With India's Initial Public Offering (IPO) market anticipating a busy year, marked by significant listings like SBI Mutual Fund, NSE, and Jio, investor interest is exceptionally high. However, extensive market research spanning decades suggests that a disciplined approach, rather than chasing every new public issue, often yields superior long-term returns.
Patience Over Hype: The Julius Baer Perspective
A recent report from Julius Baer, authored by Group Chief Investment Officer Yves Bonzon, advises investors to shift their focus from the immediate excitement of listing day to core principles: valuation, company fundamentals, and strategic timing. The report highlights that the intense buzz surrounding an IPO frequently triggers a 'fear of missing out' (FOMO) among investors, particularly with high-profile debuts. Yet, this initial momentum often proves unsustainable for many newly listed companies.
Rather than rushing to acquire shares immediately upon listing, the report suggests that allowing the initial hype to subside can present more favorable investment opportunities.
First-Day Gains: An Elusive Benefit for Retail Investors
Historically, IPOs have demonstrated impressive first-day returns. Research cited in the Julius Baer report indicates that US IPOs have averaged 18-19% listing-day gains since 1980, with peaks exceeding 60% during the dot-com bubble. However, these substantial gains rarely benefit ordinary retail investors.
The largest profits typically accrue to institutional investors who receive shares at the offer price. Retail investors usually enter the market once trading begins, often at significantly elevated prices. Furthermore, the report points to the 'winner's curse' in IPO investing: highly sought-after, quality IPOs allocate limited shares to retail applicants, while weaker offerings are more readily available. This dynamic often results in retail investors earning far less than the advertised listing gains.
India's Booming IPO Pipeline and Long-Term Performance Concerns
India's primary market is currently experiencing renewed vigor, bolstered by robust domestic investor participation. Major offerings such as the $1.22 billion SBI Funds Management IPO are driving this momentum. Industry experts, like Bhavesh Shah of Equirus Capital, project Indian companies could raise nearly $20 billion through IPOs in 2026, with marquee issues from SBI Mutual Fund, the National Stock Exchange (NSE), and Jio potentially mobilizing ₹80,000-90,000 crore.
Despite this buoyant outlook, historical data suggests that many IPOs struggle to maintain their initial momentum over time. Research by University of Florida professor Jay Ritter, cited in the report, found that newly listed companies often significantly underperformed comparable firms in the three years post-listing. Subsequent studies reinforce this, showing equity issuers underperforming non-issuers by approximately five percentage points annually over five years.
One key reason for this trend is that companies frequently choose to go public when investor optimism and market valuations are at their peak. This allows promoters and existing shareholders to maximize their valuations, potentially limiting upside for new investors entering at the IPO stage.
Why Patience Pays Off in IPO Investment Strategy
Instead of immediate purchases on listing day, exercising patience can yield better results. A significant factor is the expiry of lock-up agreements, which temporarily prevent promoters, early investors, and insiders from selling their shares. Research indicates that stock prices often experience a statistically significant decline when these lock-up periods end, as a larger supply of shares becomes available.
Moreover, IPO enthusiasm naturally cools over time. As the initial excitement fades and valuations become more grounded, better entry opportunities frequently emerge in the months following a listing. This period allows investors to thoroughly reassess the company's fundamentals, governance standards, and valuation before committing to an investment decision, rather than chasing an allocation at any cost.
Discipline Over FOMO
While the report advocates caution, it does not suggest avoiding IPOs entirely. Every successful listed company began as an IPO, and missing out on truly transformative companies could negatively impact long-term portfolio returns. Instead, Julius Baer recommends maintaining rigorous valuation discipline in both public and private markets.
With India's IPO pipeline expected to remain robust throughout 2026, investors will have ample opportunities. The overarching advice is to focus on identifying high-quality businesses at reasonable valuations, prioritizing a sound IPO investment strategy over the immediate allure of listing-day excitement.