Do large IPOs guarantee large returns? Data suggests that 18 of India's biggest 30 IPOs did not generate solid returns

Think Initial Public Offers (IPOs) are a sure-shot, quickfire method to make a quick buck? If so, then investing in some of India's biggest IPOs to date would have created multiple millionaires. However, if the data is to be believed, 18 out of India's top 30 IPOs by way of size have failed to deliver on the returns front.

Recent data from Capitalmind PMS suggests that of all the mega IPOs India has seen in the past 2 decades, only 12 IPOs i.e. stocks of 12 companies have delivered more returns that what you would have received, had you bought and held your investments in Nifty500(which invests in biggest 500 companies by market size).

Infact, Paytm (54%), Reliance Power (81%), General Insurance Corporation (2%) actually generated negative total returns to date. The only outliers in the list of top 10 IPOs were Zomato (listed in July 2021) and Coal India (listed in April, 2010), which managed to generate excess returns i.e. more than what was generated by Nifty500.

While Zomato's total return to date, which is considered a comprehensive gauge of a stock's profitability, stands at 265%, Coal India total returns are a massive 443%. In these cases, had you simply bought and held the Nifty500 index for a similar duration, your returns would've been 73%, and 435% respectively.

Also, 5 of the biggest IPOs India has ever seen (Bajaj Housing Finance, Bharti Hexacom, Brainbees, Ola Electric) have come in the last 2 years.

In some cases, having stayed put in your index investments would have yielded you far better returns. Consider this, FSN E-Commerce, Nykaa's parent company, listed on the exchanges on November 2021. Its total returns till date have been 2%, while had you invested in Nifty500 index, your returns would've been 53%. Similarly, the total returns to date on Bandhan Bank's stock, which listed in March 2018, was a negative 43%. But, the index has delivered a whopping 163% returns during the same time.

Hits and Misses

Company Name	Total Returns to Date (In %)	CNX (Nifty500) Returns (In %)
Reliance Power (Feb 2008)	-81	961
Zomato (July 2021)	265	73
Gland Pharma (November 2020)	14	124
NHPC (September 2009)	389	961
Indian Railways Finance Corporation (January 2021)	582	109

Source: CapitalMind PMS

Surge in IPOs? Not really

It is impossible to overlook the sheer number of public offerings seen in the Indian markets over the past 2 years. Around 600 share sale offers have already hit the market since 2023. Out of these, 335 have come in this year, as of October 2024. While over Rs 50,000 crores have been raised by these share sales so far since 2023, only 22% of these funds raises have come from companies who are hitting the market for the first time i.e. bringing out their IPOs. The rest have come from already listed companies seeking to raise more funds.

The biggest IPO that India has seen to date, that of Hyundai Motor India, closes for subscription today. With an offer size of Rs 27,870.16 crore, it is 35% bigger than the previous biggest IPO in the country(LIC in May 2022).

As of 12:30 pm today, Hyundai's offer had been 87% subscribed, with significant interest from QIBs and employees. At 0.43x, participation of retail investors remained largely subdued.

Notably, an IPO is considered cancelled and withdrawn, if it fails to meet the 90% subscription threshold.