Coffee Can Investing Fails for Mega IPOs: Study Reveals Poor Stock Performance in Reliance Power, Zomato, and More

Investing in large Initial Public Offerings (IPOs) and holding them for a long time may not always guarantee good returns. A study by Capitalmind Financial Services found that out of India’s 30 biggest IPOs, with sizes ranging from ₹4,000 crore to ₹20,000 crore, 18 of them performed worse than the Nifty 500 index.

The study calculated returns based on an investor buying shares during the IPO and holding them, including reinvested dividends. It showed that the largest IPOs have been the least rewarding for investors. For instance, eight of the top 30 IPOs, including Reliance Power, have resulted in losses, with Reliance Power falling 84% since it was listed.

Smaller IPOs in the list have generally performed better than their benchmarks. One reason for the poor performance of larger IPOs is that they tend to be priced higher, putting pressure on the companies to show earnings growth soon after going public. Anoop Vijaykumar, head of research at Capitalmind, pointed out that large IPOs often happen during a bull market when investors are more willing to buy shares, but this can lead to bigger losses if market conditions change.

However, some large IPOs have done well, such as Coal India and Zomato, which outperformed the Nifty 500 index. Other successful companies include Hindustan Aeronautics, Indian Railway Finance Corp, Sona BLW Precision Forgings, and ICICI Lombard. Five of the top 10 IPOs based on returns, including Bajaj Housing Finance, Bharti Hexacom, and Brainbees (FirstCry), were launched in the past two years.