A
staggering 60 per cent of the investors who bought shares in initial
public offerings over the decade since April 2003 have lost their
money amid valuations far from being "fair", says a report.
Noting that performance of IPOs over the last 10 years does not
inspire investor confidence, proxy advisory firm IiAS said that
valuations for such sales were far from "fair". An analysis
of 394 IPOs -- made between April 1, 2003 and July 31, 2014 -- showed
that only 164 companies were currently trading above the offer price,
which is 42 per cent of the total such offerings. "... returns
from investing in IPOs have been dismal over the past 10 years. About
60 per cent of investors lost money, and on the whole, investors were
better placed investing their money in fixed deposits," IiAS
said in a report released today. The findings also come at a time
when many companies have lined up plans for initial share sales.
According to the firm, if one is to go by past trends, there is more
than a two-third chance that investors would have made higher returns
by investing in fixed deposits rather than in IPOs. "Of the 164
companies that are currently trading above the offer price, the
returns are not significant: in 20 per cent of this set of companies,
investors would have made higher post-tax returns by investing in
fixed deposits rather than these IPOs," the report noted. IiAS
said the analysis is being made during a bull run, as the markets
have moved up 30 per cent in the past one year. "Were this
analysis based on market prices a year ago (with January 16, 2014
price data instead of January 16, 2015 data), 245 (or 70 per cent)
companies would have been quoting below their offer price," it
said. Observing that investing in IPOs is like a game of chance, the
report said that investors are craving for genuine price discovery.
Out of the 20 public sector companies that came with their initial
share sales since fiscal 2004, four entities' scrips were trading
below their issue price as on January 16. These companies are MOIL,
NHPC, Punjab & Sind Bank and United Bank of India, the report
said. Besides, IiAS said that shares of 25 companies that raised
money through IPOs between 2004 and 2013 have been suspended for
either procedural lapses or as a penal action. "More worrying is
that over 70 per cent of the companies reported lower net profit
margins and return on equity ratios than in the financial year in
which the shares listed. "This would have more likely lowered
their valuations, independent of any market run-up," it added.
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