IPO Boom Or Bust? 2024 Sees Record Fundraising Through Public Issues But Returns Fail To Impress; WHY?

The year 2024 is poised to be a historic one for fundraising through Initial Public Offerings (IPOs), with 75 companies collectively raising over Rs 1.2 lakh crore. However, while the IPO market has set new benchmarks in terms of funds raised, its performance in delivering returns has been mixed. Around 40% of the companies that debuted this year are now trading below their issue prices, reflecting the challenges posed by a volatile market.

Market Corrections Weigh on IPO Performances

A sharp market correction that began in October has impacted IPO valuations. This downturn has seen more than two dozen companies slip below their issue prices, including some that initially delivered stellar listing day gains.

ECOS India Mobility & Hospitality, which surged over 33% on debut, is now trading 1% below its issue price. Similarly, Apeejay Surrendra Park Hotels and Saraswati Saree Depot, which jumped over 31% each on listing day, are currently at discounts of 4% and 25%, respectively, to their issue prices.

Other IPO performers like Northern ARC Capital and Ola Electric Mobility also saw strong listing gains of 23% and 20%, respectively, but have since dropped by more than 10% below their issue prices. Shree Tirupati Balajee Agro Trading and Akums Drugs & Pharmaceuticals, which rose 17% each on debut, are now trading 13% and 6% lower, respectively.

Broader Market Trends Impacting IPOs

The underperformance of these IPOs coincides with a broader decline in market indices. Since October, both the Sensex and Nifty have fallen by more than 10%, while the BSE Midcap and Smallcap indices have dropped 8-9%. This correction has dampened investor sentiment across the board, affecting IPO returns and Grey Market Premiums (GMP).

Experts attribute this downturn to a reversal in Foreign Portfolio Investor (FPI) activity. Rising US 10-year bond yields have made American markets more attractive, prompting FPIs to pull out funds from both primary and secondary markets in India. Additionally, high valuations in Indian equities have further weighed on market sentiment.

Biggest Losers

Several IPOs that initially showed promise have struggled to maintain their footing post-listing. Among the biggest losers is Popular Vehicles & Services, which debuted with a 6% discount to its issue price and is now trading 46% lower.

Other notable laggards include:

Capital Small Finance Bank: Down 38% from its issue price.
Akme Fintrade India: Down 32%.
Western Carriers: Trading 31% lower.
R K Swamy: Down 29%.
Deepak Builders & Engineers India: Down 26%.
Saraswati Saree Depot, despite its strong debut, has also slipped 25% below its issue price, reflecting the broader challenges in sustaining valuations.

Bright Spots Amid Challenges

Despite the market turbulence, a few IPOs have managed to hold their ground or deliver marginal gains. Companies such as Entero Healthcare, Vraj Iron & Steel, Arkade Developers, Swiggy, Afcons Infrastructure, and Gopal Snacks are currently trading slightly above their issue prices, offering some solace to investors.

What's Next for the IPO Market?

While 2024's IPO market has been a record-breaking year in terms of funds raised, its mixed returns highlight the challenges of timing and market sentiment. The reversal of FPI flows, coupled with global economic uncertainties, has made investors cautious, dampening the post-listing performance of many companies.

For companies planning IPOs in 2025, the focus will likely shift toward pricing strategies and investor confidence. Meanwhile, existing IPOs face the challenge of regaining investor trust and weathering the current market volatility.