Jagannadham Thunuguntla, equity head at brokerage SMC Global, said, “The public sector companies enjoy virtual monopoly in the industry segments they operate in, with significant market share. Besides, they have stable and healthy balance sheets backed up with consistent revenue streams. This makes PSU companies far more attractive investment propositions to investors in comparison with their private sector peers.”

1. Over five years, IPO returns trail FDs’
Sachin P Mampatta / DNA MONEY | Tuesday, 25 November , 2008, 09:02
Mumbai: Until the market took a turn for the worse in January this year, investing in initial
public offers (IPOs) was seen as a sure-fire way of bagging a multi-bagger before it got off the
ground.
However, an analysis of IPO performance over the last five years, i.e. the entire time of the bull
run and the correction that followed, shows that putting your money in fixed deposits (FDs)
would have given you better returns.
Within the IPO space, again, the issues of public sector companies have fared better than those of
private ones.
All the same, the earlier one bought in the primary market during the bull years, the greater his
returns would be, says a report by NEXGEN Capitals Ltd.
Overall, the current year was the worst for IPOs since 2004.
Total returns on IPOs till October this year stood at -57% as opposed to -39% on IPOs of 2007
and -7% on those of 2006.
IPOs from 2005 showed a return of 14%, which is considerably lower than what you would have
got from a bank deposit over three years.
Even if your FD offered just 8% five years ago, it would have yielded a total return of 58%.
This is way better than the overall return of -2% on IPOs over the five-year term. Over the same
period, PSUs showed returns of 63%, while private sector IPOs had returns of -23%.
Analysts attribute the relative outperformance of PSUs to the fact that they offer better value for
money.
Also, as Himanshu Varia, head of institutional sales at Asit C Mehta Investment Intermediates
Ltd said, “(It) may be on account of the fact that the companies are fundamentally good, IPO had
come at attractive levels and that being a PSU are normally seen as defensive.”

2. Experts suggest that the trend of PSU IPOs performing better than the private sector ones has to
do not only with more realistic pricing, but also the more stable and consistent financial
condition of these companies as compared with the private sector ones.
Jagannadham Thunuguntla, equity head at brokerage SMC Global, said, “The public sector
companies enjoy virtual monopoly in the industry segments they operate in, with significant
market share. Besides, they have stable and healthy balance sheets backed up with consistent
revenue streams. This makes PSU companies far more attractive investment propositions to
investors in comparison with their private sector peers.”
IPOs for 2006, 2007 and 2008 have yielded negative returns according to current market prices.
However, those issued in 2004 and 2005 are still showing positive return, at 67% and 14%,
respectively on a mark-to-market basis for October.
IPOs are now a scarce species as investors seem wary of putting their money in them.
Considering the bludgeoning the markets have taken overall, this is understandable.
Thunuguntla said, “Even when the extremely quality stocks are available in secondary markets
at the valuations of 2 to 3 times that of their historic yearly earnings, these stocks are unable to
attract the attention of investors. Then its quite understandable investor community is paying
deaf ears to the primary markets in general and IPO market in specific.”
Varia agreed that IPOs would face tough times, “Fundamentally sound company offerings at
attractive valuations would find potential takers. However, with the current situation of
uncertainty, the atmosphere looks bleak for primary market issuances.”