Benchmark Vs PSU IPOs

Over the past few years, the government has been using the IPO route aggressively to meet its disinvestment targets, thereby narrowing the fiscal deficit. Further, with this route, it has been putting the best foot forward to unlock potentials and bring greater accountability to PSUs. The government is quite optimistic about this route of meeting disinvestment targets, however; the reality speaks a different story. If the market data is anything to go by, it's apparent that disinvestment targets-through this route-are being met at the expense of investors. With 8 out of 13 companies providing negative returns as on date, investors in these IPOs are losing as much as 40% in some cases. Undoubtedly, in 2018, the market was in the grip of a sombre atmosphere. Volatility continued in the world stock market. Beginning with the introduction of long term capital gains and price fluctuation caused worry in the crude oil space. Adding to these woes was the liquidity crisis due to IL&FS and the NBFCs. However, apart from this market condition, many other factors contributed to the poor performance of these PSU IPOs. Reasons behind the Underperformance of the PSU IPOs While some of these reasons were specific to particular industries, some were more related to particular organisations. Further, with regard to pricing, these IPOs did not fare well, too. For example, Garden Reach Shipbuilders was priced at 16 times FY18 earnings, whereas Cochin Shipyard was trading at 13 times with a higher return on equity. Clearly, most of these IPOs came at stiff valuations and nothing was left on the table for retail investors. Another flaw was the size of the issue. In