The equity markets have delivered bumper returns not only in the long term, but also investors who chase quick listing gains from the initial public offerings. Though equity markets have been on a roller-coaster ride, the financial year 2020-21 has turned out to be extraordinary for IPOs with 21 out of 29 IPOs generated positive returns for investors on listing, according to RBI annual report.
The underpricing of IPO is one of the most commonly studied puzzles in the field of corporate finance, it said. Some of the companies that entered the capital market last fiscal and delivered good returns to investors include Route Mobile, Happiest Minds Technologies, Likhitha Infrastructure, Rossari Biotech and Burger King India.
Binod Modi, Head strategy, Reliance Securities said favourable equity markets had supported IPOs last fiscal.
Listing gains
Large number of IPOs last year were launched at reasonable valuations with strong growth outlook and therefore there was huge appetite among investors, resulting in hefty listing gains, he added.
Going ahead, valuations, balance sheet strength and growth visibility will be key aspects for listing gains from IPOs scheduled for this fiscal, said Modi.
IPO is said to have taken place when the stock generates higher prices on the first day of listing, called the listing returns.
However, the average IPO listing return is much lower at 30 per cent compared to 70 per cent delivered by Sensex which was on a bull run hitting historic high. Fund raising from the primary segment of the equity market increased last fiscal. Resource mobilisation through IPOs, follow-on public offers and rights issues increased by 43.1 per cent to ₹1.1 lakh crore against ₹76,965 crore in the previous year. Of these, ₹46,060 crore were mobilised through 57 IPO/ FPO issues, out of which 27 issues raised ₹246 crore by listing on the small and medium enterprises platform of the BSE and NSE, said the RBI report.
Resource mobilisation through rights issues increased last fiscal to ₹64,059 crore against ₹55,642 crore in the previous year.