How IPOs' Day 1 heroes become medium-term villains

New IPOs (initial public offerings) always create a stir. There's hype, headlines and the hope of making quick money on listing day. Everyone wants a piece of the action, thinking they've spotted the next big thing.

But once the confetti settles and the excitement cools off, the real picture begins to emerge. And it's not as pretty.

The post-listing picture

We analysed IPOs from the last three years to see how they performed after the fanfare faded. The results? Underwhelming.

While some stocks delivered strong listing day gains (or day-one gains), many slipped badly in the months that followed. For those unaware, listing day gains refer to the jump in a stock's price compared to its issue price on the day it debuts on the stock exchange. This initial jump is usually driven by investor enthusiasm, market sentiment and demand for the stock.

Nearly half of the IPOs (48 per cent) delivered negative returns after six months, and over 52 per cent were in the red after a year.

Let's look at some big names from the recent IPO wave:

• LIC went public in May 2022, but the stock was down 26 per cent in six months and over 34 per cent in a year.
  
• Bajaj Housing Finance debuted in September 2024 and saw a strong initial gain—but fell 23 per cent in six months, with a one-year decline of nearly 21 per cent.
  
• NTPC Green Energy, listed in November 2024, dropped 15 per cent within six months.
  
• Even Hyundai Motor India, a high-profile name that listed in October 2024, declined by nearly 18 per cent just months after listing.

Clearly, early excitement hasn't translated into sustained investor returns.

What you need to know

1. Listing day pop ≠ long-term potential

A strong debut on the stock exchange doesn't guarantee strong performance later. IPOs like Bajaj Housing Finance and Waaree Energies had strong listing gains, but their performance fizzled. Many investors assume that a good start means a good future—but that's not always true.

2. Hype fades, reality stays

Companies launching IPOs often run strong marketing campaigns and get a lot of media attention. Take Nykaa , for instance. It had one of the flashiest IPOs in recent years. But once listed, the only thing that mattered was earnings. Growth or profits didn't match expectations. As a result, the stock slid.

3. IPOs are often aggressively priced

Most IPOs are structured to benefit the promoters, not retail investors like you and me. The issue price often factors in a generous growth outlook. If those projections fall short, the stock starts to slide.

Moreover, to take advantage of bullish sentiment, even poor-quality companies try to get listed. As a result, investors end up owning weak businesses, which leads to losses over time.

4. Allotment isn't guaranteed

Getting shares in a hot IPO isn't easy. Subscription levels often exceed available shares, especially in the retail category. It is often like a lottery. So, even if an IPO seems promising, there's no certainty you'll get a piece of it.

5. Better to wait and watch

Instead of rushing in, long-term investors might do better by waiting. Let the company report a few quarters of results. Track its performance and management commentary. This gives you a clearer picture and often a better entry price.

At Value Research, we strongly advise against investing in IPOs. The data backs this. IPOs have been money-destroying machines for many investors—whether you look at the big names or smaller SME issues.

Yes, you might make money if you're lucky enough to get an allotment. But remember what the data shows: most stocks that debuted in the IPO rush of the last few years have performed disappointingly after the initial few days of roaring gains. The chances of you ending up with solid sustaining gains are a coin toss.

So, skip the listing day rush and wait for fundamentals to speak for the company.

Also read: Here's why I want you to sell your small-cap funds ASAP

This article was originally published on April 09, 2025.