IPO market picks up after two years of slowdown; is it the right time to invest in IPOs? However, take their advice with a pinch of salt. Here are a few things to keep in mind before you invest
With political uncertainty resolved, the stock markets have resumed their upward journey. Benchmark indices Nifty and Sensex reached new highs last week. The bullish sentiment is even stronger in the IPO market. Le Travenues Technology debuted with a bang on 18 June at Rs.161, a 75% premium to its issue price of Rs.93. The bullishness continued the next day, pushing the share price to Rs.183, nearly double the issue price.#sr_widget.onDemand p, #stock_pro.onDemand p{font-size: 14px;line-height: 1.28;} .onDemand .live_stock{left:17px;padding:1px 3px 1px 5px;font-size:12px;font-weight:600;line-height:18px;top:9px} #sr_widget.onDemand .sr_desc{margin:0 auto 0;} #sr_widget.onDemand .sr_desc{color: #024d99;margin-top:10px;} #sr_widget.onDemand .crypto .live_stock .lb-icon{8px 6px 5px 3px !important} #sr_widget.crypto.onDemand a.text{border-bottom:1px solid #ccc;padding-bottom:5px;display:block;width:100%} #sr_widget.onDemand .sr_desc .text p, #stock_pro.onDemand .sr_desc .text p{font-size:12px;font-weight:400;} In a market blinded by bullishness, Le Travenues is not an outlier. Most recent IPOs have listed at a premium. The high listing gains of IPOs is the adrenaline of the IPO market. “IPOs will continue to get an overwhelming response from investors due to the perceived value creation opportunities they offer,” says Mahavir Lunawat, Founder, Pantomath Financial Services Group.
In the past six months, 33 IPOs have already raised about Rs.29,000 crore. This number will go up as several companies are waiting in the wings (see illustration). Though the collection may not be able to match the record Rs.1,20,000 crore raised by IPOs in 2021, it is likely to exceed the Rs.59,939 crore raised in 2022 and Rs.49,437 crore raised the next year.
Are you also planning to invest in the upcoming IPOs? Brokerages often express bullish views on IPOs because increased investor participation benefits their business. However, take their advice with a pinch of salt. Here are a few things to keep in mind before you invest.
Watch existing shareholders
An IPO is intended to raise funds to help the company grow. However, it also allows existing investors to cash out through the offer for sale (OFS) route. The red herring prospectus filed with Sebi provides details of shares being sold by existing shareholders. “Check if the company promoters are selling their stake or if it is a fresh issue of shares because the promoters are basically in it for money,” says Juzer Gabajiwala, Director, Ventura Securities.
If an IPO has a very large OFS portion, it is not a good sign. It means no fresh capital is coming to the company, and the IPO is merely a change in ownership. For instance, in the Paytm IPO, existing shareholders accounted for Rs.10,000 crore of the Rs.18,300 crore worth of shares on offer. This should have been a major red flag, but most retail investors didn’t notice.
Institutional investors, who invest more than Rs.10 crore, are known as anchor investors. These typically include mutual fund houses, banks, or non-banking financial companies. If reputed institutional investors and mutual fund houses are investing in the IPO, it signals confidence in the company’s potential.
How recent IPOs have fared
Most of the newly listed stocks have given good returns,which has encouraged more investors to jump in.
IPOs in the pipeline
These issues are scheduled in the coming weeks.
Don’t read too much into grey market premium
Before an IPO, shares of companies are available for sale in the unlisted space. The grey market price is an indicator, but not a definitive factor for determining whether the company is worth investing in. The grey market can often be misleading, as evidenced by the huge listing gains in some IPOs and enormous losses in others.
Grey market premiums should interest only those investors who have a very short investment horizon and plan to exit on the listing date. For serious, long-term investors, the fundamentals of the company should matter more than the pre-IPO price. Investors should examine valuation ratios, growth rates and profit margins provided in the prospectus, and compare these with similar companies in the same sector.
However, self-analysis can be overwhelming for the average investor. In such a case, seek advice from experts, but be careful who these experts are. Look for recommendations from established financial advisory firms and steer clear of selfproclaimed ‘finfluencers’ on social media, as they may be paid to promote an IPO.
Have you missed out?
Are you regretting your decision not to invest in IPOs while witnessing the enormous gains made by others? Don’t let FOMO (fear of missing out) push you into making investment mistakes that could haunt you for years. Experts say there are plenty of opportunities to make money in the secondary market. “There are over a thousand companies with market caps of more than `1,000 crore. This a very large pool that already exists. You can get good opportunities here instead of the IPO market,” says Vikas Gupta, CIO of Omniscience Capital.
Investing in the secondary market is easier and safer because there is sufficient information to make an informed decision. Analysts track these companies and give out authoritative reports. There is financial data of the past several years to assess the company. Moreover, the managements have a longer track record. Any corporate governance issue or personal misdemeanour is immediately flagged and gets reported in the media.
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This story originally appeared on: India Times - Author:Faqs of Insurances
