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IPOs: India beats US with higher returns

IPOs on domestic bourses give a return of 13% over their issue price against an 8% return in the US market.

business Updated: Jul 16, 2007 16:51 IST

Concerns may have been raised about newly listed companies trading below their issue price, but domestic firms have outperformed their US counterparts in terms of investor returns in the stock markets.

Initial public offers on the domestic bourses have given an average return of about 13 per cent over their issue price so far this year.

This is against a lower eight per cent return in the much-mature market of the US, according to an analysis of IPOs in the two countries by PTI research team.

The study is based on data collected from the US and Indian stock exchanges and covers IPOs from January till April 20 this year.

The analysis allays fears over investors losing their wealth in IPOs due to a large number of stocks plunging sharply after a dream listing with huge premium. This is because the average return at the current levels is actually higher than the return at the time of listing in India.

In comparison, the current average return from the IPOs in the US is lower than the average return on the first day of listing. This indicates that listings have been at overvalued levels and were followed by softening in share prices.

Incidentally, the number of new listings is also higher at 53 in the US, as against 40 at India's two premier bourses - Bombay Stock Exchange and National Stock Exchange.

"It validates the point that IPOs in India are actually under-priced. All IPOs have been listed at a premium and investors will continue to gain from investment in them," Prithvi Haldea of IPO-tracking firm Prime Database, said.

Haldea said unnecessary scare is created when secondary markets crash, but the point remained that IPOs would keep on providing benefits to investors.

The shares of 40 companies that listed their shares after IPOs since the beginning of this year have given an average positive return of 12.82 per cent over the issue price. This is more than the average return of 9.15 per cent at the time of their listing.

In comparison, the 53 IPOs in US markets are giving an average return of 8.4 per cent, down from over 10 per cent on their first day of listings.

The rate of return given by certain IPOs is also much higher than the biggest gainers in the US. The maximum and only company which has given a return of more than 100 per cent so far this year is FC Stone Group, a commodity risk management consultancy firm, which rose 103.5 per cent.

In comparison, as many as three IPOs in India have given returns of over 100 per cent so far this year. Digital movie theatre chain Pyramid Saimira topped the list with a whopping 243 per cent gain.

Shares of credit rating agency ICRA is also trading 167 per cent above its IPO price, followed by Global Broadcast News (124 per cent), Mindtree Consulting (91 per cent) and Cambridge Technology (71 per cent).

Seven IPOs launched this year are trading with more than 50 per cent gain over their issue price on domestic bourses.

However, the US scores over India when it comes to the proportion of IPOs that have given positive returns. Out of a total of 40, as many as 17 stocks (42.5 per cent) are trading with gains in the domestic market, as against 30 in the US from a total of 53 (57 per cent).

Though India has a higher percentage of gainers at the time of listing with 24 trading with gains (60 per cent), it is still lower than 73.5 per cent in the US where total 39 companies listed with premium.

The maximum listing day return is, also lower in India than the US, where the biggest premium a stock has given so far this year is 67.6 per cent by Fortress Investment Group, an asset management firm.

In India, none of the IPOs have given a better return at the time of listing with the top listing premiums being 66.8 per cent from GBN and 56 per cent from ICRA public issues.