IPO Investment Analysis: Where Dreams List, But Wealth Doesn’t

IPO Performance (CY 2021–CY 2024): A Reality Check

Initial Public Offerings (IPOs) are often marketed as a gateway to wealth-building. But the data paints a sobering picture. Between 2021 and 2024, 250 mainboard IPOs were listed on the Indian stock exchanges. However, the reality of post-listing has been underwhelming for most retail investors.

Source: chittorgarh.com | Data as of 12 June 2025

Key Takeaways from the IPO Landscape

1. High Rate of Underperformance

• 48% of IPOs are trading below their listing price, indicating the prevalence of value erosion after listing.
• A staggering 73% of IPOs failed to outperform the Nifty Smallcap 250, meaning only 1 in 4 IPOs beat the broader smallcap benchmark.

2. Low Average Returns

• The average return since listing is only 38%, which appears modest compared to the risk and volatility involved.
• Over shorter windows, such as 6 and 12 months, the average return drops to 12% and 23%, respectively, indicating weak short-term wealth creation.

3. Promoter Exits Over Investor Gains

Many IPOs are structured more as exit opportunities for promoters and early investors rather than entry points for new investors. The pattern shows companies often launch IPOs during bullish phases at premium valuations, with performance deteriorating once the initial hype fades.

Why Do Most IPOs Fail to Deliver?

• Overvaluation at listing: Pricing often incorporates overly optimistic growth projections, leaving little room for upside.
• Hype-driven participation: Retail investors often apply based on social media noise or grey market premiums, not fundamentals.
• Short-term focus: Many investors chase listing gains, unaware that long-term fundamentals drive real wealth creation.
• Lack of profitability or business clarity: Several companies go public before achieving sustainable margins or clarity in business models.

The IPO Index Itself Underperforms

Even the BSE IPO Index, which tracks the performance of listed initial public offerings (IPOs), lags behind the broader indices. If the collective performance of new listings can't beat benchmarks like the Nifty 50 or Nifty Smallcap 250, it's a strong indicator that IPO investing should not be approached blindly.

Final Thoughts: Don't Let Hype Replace Homework

While IPOs may offer exciting narratives and short-term price gains, long-term investment success depends on discipline, thorough research, and a focused valuation approach. Every new listing is not an opportunity—sometimes, it's just a well-marketed exit plan.

Smart Investing Checklist for IPOs:

• Examine the company's fundamentals and financial statements.
• Compare the valuation with listed peers.
• Understand the use of proceeds — is it for growth or debt repayment?
• Wait post-listing if valuations appear stretched.

Summary

IPOs may list dreams, but they often don't list wealth. Data reveals that most IPOs between 2021 and 2024 have underperformed key indices and offered modest returns at best. Investors should approach IPOs like any other equity investment — with caution, thorough due diligence, and a long-term perspective.