The worst performing IPOs of 2022. And what you can learn from these failures

Due to reduced sentiment, too many companies were listed at discounted prices. (File))

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

Indian stock market suffered in the first half of 2022 because of the pandemic, geopolitical tensions, rising interest rates and supply chain disruptions.

As a result, due to reduced sentiment, too many companies were listed at discounted prices.

Considering the scenario, even the large companies that have approved the prospectus, do not make corresponding offers.

Oyo, Snapdeal and many other IPO startups have delayed their IPO plans.

This scenario re-emphasizes the beliefs of the greatest investor of all time – Warren Buffett. Back in 2004, the Oracle of Omaha explained in his AGM,

“An IPO situation is more akin to a negotiated deal. I mean, the seller decides when to hit the market in most cases. And they don’t necessarily pick a good time for you.

…Sometimes there will be IPOs in bad markets and they can be very cheap. But overall, that’s not when the IPO arrives. They come when sellers think the market is ready for them.

2022 is indeed a turbulent year for the primary market. It sees some IPO big loss.

Let’s take a look at the worst performing IPOs of 2022. Keep reading for 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 multi-channel payment solution providers. It is the second largest company in India in terms of revenue from ATM-managed services and also the largest POS terminal implementation company at petrol stations in India.

The company’s offer was made on January 19, 2022. The price range for the offer is Rs 166 to Rs 175. As one of the earliest IPOs of the year, AGS has largely been oversubscribed 7.8x. On January 31, 2022, the shares were listed at par.

However, it was then when the problems really started. Stock prices began to decline gradually due to many factors.

On the last trading day of 2022, AGS Transact Technologies closed at Rs 63.7. In 2022, the stock price lost 63.6% from the list price.

Driven by weak financials, higher valuations, poor market sentiment, and fierce competition from its peers, AGS Transact Technologies suffered a major takedown on exchanges.

What other companies have followed the leader?

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

After listing at a low premium, Delhivery’s share price plummeted. Since the listing, the share price has dropped 31.9%.

Like all new-age tech stocks, Delhivery also goes public in 2022. Due to poor quarterly results, expiring IPO deadlines and supply chain obstacles, the share price has been pushed up. to the bottom.

The other company under the brigade is Uma Exports. Uma Exports’ share price has lost 29.8% of its market capitalization since its listing. Shares have been listed with a premium of 18%.

Market experts predict stock prices will fall due to stiff competition and low profit margins.

The next line is the newly listed Abans Holdings. By 2022, the company’s stock price has fallen by 29.6 percent. In addition to negative cash flow, the company operates under fierce competition and relies heavily on 17 subsidiaries, which reduces investor sentiment.

Following Abans Holdings is the largest IPO in India’s IPO history – Life Insurance Corp (LIC).

LIC’s share price is down 27.9% since listing. Fierce competition, saturated business and bureaucracy have had a big impact on the insurance giant. These are the main reasons for the decrease in LIC stock price.

IPO LIC also reaffirms belief in how The bigger the IPO, the harder it is to drop.

Following LIC is Inox’s renewable energy arm, Inox Green Energy, which has lost 26.3% of its market capitalization in 2022.

These IPOs make investors lose sleep. Let’s learn from the nightmares and make sure we don’t make these mistakes in 2023.

Lessons learned from these failures

#1 Remember that a good price is not the same as a cheap price

People mainly buy in IPOs with the belief that the stock is available at a lower price than during the IPO. These can be sold for a higher price after they are listed on exchanges. This is one of the reasons why people invest in IPOs.

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

Never compromise on valuation and more when it comes to tech companies or losers.

An IPO is just the first opportunity to invest in a business. So it’s wiser to wait until you have a better understanding of the company’s long-term prospects or until the stock trades at a valuation that offers some margin of safety.

#2 Prospects can be deceiving, but fundamentals show the clear picture

New age tech stocks painted rainbows and unicorns in their draft outlook. But when these companies actually entered the market, they were all reduced to fair value. Most of them saw a sharp correction.

To choose a quote from Joel Greenblatt’s investment quotes,

“The market is very sensitive but over time, doing something logical and systematic will work. The market finally got it right.”

So always make sure to check the authenticity of your leads before trusting them.

#3 Listing preferred stock doesn’t mean the future is bright for the stock price

Uma Exports and Zomato are good examples of this lesson. Uma Exports shares are listed at a premium of over 18%.

Even Zomato was listed with a hefty premium and then the stock price was pushed to the bottom. The stock price will eventually drop to its underlying value.

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

This has to be the biggest and most obvious lesson from the 2022 IPOs.

The headwinds of 2022 have knocked even the greenest bluechips. In many cases, it’s not the company’s fault but the overall market sentiment has hurt them.

A delicious mango that is ready to be picked and eaten will shrivel and rot if there is too much rain.

#5 Analyze the competition

Many IPOs last year were hit by stiff competition.

That’s why comparing the value of peers or industry averages is a good way to make decisions.

Takeaway investment

An IPO can be an interesting game when four things match.

• Reasonable pricing
• Positive market sentiment
• solid foundation
• real prospect

The year 2023 has begun and a lot of companies are already planning IPOs. There are some big IPOs to watch out for this year.

Before invest in IPO in 2023see if they match the four points above.

Overall, think of an IPO like anything else that buys another stock that you might consider for a long-term investment.

There’s no reason to compromise on the company’s moat, management quality, and valuation.

Happy investing!

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

This article is compiled from Equitymaster.com