‘Most of the Gains Come Early’: IIFL Analyzes $575-Billion IPO Boom and Stock Debut Trends

“Most of the gains come on listing day itself, and outperformance from listing day closing is nil. PE backed companies IPO at a
premium to sector index PE whereas non-PE-backed companies come at a discount, but this gap is surprisingly short-lived. The
quality of companies has been good with historical 3-year PAT CAGR at 46 percent, and EPS downgrade in last 3 months is at 4.8 per cent, which is in line with the broader average,” IIFL said.

IIFL said the average outperformance over respective sector indices on average for PE-backed companies from the issue price stood at 23 per cent after one-year of listing. The non-PE backed company saw its shares outperforming sectoral index by 30 per cent after 1 year.

If taken from issue date to now, the gap widens corresponding annualised numbers for PE/non-PE backed companies at 1.4 per cent and 17.5 per cent, it said.

IIFL noted that the PE-backed IPOs came at a 30 per cent premium to index PE. On the other hand, non-PE backed companies come at a 13 per cent discount. This explains part of the outperformance of non-PE backed companies after listing, IIFL said.

IIFL said the outperformance from shares of non-PE companies is upfronted — 25 per cent in 1 month compared with 30 per cent in 1 year. In fact, the listing gain is 23 per cent in non-PE against 16 per cent in PE-backed, suggesting that a good bit of the convergence happening immediately, the domestic broking firm said.

“But even after listing, the outperformance of non-PE is notable compared to PE. If taken from the listing date closing to now, the corresponding annualised outperformance numbers over respective sector indices for PE/non-PE backed companies -4.7 per cent/3.5 per cent,” IIFL said.

The biggest new mcap addition from IPOs has come from fintechs and financial services, with 30 companies with $140 billion mcap – notable ones being LIC, SBI Card, IREDA and PB Fintech. Besides, industrials companies commanded $75 billion m-cap, consumer discretionary and IT ($67 billion each) and pharma ($46 billion).

The worst performing sectors have been banks, utilities. Best performing sectors have been real estate, financial services, capital
goods and IT, IIFL said.