IPO investment: The attraction of Initial Public Offerings (IPOs) is growing among retail investors, driven by the potential for substantial gains on the first day of trading, as seen in some recent offerings.
However, investors should exercise caution, particularly during periods of high market volatility. The crucial question is how many companies can sustain and build upon their initial listing gains over time.
An analysis by ETIG of main board companies listed since early 2020 revealed that nearly half of the companies that achieved listing gains of 50% or more struggled to maintain that momentum.
Out of the 48 companies in the sample that recorded listing gains of 50% or higher, 23 companies had returns below their respective listing gains as of September 30, 2024.
Top Gainers Since January 2020
This indicates that almost half of them could not sustain their initial gains. The return period varies depending on the listing date of each company.
To minimize the impact of increased market volatility on stock returns in early October, September 30 was used as the cut-off date for the analysis. In the first four days of October, the benchmark indices have declined by more than 3%.
The analysis also reveals that companies that do not achieve listing gains still have the potential for growth. Among the 53 companies that did not generate listing gains, 36 (or two out of three) were able to deliver returns as of September 30, 2024.
For example, recent IPOs such as Aadhar Housing Finance, EPACK Durable, Ola Electric Mobility, and Zaggle Prepaid Ocean Services, which were listed at or below their offer prices, subsequently experienced gains in trading.
In 2024, several companies, including Vibhor Steel Tubes, BLS E-Services, Premier Energies, Bajaj Housing Finance, and Unicommerce eSolutions, have recorded triple-digit listing gains.
IPOs provide investors with an opportunity to gain exposure to lesser-known businesses or previously privately held companies. Out of the 250 companies in the sample that have been listed since January 2020, 135 (54%) have generated returns of 50% or more, and 84 (33%) have achieved triple-digit returns.