Worst performing IPOs of 2022. And what can you learn from these defeats

A lot happened in the financial markets in the calendar year 2022. One of the notable events of 2022 was the 80-day long pause in the primary markets.

indian stock market The first half of 2022 faces a crisis due to the pandemic, geopolitical tensions, interest rate hikes and supply chain disruptions.

As a result, due to weak sentiment, many companies were listed at a discount.

Considering the scenario, large companies which had got their prospectus approved also did not come out with their respective offer.

Oyo, Snapdeal and many other start-up IPOs shelved their IPO plans.

This scenario reiterates the belief of the greatest investor of all time – Warren Buffett. Back in 2004, the Oracle of Omaha explained at its AGM,

,The status of an IPO is closer to that of a negotiated deal. I mean, in most cases the seller decides when to hit the market. And they don’t choose a time that isn’t necessarily good for you.

… Sometimes IPOs will come in terrible markets, and they can come very cheap. But largely this does not happen when IPOs come. They come when the seller feels the market is ready for them.

2022 was indeed a rocky year for the primary market. it saw something heavy loss ipo,

Let us take a look at the worst performing IPOs of 2022. Keep reading to find out the lessons that can be learned…

AGS Transact Technologies tops the list

The worst performing IPO of 2022 was AGS Transact Tech.

AGS Transact Technologies is one of India’s leading omnichannel payment solution providers. It is the second largest company in India in terms of revenue from ATM-managed services and also has the largest deployment of POS terminals at petroleum outlets in India.

The company’s offer went live on 19 January 2022. The price range of the offer was Rs 166 to Rs 175. The shares were listed at par on 31 January 2022.

However, it was only after this that the real problems began. The share price started coming down gradually due to several factors.

On the last trading day of 2022, AGS Transact Technologies closed at Rs.63.7. In 2022, the share price declined 63.6% from its listing price.

Driven by weak financial condition, high valuations, poor market sentiment and intense competition from its peers, AGS Transact Technologies faced a rapid market downturn.

Which other companies followed the leader?

After AGS Transact Technologies, the next worst performing IPO in line was the new age IT stock from the supply chain space – Delhivery.

After getting listed at a small premium, Delhivery’s share price saw a sharp drop in share price. Since its listing, the share price has slumped 31.9%.

Like all other new tech stocks, Delhivery too bleeds into the stock markets in 2022. Due to poor quarterly results, the end of the IPO lock-in period and supply chain constraints, the share price went into the ground.

The second company after Brigade was Uma Exports. Since listing, the share price of Uma Exports has declined by 29.8% in its market cap. The stock was listed at a premium of 18%.

Market experts predicted a fall in share prices due to stiff competition and lower profit margins.

Next in line is the recently listed Abans Holdings. The company’s share price is expected to decline by 29.6% in 2022. In addition to negative cash flow, the company operates under stiff competition, and is heavily dependent on its 17 subsidiaries, which affected investor sentiment.

Abans Holdings was followed by the biggest IPO in the history of Indian IPOs – Life Insurance Corp (LIC).

LIC’s share price fell 27.9% from its listing. Stiff competition, saturated business and bureaucracy took a big toll on the insurance giant. These were the main reasons for the fall in LIC share prices.

LIC IPO also confirmed this belief that how The bigger the IPOs, the harder they fall,

LIC is followed by Inox, the renewable energy arm of Inox Green Energy, to lose 26.3% of its market capitalization in 2022.

These IPOs gave sleepless nights to investors. Let us learn from the nightmare and make sure we don’t make these mistakes in 2023.

Lessons to be learned from these failures

#1 Remember, offer price does not equal cheap price

People mostly buy IPOs on the belief that the shares are available at a lower price during the IPO. These can be sold at a higher price once they are listed on the exchanges. This is one of the reasons why people invest in IPOs.

This reason holds true for strong companies with high growth potential. But this reason may not always be correct.

Never compromise on valuations and more so when it comes to loss making or tech companies.

IPO is the first opportunity to invest in the business. Hence it would be prudent to wait until you better understand the long-term prospects of the company or until the stock trades at valuations that offer some margin of safety.

#2 Prospects Can Mislead But Basics Paint a Clear Picture

New-age tech stocks featured rainbows and unicorns in their draft prospects. But when these companies actually hit the market, they were all carried at their fair values. Most of them saw a sharp improvement.

To quote from Joel Greenblatt’s investing quote,

,Market is very emotional but doing something logical and systematic over time works. The market eventually corrects it.

So always be sure to test the reality of prospects before relying on them.

#3 Premium listing of shares does not mean bright future for share price

Uma Exports and Zomato are prime examples of this lesson. Shares of Uma Exports got listed at 18 per cent premium.

Even Zomato was listed at a huge premium and then the share price crashed into the ground. The share price eventually returns to its fundamental value.

#4 If general market sentiment is weak, even good IPOs will lose money

This should be the most obvious and biggest lesson from the 2022 IPO.

The headwinds of 2022 dragged bluechip stocks down as well. In many cases it was not the company’s fault but general market perception hurt them.

A good mango that is ready to be picked and eaten will turn rancid and rotten if it rains too much.

#5 Analyzing the Competition

Many IPOs suffered losses last year due to intense competition.

That’s why comparing the company’s valuation to peers or industry averages is a good way to make a decision.

investment takeaway

An IPO can be a lucrative play when four things match up.

• decent valuation
• positive market value
• strong fundamentals
• realistic possibilities

2023 has started and many companies have prepared their IPO plans. Here are some big IPOs to watch this year.

First investing in ipo in 2023See if they fit the above four points.

Overall, treat an IPO as any other stock you might consider for a long-term investment.

There is no reason to compromise on moat, management quality and valuation of the company.

Happy Investing!

Disclaimer: This article is for information purposes only. This is not a stock recommendation and should not be treated as such.

This article is syndicated equitymaster.com