A majority of Indian initial public offerings (IPOs) in the last 12 years have performed poorly, new research shows.
According to advisory firm Institutional Investor Advisory Services (IiAS), stock prices of only 164 out of 394 companies that filed for an IPO between April 1, 2003 and July 31, 2014 are currently trading above their offer price (that is, the price at which investors purchase shares when the stock is listed).
Even for these 164 firms, the returns are insignificant. ”In 20% of this set of companies, investors would have made higher post-tax returns by investing in fixed deposits rather than these IPOs,” the report notes.
About 60% of investors, overall, lost money, it adds.
The firm says that unrealistic valuations are responsible for this dismal showing. Indian promoters demand high valuations given the equity market bull run in recent years. However, according to IiAS, factors that are important for valuation, such as profit and revenue, have failed to live up to the hype.
“Investing in IPOs is like a game of chance–information on the track record of the company is limited, the correctness of valuations is questionable, and expectation of performance is almost crystal-ball gazing,” the report notes.