.3% from the issue prices. Others like IRFC and Sanmar Chemicals have lost between 12% and 22% till date. 

In the year 2022, if you look at the IPO performance, 43% of the IPOs listed at a premium of 20% or more. Among the big gainers among the 2022 IPOs were Adani Wilmar gaining 206% since listing and Patanjali Foods (Ruchi Soya) gaining 106% since the listing of the IPO. Other big gainers include Vedant Fashions (Manyavar) gaining 57.3%, Powergrid gaining 38% and Delhivery gaining 17.5%. However, the one big disappointment in 2022 was LIC which is nearly 30% below the listing price, even 4 months after the IPO got listed.

The moral of the story is that IPOs continue to be a robust asset class in India even today. That is evident from the slew of IPOs giving good subscription and post-listing performance when IPOs returned in August after a 75 day drought. LIC now looks more like an aberration because the IPO markets are still intact. There is still money to be made, as long as the promoters are leaving to allow returns on the table for investors. That is the million dollar issue that investment bankers need to seriously take into account.