Are IPOs Good for Listing Gains or for the Long Haul?

Introduction

Initial Public Offerings (IPOs) often capture investor attention, promising quick profits and market excitement. From Tata Technologies’ 160 per cent debut surge to Zomato’s rollercoaster journey, IPOs have offered both thrills and lessons. Yet, the question remains — are IPOs better for instant listing gains or long-term wealth creation? By analysing IPOs listed between 2022 and 2024 and comparing their performance with the BSE 500, we uncover what truly works for investors — chasing short-term hype or staying invested patiently.

IPO Index vs BSE 500: Short-Term Euphoria vs Steady Compounding

In 2024, the BSE IPO Index surged about 31 per cent, significantly outperforming the BSE 500, which rose around 14 per cent. New listings, particularly in manufacturing, tech, and financial services, benefited from strong investor sentiment. However, higher volatility in the IPO Index revealed greater short-term risk.

Over a three-year horizon, the story reversed. The BSE 500 gained nearly +45.8 per cent, while the IPO Index delivered only +31.6 per cent. Many newly listed firms saw steep corrections in 2022–2023 as inflated valuations met earnings reality. Established companies in the BSE 500 continued to grow steadily, demonstrating that long-term compounding favours mature, fundamentally strong businesses.

IPO Performance Data (2022–2024): The Reality Check

Between 2022 and 2024, IPOs recorded an average listing gain of 24.88 per cent, but the median stood at just 16.16 per cent, showing that only a few enjoyed stellar debuts. About 76 per cent of IPOs listed negatively, indicating that most short-term traders faced disappointment.

Over time, the picture improved slightly — 40 per cent of IPOs now trade above their issue price, with an average till-date gain of 54.06 per cent. However, the extreme range — from +1176 per cent to -97 per cent — shows that success depends heavily on stock selection and timing. The data reveals a shift from hype to fundamentals: IPOs backed by strong governance and earnings growth ultimately rewarded patient investors.

Median Returns: IPOs vs BSE 500

Across timeframes, IPOs consistently underperformed the BSE 500. Median IPO returns were 4.2 per cent, 7.8 per cent, 7.2 per cent, and 6.2 per cent over 3, 6, 9, and 12 months, while the BSE 500 delivered 4.5 per cent, 13.1 per cent, 12.0 per cent, and 12.2 per cent respectively. The gap widened over time, underscoring that while initial enthusiasm supports IPO prices, it fades as valuations normalise. In contrast, diversified Large-Cap companies sustain steady returns, backed by proven track records and institutional participation.

Why IPO Investing Can Be Risky

Many IPOs are priced for perfection, launched when markets are bullish to maximise valuations. Once listed, reality sets in — inflated expectations meet operational challenges, leading to underperformance. Moreover, newly listed companies lack historical data, making risk assesSMEnt difficult. Liquidity often evaporates after debut, leaving retail investors stuck in losing trades.

Hence, while a few IPOs may turn into multibaggers, the odds favour caution. Sustainable wealth is usually built through quality stocks purchased at fair valuations, not by chasing new listings at any price.

Conclusion

IPOs can offer thrilling listing gains, but long-term data shows that fundamentals, not frenzy, create wealth. With three-fourths of IPOs listing below issue price and consistent underperformance versus the BSE 500, investors should focus on quality and valuation rather than speculation. Select IPOs can indeed turn into long-term winners — but patience, due diligence, and disciplined post-listing entries remain the real keys to success in India’s evolving IPO landscape.