Mad IPO Rush: Should Retail Investors Jump in?
Ever since the FERA (Foreign Exchange Regulation Act) dilution issues of end-1970s, retail investors have believed that applying for initial public offerings (IPOs) of companies is the best way to start equity investment. Strangely enough, 25 years after India scrapped controls where government decided the listing price, investors cannot get over the temptation to plonk money in IPOs. The memory of losses in 1992-93 (IPO mania), 2000-01 (dotcom bubble) and the 2007-08 (big global Bull Run) is quickly forgotten after a string of positive listings.
Last week’s mega listing of Quess Corp, whose Rs 400 crore IPO was oversubscribed 144 times and listed at a 58% premium to offer price, has got people’s eyes gleaming again. The Quess success comes after a spate of positive listings such as those of Mahanagar Gas, Ujjivan, Thyrocare Tech, Dr Lal PathLabs, Alkem Labs, TeamLease Services, etc. Should one explore IPOs again? Which ones should we invest in? These questions are being asked again, and it is time to reiterate Moneylife’s view on IPOs.
We believe that there will always be a few lucky breaks when it comes to IPO investment; but, as an investment product, it is not worth the risk. This is because the promoter and the investment banker fix a price and time to maximise their own gains. This cannot possibly be good for the buyer; moreover, an IPO that leaves money on the table is considered mispriced. IPOs are also prone to hype, manipulation and dubious practices, since there are many gainers from a successful listing. The truth is that smart investors looking for long-term value can succeed only by carefully chosen stocks at a reasonable value and not by chasing IPOs based on pumped-up offer documents and a few successful listings.
Comments
Mohan Sivanand
10 years ago
The very fact that you don't see IPOs during bear-market phases only shows that they're biased towards the seller, not the investor. Even so, I did enter one IPO (V-Guard) in my several years of investing , but only because I have happily used V-Guard's good products. But all I got was 123 shares for maybe Rs80 each in 2008, I think. I thought that Rs80 was costly when the price almost halved the next year. I did buy more. As for V-Guard, all those "small" prices are history now, but the point is to avoid IPOs and wait for a bear market to buy shares at a huge discount. Otherwise your money usually does better in a liquid fund or even an FD.
Arun Adalja
10 years ago
sebi s new system of allotment does not give benefit to retail as they do not get any share.it is wastage of time and money.retail investors will leave primery market if sebi does not change system.
sundararaman gopalakrishnan
10 years ago
Well said..the retail investors are taken for a ride by promoters and investment bankers by pricing IPO's very high,keeping them high for a couple of weeks so that they can exit and the retail investor is left in the lurch
Ajay Prakash
10 years ago
If patanjali goes IPO route, then things will turn ugly.. for shit companies like l&t Infotech, IPO is soft exits for promoters #blindmoney
Ajay Prakash
10 years ago
If patanjali goes IPO route, then things will turn ugly.. for shit companies like l&t Infotech, IPO is soft exits for promoters #blindmoney
R Balakrishnan
10 years ago
People are happy to lose money. Even if they win, they get some 11 to 20 shares on allotment. Investors who lose, deserve to. Year after year, we tell them, they think they know better. Good luck to them
Meetheen Mundeth
Replied to R Balakrishnan comment 10 years ago
I am in Saudi Arabia and happened to see your 1.5 hr video on stock analysis. Really surprised to see the contents therein. Who can give me an advice on my portfolio? I want to make it lean n efficient. Thanks in advance.
pradeep gowda
Replied to R Balakrishnan comment 10 years ago
They should read The Intelligent Investor Once.
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