If you bought shares of XYZ company at the time of its listing in early 2000, you would have become a crorepati by now—We have all heard such stories from relatives, colleagues, or social media influencers. These narratives often capture the allure of investing in stocks early, suggesting that long-term investments in IPOs can make you wealthy and a crorepati. But how accurate are these claims?
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A recent research report from 1 Finance Magazine highlights that not all IPOs are long-term winners. The report indicates that the median return of IPOs between 2004 and 2024 has failed to outperform the broader Nifty indices.
IPO Numbers You Should Focus On
1 Finance Magazine examined IPOs from 2014 to 2024 to understand the overall primary and secondary share sales trends, their offer sizes, and how they have performed for investors. IPOs have been the latest hot topic in the Indian stock market over the last decade. A total of 1,489 IPOs were launched in India from 2014 to 2024. How much money has been raised through these IPOs? Since 2014, over ₹6 lakh crore has been raised through these offerings. Of this, 36.4% or ₹2.21 lakh crore, was raised by fresh issues, while 63.6% or ₹3.87 lakh crore, was raised for giving an exit to pre-IPO investors through Offer for Sale (OFS).
Note: 1 Finance Magazine compiled data of 1,380 companies from 2014 to 2024.
How Much Return Can You Expect From IPOs?
How have these IPOs historically performed for investors who bought at the offer price and held their shares? The answer is not that great. The 1 Finance Magazine report shows that the median annual return of IPOs was 5.9% during 2014-2024, while the major market indices, Nifty 50 and Nifty 500, delivered returns of 12.8% and 14.8%, respectively, during the same period.
| OVERALL COMPARISON (FRESH ISSUE AND OFS) | |
| Median return of IPOs | 5.9% |
| Nifty 50 CAGR | 12.8% |
| Nifty 500 CAGR | 14.8% |
Source: 1 Finance Magazine
If you think the low figure is due to poor returns from smaller companies in the SME segments, here are the average annual return performances based on issue size: Companies that raised between ₹500 crores and above tend to offer better median annualised returns, according to 1 Finance Magazine. However, these returns still lag behind those of the major indices.
| TOTAL ISSUE SIZE (IN ₹ CR) | COUNT OF COMPANIES | MEDIAN ANNUALISED RETURNS |
| 0-50 | 915 | 4.8% |
| 50-100 | 88 | 5.3% |
| 100-250 | 45 | 6.2% |
| 250-500 | 76 | 3.6% |
| 500-1000 | 118 | 9.1% |
| 1,000+ | 138 | 10.0% |
| Overall | 1,380 | 5.9% |
Source: 1 Finance Magazine
The report also highlights that companies using more than 50% of their IPO funds for OFS generally have lower average annual returns. Specifically, companies that allocate over 50% see a return of 5.9%, while those that use up to 50% have a higher return of 8.3%.
| CATEGORY BY MONEY RAISED FOR OFS | COUNT OF COMPANIES | MEDIAN ANNUALISED RETURNS |
| Up to 50% | 194 | 8.3% |
| More than 50% | 259 | 5.9% |
Source: 1 Finance Magazine
Should You Invest in IPOs?
IPOs are often seen as the golden opportunity to unlock financial potential and achieve substantial growth. However, they come with significant risks. While a select few deliver exceptional returns, the median performance suggests that most fall short. There are various reasons behind this: relatively new company, overvaluation, market conditions and others.
An IPO, or initial public offering, occurs when a privately owned company sells shares of its stock to the public for the first time. This allows individuals to buy a part of the company by purchasing these shares on the stock market.
Understanding how IPOs work and what you need to check before buying stocks is important for every investor.
High-Risk and High Volatility: Newly public companies are often categorised as high-risk and volatile due to their lack of a proven track record as publicly traded entities. The audited financial reports of the companies available before listing cannot guarantee future stability. Many factors can impact a company’s future, including global economic conditions, government regulations, and market cycles. Keep these considerations in mind before investing.
Don’t Go by Media Excitement: In recent years, IPOs have garnered much attention from investors thanks to media hype and advertisements. You may see large billboards or ads promoting these companies as an upcoming listing approaches. Exercise caution and be wary of getting swept up in the media frenzy when investing in the latest IPO.
Not Enough Information About the Company: Since these are new companies, gathering all necessary information can be challenging, particularly for SME IPOs. As an investor, it is important to understand the company, its growth drivers, the valuations of competitive companies and any company-specific risks. During bullish market conditions, many companies go public as investor enthusiasm rises, leading to some of the largest issues in the market. However, this excitement is often short-lived. During a bear market, companies are typically less inclined to launch IPOs. Invest the necessary time and energy into researching these opportunities; avoid making decisions based on speculation.
Are Investors Selling Their Shares or Running Away? There are several reasons why a company might opt to raise capital through an IPO. It is one way for private companies to raise equity capital. Other reasons include funding future growth, paying off existing debt, or providing an opportunity for current investors to sell their shares.
A report from 1 Finance Magazine suggests that the high proportion of OFS compared to fresh issues indicates that many IPOs serve as exit strategies for existing investors rather than as a means for companies to raise funds. You need to understand why they are selling before you invest your hard-earned money in IPOs. For instance, in the case of many startups, VCs want to exit at any price they can get. They may continue selling their shares even after the company is listed, which means you should be cautious about putting your savings into such investments.
So, if you invest in an IPO thinking it will make you a crorepati in the long run, you may be in trouble. Not all IPOs have shown consistent long-term success—very few of them are. Don’t go by outliers and invest blindly. Consult a qualified financial advisor to discuss how investing in IPOs could benefit your long-term investment strategy.
