IPOs: The Larger They Are, the More durable They Fall

Ever since we’re born, we’re made to consider that ‘Larger is Higher’.

And we stock this outdated saying with us into a number of aspects of life together with the world of investing. We appear to instinctively consider {that a} greater firm or an even bigger fund will present higher returns.

As an investor, it’s simple to get confused at first, particularly with the continued flurry of IPOs.

And, while you’re raised to assume massive, you’d instantly consider making use of for the biggest preliminary public choices.It in all probability comes from the concept that greater appears to be safer.

The Life Insurance coverage Company of India (LIC) simply concluded its IPO on Monday. It created a report for the very best variety of purposes crossing over 6 million. Retail traders flocked to the providing like by no means earlier than.

Apparently, the report for highest variety of purposes was held by the IPO of Reliance Energy (the biggest IPO on the time). It had obtained 4.8 million purposes virtually fourteen years in the past.

However is greater really higher? To reply that, we determined to look again on the ten largest IPOs of all time and got here away stunned. Learn on…

#1. Cairn India Ltd

The 8,616 crore IPO ran between 11 December and 15 December, 2006. It obtained a muted response from traders.

The IPO had failed to draw sufficient non-institutional and retail particular person traders. The problem received subscribed 1.14 instances, thanks primarily to purchasing by institutional traders.

The Indian arm of British oil and gasoline companyCairn Energymade an unassuming debut. The inventory listed at a 12% low cost to the difficulty worth of 160 and ultimately closed down 14% at 137.50.

The corporate was ultimately merged with its debt-ridden dad or mum Vedanta in 2017 and the inventory was delisted. The closing worth on the final day of buying and selling was recorded at 285.40 on BSE.

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Cairn India.
Cairn India.

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Cairn India.

#2. HDFC Life Insurance coverage Co Ltd

The 8,695-crore preliminary public providing (IPO) of HDFC Life Insurance coverage was offered within the worth band of 275-290 in November 2017. It was subscribed 4.8 instances.

It listed on the change at a premium of seven% at 311.

At present, the inventory is buying and selling at 564 i.e., a CAGR of 13% during the last 5 years.

HDFC Life Insurance Co.

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HDFC Life Insurance coverage Co.

#3. DLF Ltd

Though the DLF IPO was subscribed 3.47 instances, subscription within the retail traders class was at solely 0.98 instances.

The inventory listed at a premium of over 8% on itemizing and over the following few months zoomed to as excessive as 1,205.

Nevertheless, since then the inventory noticed an erosion of over 90% of its market worth crashing to as little as 80 in 2016. 

On the present worth of 318, it’s nonetheless buying and selling at a reduction of 39.43% to its situation worth over 15 years in the past. This makes it one of many largest wealth destroyers for traders.


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#4. Zomato Ltd

India’s main meals supply companyZomatomade a stellar debut on Dalal Avenue in July 2021. The inventory opened at Rs116, a52.63% premium to its supply worth of 76.

Nevertheless, Zomato has not solely been burning money for its progress however has really burnt traders’ cash because the starting of the yr. 

Shareholders of the corporate have turned poorer by 90,449 crore following a 68% crash within the inventory from the all-time peak.


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#5. The New India Assurance Co Ltd

The 9,600-crore IPO of New India Assurance had received a lukewarm response from traders on the time of its providing in 2017.

Shares meant for retail and excessive internet price people (HNIs) within the IPO have been undersubscribed.

The IPO scraped via with institutional assist and was subscribed 1.19 instances on the final day of the difficulty. LIC bid for 6,500 crore price of shares within the IPO.

The inventory listed at a reduction of 50 or 6.25% on the exchanges and inside a yr was down over 50%.

At present the inventory is buying and selling at 104, having eroded over 71% of traders capital had one invested within the public situation. 

New India Assurance Co

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New India Assurance Co

#6. SBI Playing cards & Fee Companies Ltd

The inventory of SBI Playing cards & Fee Companies noticed a weak debut itemizing at 658, 12.85% beneath its situation worth of 755. It will definitely closed at 683 on the BSE.

The IPO had managed to draw bids price 2 trillion producing near 2.7 billion bids (26 instances).

The market had anticipated a 35% premium on itemizing for the mega situation because of the scrip’s excessive demand within the unlisted market.

The gray market premium for the inventory stood at 350. The itemizing was a giant blow for HNI traders, who had borrowed cash to wager on the difficulty.

The inventory had made beneficial properties final yr peaking at 1,141 per share however has since fallen over 37% to settle again at beneath its situation worth of March 2020, leading to no beneficial properties for traders during the last two years.

