Thought I would share my analysis of IPOs of 2010; a year which saw the stock market run upto 21K on the Sensex and then started to taper off. Today the Sensex is at almost 19K.
• There were 64 odd companies which tapped the primary market (IPOs).
• I have excluded 6 FPOs from my analysis (SCI, Power Grid, NTPC, REC, Engineers India, NMDC).
• IPO ratings have also been a new feature among most of the IPOs. Ratings were to help investors make better judgments before they invested in companies.
• The credit agencies (some of them are well-known) are CRISIL, CARE, ICRA, Fitch & Brickworks.
• Ratings are on a scale of 1 to 5 with 5 being the highest.
• Absolute returns is the absolute (non-annualized) profit or loss from the date of IPO listing till date.
• Annualized return is the return extrapolated to a per annum basis.
Here’s the low down:
Companies with IPO Rating of 1, 2 and No Rating
• Out of the 64 companies which had an IPO in 2010, 25 companies had a rating of 1 or 2 (including 2 which did not have a rating).
• From the previous point, it can be implied that 39% of last year’s IPOs were of companies with weak financial status / fundamentals
o Out of these 25, only 7 have a positive return till date (28% of the weak companies gave a positive return till date)
o 2 IPOs gave returns in the range of 0 to 10% profit
o Remaining 5 (out of the 7 IPOs with positive returns) gave above 10% (2 IPOs in fact have more than 30% profit)
o Negative absolute return range is from -22% to -80%
Companies with IPO Rating of 3
• Another 21 companies out of 64 had an IPO rating of 3 (33% of all IPOs last year had average financials)
o 6 IPOs have positive returns
- 5 of the 6 have returns in excess of 75% absolute returns
- The same 5 have an annualized returns of 77% (pa) as the lowest and 298% (pa) as the highest
- Out of these 5 super performers 3 companies have been listed for less than a year
o Remaining 15 IPOs had negative absolute returns ranging from -12% to -93%.
- Out of these 15 IPOs, 7 companies (with negative returns) have been listed for over an year on the stock markets.
o Negative absolute return range is from -12% to -93%
Companies with IPO Ratings of 4 and 5
• Finally, 18 IPOs had a rating or 4 or 5 (28% of all IPOs last year had strong financials)
o Only 2 had a rating of 5 – (Coal India and MOIL)
o Coal India’s absolute return is 54.57% (annualized 110.66%)
o MOIL’s absolute return is 0.97% (annualized 2.56%)
o 5 IPOs (including Coal India and MOIL) have a positive return
o 13 IPOs absolute return ranges from -3% to -55%
Summary
• Only 18 out of 64 IPOs gave positive returns; that’s a dismal 28% success rate of making any profit through IPOs
• 15 out of 64 IPOs gave a positive return more than the return on a fixed deposit (FD rate assumed as 8% pa)
• 8 out of 64 IPOs gave absolute returns of more than 50%; that’s a success rate of 1 in 10
• IPO ratings are only indicators so DO NOT invest in IPOs based on ratings
• Set your profit margins when you invest in IPOs; 10% absolute returns on listing is a safe bet
• Book your profits as soon as you hit your profit margins; preferably take out you capital and leave the profit in shares
• Always invest on the last day of the IPO
• Look at the subscription levels before you decide to invest in an IPO
• Set stop loss levels and exit stocks before you lose out most of your capital
• Don’t be in love with your investments in IPOs
o Don’t be too greedy for more profits
o Don’t wait for a share to come back to its cost price to exit; cut your losses
• Hindsight is always 20 / 20
o Murphy’s Law works; shares will always move up after you sell and always fall after you buy
• It’s better to pay 15% as tax on ‘short term capital gains’ than 20% (or 30%) as tax on interest from FDs. Hence, a 10% absolute return in an IPO is better than a 10% pa return on a FD.
Disclaimer: The views given above are my own and care has been taken to be as accurate as possible in representation of facts, figures and interpretations.
