Retail investors often flock to shares sold in an initial public offer (IPO) because they appear cheap and may even be available close to face value.

But those attributes do not always make them attractive investment options.

In contrast, seasoned blue chip stocks often appear expensive and quote at a considerable premium to their face values. They may actually turn out to be the more attractive ones.

If you had applied to every IPO on offer and also put an equal amount of money in the Nifty stocks over the last five years you would have reason to rue your choice of the former and smile at your preference for the latter.

You would have suffered an 18 per cent loss on your IPO portfolio by now. Simply investing in the Nifty basket on a monthly basis would have fetched you a 21 per cent absolute return.

Poor long-term show

It is not just the 2010 and 2011 investments in IPOs which are languishing below cost. IPO investments made three to five years ago remain in the red too. Offers made way back in 2006, on an average have scrounged up just a 4 per cent gain (absolute) for investors till date.

In contrast, a person making monthly investments in the Nifty in 2006 would today be sitting on a 50 per cent gain on his portfolio.

Not surprisingly, stocks that made a debut during market highs of 2007 and 2008 are trading way below issue price. It is these stocks which figure among the worst performers in the IPO list. Three-fourths of the 2007 debutants are today below their offer price.

Koutons Retail (down 95 per cent), Firstsource Solutions (down 88 per cent), Purvankara Projects (down 83 per cent) and Consolidated Construction Consortium are among the bigger losers. A good 80 per cent of the offers of 2008 are below issue price too. Reliance Power, for instance, is down 69 per cent from the issue price.

Across market phases

This story repeats itself even for IPOs picked up in 2009. A portfolio of that year's IPOs is down 36 per cent till date, while Nifty investments made that year would have delivered a 20 per cent gain. Euro Multivision, listed in October 2009 trades at Rs 6 now against an issue price of Rs 75.

Indiabulls Power offered at Rs 45 a share and was subscribed 16 times is down to Rs 10 currently. Adani Power is 27 per cent below its issue price now. Only a third of the 2009 offers have managed to turn in a profit for their original investors.

Bunched up

Overall, the poor results from IPO investing seem to be due to bunching up of IPOs during market highs and their premium pricing, compared to the market. Most of the laggards in the IPO list were from the realty, power and retail sectors.

However, there have been a handful of IPOs that made money for their investors. Investors who picked up stock of Info Edge or Sadbhav Engineering in 2006, Page Industries or Eclerx Services in 2007 and Jubilant Foodworks in 2010 have made a killing on their original in investment.

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