IPOs 2022: The Good, The Bad and The Ugly

Market Minutes: Key Highlights Of The IPO Story In 2022

To begin with, the IPO action in 2022 was nowhere close to the impressive action in the year 2021. If the year 2021 saw nearly Rs. 130,000 crores collected through IPOs, it was just about 64,500 crores in the full year 2022. There were a total of 40 IPOs that closed in the year 2022, including the last IPO of Radiant Cash Management, which will list on the bourses only next year.

Key Highlights of The IPO Story in 2022

Here are some key takeaways from the IPOs of 2022.

1. A total of 40 IPOs hit the IPO market in the year 2022 and closed during the year. This is lower than the previous year. Even the collections through the IPO route were less than half of 2021. Of course, 2021 was the year which saw the big digital IPOs hit the market.
2. Out of the 40 IPOs, 24 IPOs have given positive returns as of the close of December 2022 while 16 IPOs are in the red. Ironically, the last 10 IPOs of the year since 15th November 2022 are all in the red, although that can be partially due to a very short time period.
3. The total IPO collections for the year stood at Rs 64,694 crore. Against that, the total amount for which applications were received was to the tune of Rs 626,428 crore. That translates into an overall subscription of 9.7 times and shows good market appetite.
4. The largest IPO of LIC during the year was worth Rs21,008 crore followed by Delhivery Ltd at Rs5,235 crore. Out of the 40 IPOs during 2022, these 2 IPOs alone accounted for 41% of the total funds raised through the IPO route.

It was a tough year, but amidst the uncertainty, the IPO market did show a lot of resilience.

Best and Worst Performing IPOs in 2022

Let us now turn to the best and worst-performing IPOs of the year 2022 based on post-listing returns. For simplicity, we will not get into annualizing returns and just look at the absolute returns from point to point.

Data Source: NSE (CMP as of close of 30th December 2022)
 

During the year, there were 3 IPOs that delivered above 100% returns viz. Adani Wilmar, Hariom Pipes and Venus Pipes. However, the positive takeaway is that the top 10 IPOs have all given positive returns of over 40%, purely on a point-to-point basis. Let us turn to losers.

Data Source: NSE (CMP as of close of 30th December 2022)

During the year, there were 6 IPOs that fell more than 25% with AGS Transact being the worst performer falling 63.6% from the IPO price levels. Two of the biggest IPOs of the year viz. LIC of India and Delhivery Ltd are in the bottom 5 performers of the year, something that has dented overall IPO returns and IPO sentiments to a large extent in the year.

Did Subscription Levels Impact Performance?

What was the driver of outperformance or underperformance? Was it at the level of subscription and did a good level of oversubscription automatically assure investors of a strong post-listing performance? Here are some interesting observations.

1. If you look at the top 10 in terms of returns, only Electronics Mart and Campus Active wear had subscription levels of over 50 times. Out of the top performers, 5 of the 10 top return-giving IPOs had subscriptions of less than 10 times. Let us look at the top losers.
2. The results are not too conclusive. For instance, the worst-performing IPO of the year, AGS Transact, got 7.79 times subscribed, which is well above the median of 3.57 times subscription for the year. Also, Dharmaj Crop Guard got subscribed 35.5 times but is 15.7% below the IPO price.
3. What probably plots the difference is that in the top performers, 8 out of 10 are subscribed above the median while in the bottom performers, 7 out of 10 IPOs are below the median subscription levels.

What is the takeaway? As the last point underlines, the subscription does matter, but only up to a point. Beyond that, it is about how much the stock leaves on the table. Just to underline this point, Five Star Business Finance was undersubscribed with just 70% absorption, but the stock has given 31% returns since listing.

Did The Size of the IPO Matter To Returns?

Intuitively one would be inclined to believe so since two of the biggest IPOs of 2022 viz LIC of India and Delhivery are among the bottom five performers of 2022. However, that is not exactly the reflective trend. For instance, the top performer Adani Wilmar with 168% returns was not a small IPO with a size of Rs3,600 crore. That is not all.

Among the top 10 IPO performers of the year, 4 IPOs had an issue size of over Rs1,000 crore, so they would classify as large IPOs. On the other hand, if you look at the bottom performers, barring LIC and Delhivery, the other 8 IPOs were all less than Rs800 crore. So the interpretation that size matters to returns is more intuitive than logical.

Did Indian Investors Gain from IPOs in 2022?

If you look at it quantitatively, 24 out of the 40 IPOs or 60% of the IPOs have given positive returns. Also, the subscription to the IPOs overall stands at over 9.7 times indicating that there is still a lot of appetite for the IPOs. But, let’s ask a more pertinent question; what would have happened if the investor had just allocated equal amounts to all IPOs?

On an overall investment, he would have earned 13.82% at a portfolio level. That is not bad in a highly volatile market and considering that LIC and Delhivery would have destroyed a good deal of returns. If the investor had skipped LIC and Delhivery, the IPO portfolio returns would have nearly doubled to 25.46%. But that is wishful thinking. What matters is that IPOs as an asset class is still able to yield returns for investors. That is the good news!