The IPO Excesses seems to be finally over
In the recent times in the Indian stock markets there have been many IPOs that have listed much below there offer price and would have therefore meant a loss to those investors who had subscribed for the same.
Traditionally IPOs were offered by the promoters with a certain discount to the inherent value of the stock to the public so that they public at large could benefit from what is knows as “listing gains”. However the trend lately has been one where the promoters have priced their IPOs very aggressively and most of the times there had been nothing left for the investors at the time of listing.
However old habits die hard and even though investors could see for themselves that there is no money to be made in the IPOs were still queuing up for IPOs of similar nature where the pricing was aggressive, pedigree of investors not too well known and the track record of business not proven.
One can only hope that after seeing a series of IPOs fail in a short while the investors will finally come to terms with the reality that today investing in IPOs do not mean easy money as it used to in not too far a past. And increasingly promoters are pricing their stocks very aggressively and do not leave anything for the retail investors at the time of listing.
The retail investors need to be wary about which IPOs to invest in as the numbers of profitable IPOs are really dwindling and the only one in the recent past has been MindTree which has provided some listing gains to the investors.
Investors should be really wary about borrowing money to invest in IPOs because of the same reason as when one borrows to invest in the markets because of being allotted lesser number of shares than the application and the rate of interest of the borrowing it becomes more and more difficult to make any money and one bad investment nullifies all the good ones that have been done in the past because often the price falls are more spectacular than gains.
With all this in mind investors need to come to terms with the reality that IPOs today are not as profitable as some time ago and therefore one would need to exercise a lot of discretion before investing in any one and the practice of blindly borrowing money, investing and then selling on listing would not work for most of the stocks any longer.
Manshu Verma
