India’s Mega IPO Market: A Graveyard for Investor Wealth
India’s initial public offering (IPO) market has recently garnered attention for all the wrong reasons. With a staggering pattern emerging, investors should be alarmed, especially with the upcoming debut of HDB Financial Services, which aims to raise a colossal ₹12,000 crore. Out of the last eight IPOs exceeding ₹10,000 crore, six have delivered crushing losses to investors within six months of listing, posting an average negative return of 20%. The carnage deepens over a year, with average losses widening to 25%. Only SBI Cards managed to stay afloat with positive returns, according to data from SAMCO Securities and ACE Equity.
The Disheartening Trend
The trend of mega IPOs turning into financial disasters spans various sectors. Take Paytm, for instance, which collapsed by 62% in six months and 65% over a year. Reliance Power also faced a similar fate, imploding by 52% and 71%, respectively. Even the insurance giant LIC, despite its blue-chip credentials, tumbled 24% in six months and 35% over 12 months.
"The track record of mega IPOs is frankly terrifying," remarked a senior fund manager who preferred to remain anonymous. "When you’re raising over ₹10,000 crore, you’re essentially asking the market to absorb an enormous amount of paper, and history shows that rarely ends well."
HDB Financial’s Promising Start
Despite the grim backdrop, HDB Financial Services defied initial skepticism by listing at a 13% premium to its issue price, even touching a high of ₹845.75 on the Bombay Stock Exchange (BSE). Analysts are optimistic, citing the company’s unique positioning in India’s credit landscape as a reason for bullish sentiment.
Emkay Global led the charge with a buy rating and a target price of ₹900, representing a potential upside of 22%. "What makes HDBFS a great investment? It is backed by HDFC Bank’s parentage and AAA rating. It has the right ingredients in the form of financial capital and human capital to be a successful, high-quality lender," the brokerage noted in its initiation report.
Strategic Positioning
HDB Financial’s strategy of targeting tier-4 towns and beyond, serving unbanked customers with limited credit history, could prove lucrative as India’s credit penetration deepens. Unlike previous mega IPO disasters, HDB Financial carries the backing of India’s largest private sector bank, which analysts believe could shield it from the typical post-listing blues.
"Given the strong subscription momentum and prevailing bullish sentiment in the market, we recommend holding the stock for the long term, as HDB Financial Services is strategically positioned to benefit from India’s structural credit growth, especially within the retail and SME financing segments," said Prashanth Tapse, Senior VP (Research) at Mehta Equities.
Financial Performance and Growth Projections
Emkay Global projects that HDB Financial will deliver approximately 20% growth in assets under management (AUM) and a 27% compound annual growth rate (CAGR) in earnings per share (EPS). The return on assets is expected to improve to 2.7%, while return on equity could reach 17% by FY28, up from 2.16% and 14.7% respectively in FY25.
The company has already scaled to over ₹1 trillion in AUM without raising external capital for eight years, a feat that distinguishes it from many of its mega IPO predecessors that were still burning cash or struggling with profitability. HDB Financial has weathered multiple credit cycles, including the Covid-19 pandemic, while maintaining profitable growth through its diversified product portfolio spanning secured and unsecured loans.
Regulatory Challenges Ahead
However, regulatory headwinds loom. The Reserve Bank of India’s draft circular on ‘Forms of Business and Prudential Regulation for Investments’ could force HDFC Bank to either merge HDB Financial or reduce its ownership below 20%. Such a development could reshape the investment thesis entirely.
For investors who missed the IPO allocation, Tapse suggests accumulating shares during post-listing corrections, particularly during market volatility. "HDB Financial Services offers a value-driven opportunity with both defensive and growth characteristics, best suitable for investors with a 3-5 year investment horizon," he noted.
Conclusion: A Ray of Hope Amidst the Graveyard
Whether HDB Financial can break the mega IPO curse remains to be seen, but its strong parentage and established business model offer more hope than the graveyard of failures that came before it. As investors navigate this treacherous landscape, a cautious yet optimistic approach may be the key to unlocking potential in India’s evolving IPO market.