Why are two-thirds of recent IPOs trading below their listing price?

Synopsis

An ETIG analysis of 101 mainboard companies that raised money through initial public offers (IPOs) since January 2024 shows that majority of the sample companies have not been able to improve upon their listing gains. In the sample, two out of every three companies currently trade below their listing prices.

ET Intelligence Group: After a lull over the past three months, companies have gradually started floating initial offers amid the current pullback rally in the stock market.

Given the popularity of IPOs among retail investors, it makes sense to check the stock performance of the companies that were listed over the past year. An ETIG analysis of 101 mainboard companies that raised money through initial public offers (IPOs) since January 2024 shows that majority of the sample companies have not been able to improve upon their listing gains. In the sample, two out of every three companies currently trade below their listing prices.

Though listing gains are what often draws retail investors to the primary market, the analysis shows that only a handful of IPOs generate significant returns on debut. In the sample, just about 16% of the companies earned 50% or higher listing gains while around 9% companies earned 75% or more returns on debut. In addition, 17 out of 101 companies gained up to 10% on listing while 20 companies failed to earn returns.

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Also, even though it seems to be encouraging that 57% companies continue to trade above their initial offer prices, just half of them have been able to earn 10% or more returns, reflecting that the remaining companies have either earned meagre returns or could not generate any.

Of the total sample, only 35% companies have gained more than 25% over the offer price. In the sample, five companies –– Jyoti CNC Automation, KRN Heat Exchanger and Refrigeration, Bharti Hexacom, Premier Energies and Interarch Building Solutions—have generated more than 100% returns so far over the offer price.

The analysis does not consider the period for which these companies have been traded on bourses. That means companies which have been listed for a short period such as a week or a month may show a different trend in stock returns as time passes

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