Why Do Large-Size IPOs Often List at a Discount?

Large-sized IPOs typically generate significant attention due to their scale and potential impact on the market. However, despite the initial excitement, these IPOs often face challenges when they debut on the stock exchange. A common outcome is that they list at a discount—below their IPO price. This trend can be attributed to a combination of factors such as overvaluation concerns, market timing, and investor behavior. Understanding why these massive offerings underperform at listing helps investors navigate the complexities of the IPO market. Despite the hype and anticipation, many large-sized IPOs tend to list at a discount due to a combination of factors:

1. Overvaluation Concerns

When an IPO is significantly large, companies may set ambitious pricing to maximize capital, but the market may not see the same value. Investors often perceive big IPOs as overvalued, leading to cautious trading and a tendency to sell immediately, pushing the stock price down.

2. Liquidity Pressure

Large IPOs flood the market with shares, creating significant selling pressure, especially from institutional investors and those looking for quick gains. This excess supply can drive the price down at listing, resulting in a discount.

3. Market Sentiment & Timing

Market conditions at the time of listing play a huge role. If there is uncertainty, high volatility, or negative news (such as global economic concerns or interest rate hikes), investor sentiment can be weak. This often leads to poor listing performance, as seen with Paytm’s IPO during a bearish market phase.

4. Lock-In Periods for Anchor Investors

Large IPOs often attract anchor investors who invest before the public issue opens. These investors have lock-in periods, but once those end, there is a rush to offload shares, adding to downward pressure on the stock price shortly after listing.

5. Complexity and Lack of Retail Participation

IPOs of large companies with complex business models, like LIC or Paytm, may not be easily understood by retail investors. This lack of enthusiasm from retail buyers can lead to weak demand, contributing to a listing discount.

6. Investor Fatigue

If there is a wave of IPOs in the market, investor fatigue can set in. With too many large public offerings occurring in a short span, investors may choose to skip certain IPOs, diluting demand and pushing down listing prices. ₹ 10,000+ Crore IPOs in India: A Historical Overview

1. LIC Ltd

Issue Size: ₹ 21,008 Cr

Listing Date: 17th May 2022

IPO Price: ₹ 904

Listing Price: ₹875 (Listed at a Discount)

2. Paytm Ltd

Issue Size: ₹ 18,300 Cr

Listing Date: 18th November 2021

IPO Price: ₹ 2,150

Listing Price: ₹1,564 (Listed at a Discount)

3. Coal India Ltd

Issue Size: ₹ 15,199 Cr

Listing Date: 4th November 2010

IPO Price: ₹ 245

Listing Price: ₹342 (Listed at a Premium)

4. Reliance Power Ltd

Issue Size: ₹ 11,563 Cr

Listing Date: 11th February 2008

IPO Price: ₹ 450

Listing Price: ₹ 372 (Listed at a Discount)

5. General Insurance Corp of India Ltd

Issue Size: ₹ 11,175 Cr

Listing Date: 25th October 2017

IPO Price: ₹ 912

Listing Price: ₹870 (Listed at a Discount)

6. SBI Card

Issue Size: ₹ 10,354 Cr

Listing Date: 16th March 2020

IPO Price: ₹ 755

Listing Price: ₹683 (Listed at a Discount) While large IPOs generate buzz, the sheer scale of these issues brings inherent risks. Out of the 6 mega IPOs, 5 listed at a discount, demonstrating the challenges in pricing and timing such massive public offerings in a dynamic market environment. DISCLAIMER: No financial information whatsoever published anywhere here should be construed as an offer to buy or sell securities, or as advice to do so in any way whatsoever. All matters published here are purely for educational and information purposes only and under no circumstances should be used for making investment decisions. Readers must consult a qualified financial advisor before making any actual investment decisions, based on the information published here. Any reader making decisions based on any information published here does so entirely at their own risk. Investors should bear in mind that any investment in the stock market is subject to unpredictable market-related risks. The author has no plans to invest in this offer and also the author does not recommend investing in any offer published on this website.