With over 44 companies filing the draft red herring prospectus with Sebi to raise around Rs 30,000 crore this year, there?s a lot of buzz in the markets. But an analysis of IPOs from 2007 till now shows that 105 out of 159 offerings are reporting negative returns. The year 2007 boasted a record 103 IPOs. But 68 of them are reporting negative returns till date. Similarly, data from SMC Capitals shows that out of the 37 public issues that came out in 2008, only eight are showing profits. Of the 16 offerings last year, as many as 50% are showing negative returns.
These numbers cannot but disincentivise retail investors. Why should they pursue equity as an asset class when it delivers such poor returns? Going forward, it looks likely that IPOs will remain overvalued. This means that they will continue to impact the sentiments of retail investors negatively, which will have a negative impact on the overall growth of the markets.
Though IPOs did make a comeback towards the end of last year after a long lull, the listing performance of some of the high-profile companies was disappointing. This is raising concerns among retail investors about the recovery of primary markets, which is getting highly institutionalised. Also, most of the IPOs that held anchor investors? interest underperformed in comparison to the IPOs that had not received any investment from anchor investors. On an aggregate basis, of the Rs 6,000 crore mobilised by IPOs that had received anchor investors, the current mark-to-market loss is around 7%.
However, an analysis by Motilal Oswal shows that companies accounting for about 69% of India?s market capitalisation are unlikely to need significant fresh equity capital for organic growth. This suggests that 2010-11 will be a good time for the government to aggressively pursue its disinvestment programme, which will pep up the confidence of retail investors in primary markets.
While the last leg of the bull market from 2007 to mid-2008 saw the debut of a third of all IPOs in the last seven years, investors cannot blame companies for the timings and high valuations. Going ahead, for retail investors, valuations will be the key deciding factor to invest in primary markets. Retail investors will be looking at the long-term past performance of various companies rather than just their future projections.
saikat.neogi@expressindia.com