Should We Invest In Every IPO? How To Check IPO Is Good Or Bad
For some time now, there has been a boom of Initial Public Offering (IPO) in the stock market. Especially, after the IPOs of Bajaj Housing Finance and KRN Heat and Exchanger gave bumper listing gains. Meanwhile, the GMP of Waaree Energies IPO is also indicating bumper listing gains. Many big main board IPOs like Swiggy and NTPC Green Energy are in the queue. The number of SME IPOs is also increasing.
In such a situation, the question arises whether money should be invested in every IPO? How effective is this strategy and what is the scope of profit or loss in it.
Why are so many IPOs coming?
There is a bull run going on in the stock market at the moment. To take advantage of this boom, most companies are bringing IPOs, so that their shares can be listed at a higher price. Past data also confirms that most IPOs come during bull runs. This is not just about India, there has been a similar trend in markets around the world.
Is IPO a lottery?
Recently SEBI presented a report. According to this, most IPO investors sell 54 percent of the shares within a week of allotment. Also, 74 percent of the shares are sold within a year. In such a situation, many market experts are expressing concern that IPO is being taken like a lottery, which is a dangerous trend. SME IPO gives more profit, but there is also a high possibility of manipulation and loss in it.
Is investing in every IPO right?
If you subscribe to every IPO only for listing gains, then you may also incur losses. Big IPOs like LIC and Paytm are examples of this. LIC’s IPO came in May 2022. The price band was Rs 902 to Rs 949. But, it got listed with a discount of about 9 percent. It took about 2 years to cross its listing price.
At the same time, Paytm’s IPO also hit the investors hard. The IPO of Paytm’s parent company One97 Communications came in November 2021. The issue price was Rs 2,150, but it got listed with a 9 percent discount. There was a further decline on the day of listing and it closed at 1,564. Paytm has not been able to touch its issue price even after three years of listing.
How to check IPO is good or bad
While investing in any IPO, you should look at its fundamentals. Recently, Paytm owner Vijay Shekhar Sharma himself said that he regrets not choosing the right investment banker for the IPO. This means that Sharma also believes that Paytm did not have a price band. Also, many times IPOs get a blockbuster listing, then they are not in a position to give profits for many years.
For example, the price band of Tata Technology’s IPO was between Rs 475 to Rs 500. But, it got listed at Rs 1,200. This means that investors got a bumper listing gain of 140 percent. But, for a long time now, this stock has been stuck around Rs 1100. It has given a negative return of 10 percent since listing.
Keep these things in mind
The strategy of investing money in every IPO just in the greed of listing gain without analyzing the fundamentals of the company can also backfire. In such a situation, some things should be kept in mind before investing money in an IPO.
- Understand the industry and market situation of the company.
- Evaluate its growth prospects.
- Look at revenue, profit, loans and cash flow.
- Check the share price valuation in IPO.
- Read brokerage reports and understand their opinion.
- Consult your financial advisor before investing.
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