Mumbai: Nearly two-thirds of the initial public offers (IPOs) in the Indian market since 2008 are trading below their issue price, even though many of these firms gained immediately after listing.

Of the 178 companies that have raised money via the primary markets since 2008, shares of 112 companies or 62.9% of such firms are trading below their issue price currently, while the stock prices of 60 such companies are above their issue price. Six of these companies have been suspended.

V-Guard Industries Ltd and Jubilant Foodworks Ltd, which listed in early 2008 and early 2010, respectively, are the best performing IPOs since 2008, and they have posted returns of 1,287% and 847%, respectively, from their offer price. The five best performing IPOs include Manjushree Technopack Ltd, Gallantt Ispat Ltd, National Buildings Construction Corp. Ltd.

On the other hand, the worst performing IPOs since 2008 are Resurgere Mines and Minerals India Ltd, Nu Tek India Ltd, Raj Oil Mills Ltd, Pradip Overseas Ltd and Niraj Cement Structurals Ltd.

The poor performance of a large chunk of primary issues gains significance at a time when the flow of IPOs is widely expected to pick up with firms and investors looking to take advantage of the surge in equity markets. At a conference in December, Securities and Exchange Board of India (Sebi) chairman U.K. Sinha had highlighted this weak performance of IPOs and hinted at the need for better due diligence by investment bankers.

“The situation is also sector-specific Most companies in consumption and media space have done well, while infra and power space haven’t done well. Those linked to too many regulatory approvals have also suffered," V. Jayasankar, senior executive director and head of equity capital markets at Kotak Mahindra Capital Co.

“Also, bankers have to be very careful on the quality of companies that come to tap the market," said Jayasankar.

Out of the 112 companies that have their current stock price below the issue price, 29 were listed in 2008, 44 in 2010 and 21 in 2011. However, 58 of these companies saw investors making listing gains on their first trading session, which implies that those who invested with a long-term perspective ended up losing money.

This track record, according to some, reflects weak due diligence not only on the part of investment bankers but also investors. Often, promoters and investors list at a time when market sentiment is upbeat, which allows them to get valuations which may not be in sync with fundamentals, said Arun Kejriwal, director of Kejriwal Research and Investments Services Pvt. Ltd.

“There are only 25% genuine issuers. Rest of them try and take advantage of bullish sentiment, manage to hype it well and get an expensive issue through," said Kejriwal. “In the cases of the not-so-genuine IPOs, the one who exits on the day of listing still manages to make money in many cases, while the one who is the last to hold the parcel in the game is penalized."

Others say that merchant bankers can’t be solely blamed and investors, too, make inadequately informed decisions while investing in IPOs.

“Ultimately, the IPO price is what is acceptable to investors on that day; nobody ever forces a person to invest. Issuers and investment bankers want IPOs to succeed," said Prithvi Haldea, founder, chairman and managing director, Prime Database, a primary market tracker.

According to Haldea, most IPOs see robust oversubscription in a bullish market, which leads to a surge in the price in the days after listing due to unmet demand. “We should not put IPOs on a pedestal and expect them to perform forever. Once it is listed, it becomes like any other listed stock. People do not make losses because IPOs were overpriced. It is due to the developments post listing, the company’s and sector’s performance, or simply because the investors, due to greed, do not follow an exit strategy," said Haldea.

The promoters of HT Media Ltd, which publishes Hindustan Times and Mint, and Jubilant FoodWorks are closely related. There are no promoter crossholdings.

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