According to IIFL Securities, 263 companies that went public over the past five years have collectively added $575 billion to India’s market capitalization. This represents over 10% of the total market value.
Key IPO Trends:
- Average Listing Gains: 20.1% across all IPOs.
- Sectoral Outperformance: IPOs outperformed sectoral indices by an average of 11%.
- Top Performers: Sectors such as fintech, financial services, real estate, capital goods, and IT.
PE-Backed vs. Non-PE-Backed IPOs
Performance Analysis:
| Metric | PE-Backed IPOs | Non-PE-Backed IPOs |
|---|---|---|
| Premium/Discount to Sector Index PE | 30% Premium | 13% Discount |
| Listing Gains | 16% | 23% |
| 1-Year Outperformance Over Index | 23% | 30% |
| Annualized Outperformance Since Issue | 1.4% | 17.5% |
- Listing Gains: Non-PE-backed IPOs offered higher initial returns.
- Post-Listing Performance: Non-PE-backed shares continued outperforming over the long term.
Key Insights:
- Non-PE-backed companies initially trade at a discount but quickly converge, yielding higher listing and 1-year returns.
- PE-backed companies trade at a premium due to their perceived quality and established investor interest.
Sectoral Performance
Top Sectors by Market Cap from IPOs:
- Fintech & Financial Services: $140 billion (e.g., LIC, SBI Card, PB Fintech).
- Industrials: $75 billion.
- Consumer Discretionary & IT: $67 billion each.
- Pharma: $46 billion.
Best Performing Sectors:
- Real Estate
- Financial Services
- Capital Goods
- IT
Underperforming Sectors:
- Banks
- Utilities
Investment Takeaways
IPO Characteristics:
- Strong Historical Returns: IPOs have historically delivered robust returns, particularly within a year of listing.
- Post-Listing Performance: Most gains occur on the listing day, with subsequent outperformance varying by sector and backing type.
Sector Preferences:
- Investors seeking consistent growth might focus on fintech, financial services, and real estate IPOs.
- Banking and utility IPOs have shown weaker performance relative to other sectors.
Closing Thoughts
The IIFL analysis underscores the importance of IPOs in India’s evolving financial landscape. With $575 billion added to market capitalization in five years, IPOs continue to be a promising avenue for investors. Understanding the nuances between PE-backed and non-PE-backed listings, along with sector-specific trends, can help investors make informed decisions.
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