75% IPOs show positive returns in past year: Does IPO investing generate alpha?

livemint.com:

stock market saw many companies coming up with their IPOs. While some have done well, many have given flat to negative returns. This begs the question - how have the IPOs of the past fared over a longer term? But before we take a look at the data, let us look at the Nifty performance.

If the past 3 years are to be broken into 1-year buckets, in the first bucket (Oct’20-Oct’21) Nifty had given 52% returns, but in the second (Oct’21-Oct’22) and third bucket (Oct’22-Oct’23) the returns have been subdued. In such an environment where for 2/3 of the period the benchmark has given negligible returns does IPO investing generate alpha? Source: Ace Equity, Equentis Research Source: Ace Equity, Equentis Research In the past 3 years, 143 mainboard IPOs have come for listing. Out of these, the majority of the companies are from sectors such as healthcare, chemicals, capital goods and finance.

Also, the IPO subscription ratio has been on the higher side with some IPOs getting subscribed more than 100x. While the IPO frenzy might have died down in the recent past, investor interest has not waned completely. Out of these 143 IPOs, 76% of them have given positive returns from the issue price.

But with more than 60% of IPOs getting subscribed more than 10x, it is difficult to get subscriptions in the IPOs. Hence it is better to gauge IPO’s performance from the listing price. From the listing price, 38% of the IPOs have given negative returns and 44% have underperformed Nifty.