LESSONS LEARNT FROM NEW AGE IPOS

Last year many new-age technology companies were listed with much fun-fare. In the last six months many of them have sharply eroded the value of their investor's wealth. What lessons an investor should learn from this?

Spanish philosopher George Santayana is credited with the aphorism, “Those who cannot remember the past are condemned to repeat it.” It is true in all walks of life and investment world is no exception.

We saw last year (2021) many new-age companies made their way to the public markets on Indian and international bourses. Many of them were household names and were able to make stellar debuts. The performance of newly listed companies is well captured in the S&P BSE IPO index. This index is designed to measure the performance of companies listed at BSE after the completion of their initial public offering (IPO). The index is calculated using a modified market-cap-weighted methodology. At each rebalancing, the maximum weight of each constituent is capped at 20%.

For the calendar year 2021, BSE IPO index generated return of 55.6 per cent compared to 21.9 per cent by Sensex and 30.11 per cent by much broader index BSE 500. Even in year 2020 we saw IPO index outperforming these indices. For year 2020, Sensex gave return of 15.8 % while BSE 500 gave return of 18.41 per cent compared to IPO index 27.56 per cent.

Nonetheless, in last six months as tide is turning, IPO index has started to underperform the main indices. Since the mid of month of October 2021, BSE IPO Index is down by 21.7 per cent while Sensex is down by one third of it at 6.9 per cent.

The adjacent graph captures the performance of Sensex and BSE IPO index since the start of year 2020. It is clearly visible that after outperforming for most part of last two years it has started underperforming in last six months.

Investors still licking their wounds