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Caution! 61% IPOs since 2010 making losses

DNAHM87244 | 6/22/2015 | Author : Sumit Khanna | WC :514 | Business & Economy

Analysis shows investors made losses in 78 of 127 IPOs since 2010
21 of these are quoting discount of 90% or more on the issue price


Ahmedabad: Here's a piece of advice for those of you planning to invest in the equity markets through Initial Public Offerings (IPOs) —think twice before you do that. While investors have made good money in some of the IPOs in recent times, many more have suffered huge losses in more than a few issues.
According to Prime Database, 127 companies hit the equity markets between January 1, 2010, and June 18, 2015, raising more than Rs56,000 crore. An analysis of the share prices of these companies shows that shares of 78, which work out to be more than 60%, are presently trading below the issue price.
The year 2010 was a landmark year for Indian IPO market as it saw as many as 64 IPOs. However, shares of 43 of these companies are quoting below the issue price at present, while 21 are trading in the green.
In 2011, 37 IPOs hit the equity markets, of which 26 shares are quoting below the issue price.
There was a lull in public offerings in 2012, 2013 and 2014, with just 11, three and five IPOs respectively. Shares of five of these 19 companies are trading below the issue price.
With seven IPOs so far, the year 2015 has been a comparatively better one for companies tapping equity markets. However, shares of four of these companies are trading at a discount on the issue price.
More proof
A recent report by proxy advisory firm IiAS (Institutional Investor Advisor Services) shows around 60% investors have lost money in IPOs since April 2003.
IiAS analysed 394 IPOs, which hit the markets between April 1, 2003, and July 31, 2014, and found that shares of only 164 companies were trading above the offer price. The remaining shares were trading at a discount. The report said that valuations for many public offerings were far from 'fair', and investors were better placed investing money in fixed deposits.
The danger sign
An ominous sign for investors is that shares of 21 of the 127 companies are quoting at a discount of 90% or more as compared to the issue price. Shares of 11 others are 80-90% lower, while in four other companies, investors have seen value erode by 70-80%.
"This happens mainly because investors do not check the company or promoters or the business before investing in IPOs. Unfortunately, investors end up following grey market speculators, and in turn, end up losing money," says Aasif Hirani, director, Tradebulls Securities.
Nilesh Kotak, MD of Dhanvarsha Fincap, squarely blames the nexus between merchant bankers and promoters for small investors' losses.
"From ridiculously high premiums to high fees, promoters and merchant bankers are the only ones who are profiting from IPOs. Unfortunately, SEBI has failed to protect interests of the small investor," Kotak alleges.
Brokers say that in lure of quick money, many investors decide to invest in IPOs solely on the basis of grey market trends.
Tips for investors
Check the background of promoters & company’s fundamentals before investing
Resist temptation of quick money, avoid following grey market speculators
Invest in quality shares – not necessarily IPOs
Invest for the long-term

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