HDB Financial IPO: Can HDFC Bank’s midas touch break the mega IPO curse?

As the Rs 12,500 crore IPO of HDB Financial Services hits Dalal Street today, investors are wondering whether the charm and pedigree of HDFC Bank will be enough to break the mega IPO jinx that has haunted primary market investors in the last 2 decades.

Mega IPOs, those raising ₹10,000 crore or more, may dazzle at the starting line, but they’ve left a trail of investor heartbreak behind. According to Samco Securities, the last eight such offerings have returned an average negative 9% within a month of listing. Wait six months, and the bleeding worsens to -20%. A year in, the damage deepens to -25%.

The Mega IPO Curse Strikes Deep

Paytm, once the poster child of India's fintech revolution, has obliterated 65% of investor wealth within 12 months of its ₹18,300 crore listing in November 2021. Life Insurance Corporation, despite its government backing and ₹21,008 crore raise in May 2022, has delivered a punishing 35% loss to shareholders who held for a year.

Even more recent entrants haven't escaped the curse. Hyundai Motor's ₹27,870 crore IPO in October 2024, the largest in Indian history, has already slipped 7% in six months, while Swiggy's ₹11,327 crore listing showed early promise with 17% gains in the first month, only to surrender 30% over six months.

"In the last 25 years, India's mega-IPOs have often arrived at moments of peak market optimism, but with surprisingly poor follow-through," notes Samco Securities. "The pattern reflects a liquidity vacuum—massive IPOs absorb market capital, leaving little dry powder for secondary buying."

Only SBI Cards stands as a rare exception, delivering 50% returns after 12 months from its ₹10,355 crore March 2020 listing, a performance achieved during an unprecedented pandemic-driven market rally.

Also Read | Holders of HDB’s unlisted shares face losses as IPO is priced 40% lower

HDFC Bank's Golden Child Steps Into the Arena

HDB Financial Services comes armed with impressive credentials that distinguish it from previous mega IPO failures. As the 7th largest diversified retail-focused NBFC in India with a gross loan book of ₹902.2 billion as of March 2024, the company benefits from the unassailable brand power of HDFC Bank, India's second-largest private bank.

The IPO, priced between ₹700-₹740 per share, implies a valuation of approximately ₹61,000 crore at the upper end. The offering comprises ₹2,500 crore of fresh capital and ₹10,000 crore through an offer for sale, which will reduce HDFC Bank's stake from 94.32% to 74.19%.

Operating across three verticals—Enterprise Lending, Asset Finance, and Consumer Finance—HDB Financial leverages its parent's vast customer franchise while maintaining a AAA credit rating that provides access to low-cost funding.

Brokerage Houses Rally Behind the IPO

Unlike many mega IPOs that face mixed reception, HDB Financial has garnered unanimous support from major brokerages, though with measured expectations.

"The company is backed by strong parentage, brand, governance, risk management and a high credit rating," states SBI Securities, recommending subscription while expecting modest 5-10% listing gains. "It is one of the largest NBFCs catering to the 2nd largest customer franchise."

Anand Rathi emphasizes the differentiation factor: "Backed by the strong parentage of HDFC Bank, India's second-largest private bank by total assets, the company offers a well-diversified product portfolio with robust granularity, scale, and sound lending quality. We consider the IPO fairly valued."

Centrum highlights the valuation attractiveness, noting the issue trades at "less than 3x FY26E P/ABV, which is at a steep discount to larger peers such as Bajaj Finance and Chola, discounting relatively lower return ratios and growth."

However, Bajaj Broking injects a note of caution: "Near-term asset quality and margin pressures pose risks. Investors with a medium- to long-term outlook may find the issue attractive, provided the company sustains growth while improving operating efficiency and asset quality post-listing."

The Liquidity Squeeze Test

"History suggests caution: while size attracts headlines, it often signals market saturation rather than sustainable opportunity," warns Samco Securities. "The HDB IPO may well test whether this liquidity-squeeze effect remains alive."

The fundamental challenge remains unchanged. Massive IPOs create their own headwinds by absorbing enormous amounts of market liquidity, leaving insufficient capital for sustained secondary market buying. Previous mega listings from Reliance Power in 2008 to LIC in 2022 have all succumbed to this pattern.

Yet HDB Financial's timing and backing could prove different. With HDFC Bank's distribution muscle, proven risk management capabilities, and India's ongoing credit growth story providing tailwinds, the company enters the market with advantages its predecessors lacked.

(Disclaimer: Recommendations, suggestions, views and opinions given by the experts are their own. These do not represent the views of The Economic Times)