Indian IPOs: Short-Term Pop vs. Long-Term Value

Indian IPOs: Short-Term Pop vs. Long-Term Value

VoM News Desk | January 22, 2024 | 10:37 AM IST | Breaking News | Follow on Google News

Indian IPOs: Short-Term Pop vs. Long-Term Value/Shutterstock

Indian IPOs: Short-Term Pop vs. Long-Term Value

India’s IPO market has seen a surge in activity, outpacing China and Japan, but a significant number of these offerings may underperform in the long run.

YK2 Partners analyzed two decades of initial fundraising, revealing an average annual return of -3.5% for IPOs over a 10-year period. Approximately 77% of these IPOs underperformed the NSE500 Index, with an average annual underperformance exceeding 14%.

YK2 suggests a mandatory one-year lock-in period for IPO investors to shift focus from short-term pops to long-term fundamentals and value creation.

Key Points:

• Long-Term Underperformance: Despite the initial excitement and listing-day gains, the majority of Indian IPOs fail to deliver additional returns to investors over a 10-year period.
• Regulatory Concerns: The Securities and Exchange Board of India (SEBI) is tasked with ensuring quality offerings. Previous attempts, such as IPO grading and a safety net for retail investors, faced challenges.
• Disclosures-Based Pricing: The current regime, based on disclosures, may not adequately address the issue. SEBI’s chair highlighted concerns about high IPO valuations backed by “meaningless English words.”
• Savings Glut and Oversubscription: India’s affluent class, limited by capital controls on overseas investments, contributes to oversubscription, driven by quick flips in IPOs.
• Regulatory Measures: SEBI is investigating investment banks that may be artificially inflating share applications to create a false impression of demand. Cleaning up the market is a positive step but may not be sufficient.
• Proposed Solution: YK2 suggests a mandatory one-year lock-in period for IPO investors to ensure subscriptions are driven by fundamentals rather than the lure of short-term gains.

While the IPO market continues to attract attention, the call for structural changes aims to shift the focus from immediate gains to sustainable long-term value.

VoM News Desk

VoM News is an online web portal in jammu Kashmir offers regional, National & global news.