SBI Card 

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SBI Card 

#7. Basic Insurance coverage Company of India Ltd

Persevering with the pattern of weak post-listing efficiency amongst insurance coverage corporations, shares of Basic Insurance coverage Company of India dropped 6% over its situation worth on its buying and selling debut in October 2017.

The tepid begin got here after the reinsurer’sIPO was subscribed 1.37 timeson the ultimate day of the difficulty due to assist as soon as once more from state-run Life Insurance coverage Company. HNIs and retail traders largely stayed away from the IPO.

As seen with different PSU IPOs in recent times, sadly GIC has upset traders with the present worth over 73% beneath its situation worth.

General Insurance Corporation of India Ltd

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Basic Insurance coverage Company of India Ltd

#8. Reliance Energy Ltd

Reliance Energy Ltd listed on 11 February, 2008 after the corporate had mopped up a report 11,563 crore in its preliminary public providing (IPO).

The excitement surrounding the difficulty amongst traders had been rising with gray market premiums for the shares as excessive as 80% over situation worth setting the stage for an exceptional opening.

The IPO was oversubscribed roughly 70 instances attracting over 5 million bids from all classes of home and worldwide traders.

The inventory debuted at a premium of 21% over its situation worth, however inside minutes after that, the inventory crashed and ultimately settled the day down by 17% from the difficulty worth.

The corporate filed a grievance with market regulator SEBI for investigating a marketing campaign in opposition to it. It even introduced free bonus shares to all classes of shareholders, besides the promoter group.

Sadly, not one of the firm’s actions would assist traders get better their cash because the inventory by no means once more touched its itemizing worth.

The inventory holds the unenvied title of the worst performing IPO on our checklist having misplaced over 95% of its worth over its situation worth.

Reliance Power 

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Reliance Energy 

#9. Coal India Ltd

In 2010, Coal India raised 15,475 crore in what was India’s largest preliminary public providing of shares on the time.

And for traders, it was a welcome Diwali present. The inventory debuted at 17% over its situation worth of 245 and zoomed to shut at 342.35, 28.44% greater than the supply worth.

Though the inventory was a star performer for brief time period traders, it did not ship returns for long run traders who’ve held on since.

In current instances the corporate has underperformed the broader markets and the inventory is presently buying and selling at 170.

Coal India 

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Coal India 

#10. One 97 Communications Ltd (Paytm)

Paytm’s 18,300 crore IPO was the biggest ever situation on Dalal Avenue earlier than the not too long ago concluded LIC situation.

It eroded traders wealth by over 35,000 crore within the first few hours of its market debut on 18 November 2021.

The inventory opened for buying and selling atRs1,950 on the NSE, marking a decline of 9.3% from its situation worth ofRs2,150. On the shut of buying and selling, the inventory ended 27% decrease at 1,560.

And it’s received a lot worse since then.

Paytm’s market worth which was over 1.39 lakh cr on the situation worth has declined by 75.30%. It’s presently at 33,566 cr.


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Does it Make Sense to Put money into Massive Sized IPOs?

Wanting again on the monitor report of the ten largest IPOs earlier than LIC, we see that eight of the ten have eroded wealth for its shareholders.

IPO returns 

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IPO returns 

An IPO generally is a complicated subject for a lot of traders. As a potential shareholder, subscribing to a difficulty when an organization goes public may look like a simple method to get in early.

When well-known and well-liked manufacturers determine to go public, the media hype across the IPO can usually intrigue particular person traders.

Buyers should take into account that newly public corporations lack a confirmed report of working within the public area.

The secondary market is all the time the most effective place to determine what the value needs to be. 

The first market is skewed. It’s a place the place there are just one or two sellers and too many patrons. This may occasionally lead to illogical worth discovery.

In 2021, 63 corporations listed on the exchanges together with many big-ticket IPOs like Paytm, Nykaa, and Zomato.

Amongst these 63 corporations, solely 15 provided multibagger returns of as much as 300% to traders.

Apparently, 11 of those have been small-sized IPOs of 100-600 crore.

Clearly, massive IPOs have did not ship through the years.

India’s largest ever IPO, LIC is about to open for buying and selling tomorrow, on 17 Might.

As traders wait with bated breath and fingers crossed, the query on everybody’s thoughts is, Will LIC be an exception?

Disclaimer:This text is for info functions solely. It isn’t a inventory advice and shouldn’t be handled as such.

(This text is syndicated from Equitymaster.com)

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