Stock Price Sources: BSE, NSE
• There were 64 odd companies which tapped the primary market (IPOs).
• I have excluded 6 FPOs from my analysis (SCI, Power Grid, NTPC, REC, Engineers India, NMDC).
• IPO ratings have also been a new feature among most of the IPOs. Ratings were to help investors make better judgments before they invested in companies.
• The credit agencies (some of them are well-known) are CRISIL, CARE, ICRA, Fitch & Brickworks.
• Ratings are on a scale of 1 to 5 with 5 being the highest.
• Absolute returns is the absolute (non-annualized) profit or loss from the date of IPO listing till date.
• Annualized return is the return extrapolated to a per annum basis.
Here’s the low down:
Companies with IPO Rating of 1, 2 and No Rating
• Out of the 64 companies which had an IPO in 2010, 25 companies had a rating of 1 or 2 (including 2 which did not have a rating).
• From the previous point, it can be implied that 39% of last year’s IPOs were of companies with weak financial status / fundamentals
o Out of these 25, only 7 have a positive return till date (28% of the weak companies gave a positive return till date)
o 2 IPOs gave returns in the range of 0 to 10% profit
o Remaining 5 (out of the 7 IPOs with positive returns) gave above 10% (2 IPOs in fact have more than 30% profit)
o Negative absolute return range is from -22% to -80%
Companies with IPO Rating of 3
• Another 21 companies out of 64 had an IPO rating of 3 (33% of all IPOs last year had average financials)
o 6 IPOs have positive returns
- 5 of the 6 have returns in excess of 75% absolute returns
- The same 5 have an annualized returns of 77% (pa) as the lowest and 298% (pa) as the highest
- Out of these 5 super performers 3 companies have been listed for less than a year
o Remaining 15 IPOs had negative absolute returns ranging from -12% to -93%.
- Out of these 15 IPOs, 7 companies (with negative returns) have been listed for over an year on the stock markets.
o Negative absolute return range is from -12% to -93%
Companies with IPO Ratings of 4 and 5
• Finally, 18 IPOs had a rating or 4 or 5 (28% of all IPOs last year had strong financials)
o Only 2 had a rating of 5 – (Coal India and MOIL)
o Coal India’s absolute return is 54.57% (annualized 110.66%)
o MOIL’s absolute return is 0.97% (annualized 2.56%)
o 5 IPOs (including Coal India and MOIL) have a positive return
o 13 IPOs absolute return ranges from -3% to -55%
Summary
• Only 18 out of 64 IPOs gave positive returns; that’s a dismal 28% success rate of making any profit through IPOs
• 15 out of 64 IPOs gave a positive return more than the return on a fixed deposit (FD rate assumed as 8% pa)
• 8 out of 64 IPOs gave absolute returns of more than 50%; that’s a success rate of 1 in 10
• IPO ratings are only indicators so DO NOT invest in IPOs based on ratings
• Set your profit margins when you invest in IPOs; 10% absolute returns on listing is a safe bet
• Book your profits as soon as you hit your profit margins; preferably take out you capital and leave the profit in shares
• Always invest on the last day of the IPO
• Look at the subscription levels before you decide to invest in an IPO
• Set stop loss levels and exit stocks before you lose out most of your capital
• Don’t be in love with your investments in IPOs
o Don’t be too greedy for more profits
o Don’t wait for a share to come back to its cost price to exit; cut your losses
• Hindsight is always 20 / 20
o Murphy’s Law works; shares will always move up after you sell and always fall after you buy
• It’s better to pay 15% as tax on ‘short term capital gains’ than 20% (or 30%) as tax on interest from FDs. Hence, a 10% absolute return in an IPO is better than a 10% pa return on a FD.
Disclaimer: The views given above are my own and care has been taken to be as accurate as possible in representation of facts, figures and interpretations.
Stock Price Sources: BSE, NSE
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