Stay away from the virus, not IPOs!

The markets can remain irrational longer than you can remain solvent— John Maynard Keynes

You see, famous quotes by legendary investors are not less than tenets. However, they make perfect sense only if you get the context right. At a time when bulls are in total command, as they have been for a while now, you may experience a corollary of what John Maynard Keynes famously said.  

The markets can remain elevated longer than you can wait patiently in the wings.

And nobody other than those who have missed the investment opportunities in the IPO (Initial Public Offering) market over the last 8-10 months would agree more with this.

Are you one of them? If yes, what’s your story for not applying to any IPO?

# I never get shares in the IPO thus I don’t apply to any  

First thing first, unlike yesteryears, nowadays the IPO application amount does not get debited from your bank account at the time of subscribing to an IPO. Only the funds get blocked during the pre-listing process.  Thus technically, you don’t part with your money unless you get the allotment.

Recently we explained why you should apply only for one lot.

Applying for an IPO? One lot is a lot!

Considering the recent experience, even if you get an allotment only once in a while you can still make a good deal of money on listing. Consider that money lying in your bank will earn you only Rs. 600 interest on Rs. 15,000 for a full year.

Out of 21 major IPOs launched over the last one year, only 3 were listed at a discount to their respective offer price. The listing gains have been over 100% in some cases with 43% being the average listing return.

What’s the harm in applying selectively? And the application process  takes only 2 minutes flat.

Watch this video to know how to apply

# I doubt if the market will sustain the current valuations, I don’t want to risk my money in the IPO market.

Instead of treating valuations as a homogeneous phenomenon, you should always measure valuations of a company vis-à-vis its growth prospects. For instance, valuations of some newly listed companies such as Route Mobile and Happiest Minds Tech aren’t cheap by any parameter.

However, under the rapidly changing business environment where digitalization trends are emerging stronger, companies such as these are becoming the market favorites. Those who waited to buy these companies cheap haven’t been lucky so far.

Up…up and away….

March 08, 2021 is considered as the Last Trading Price (LTP) for the calculation of overall gains wrt
to issue price
(Source: Ventura Securities)

# Strong market conditions are letting even ordinary companies raise money through the primary market and I am not sure which ones to bid for.

Behavioural instincts such as greed and fear are universal. If promoters price their companies richly vis-à-vis their growth prospects, markets take corrective action. Strong market conditions can provide them a good launching pad but eventually prices can sustain only if fundamentals can justify them.

Companies that couldn’t sustain listing gains

March 08, 2021 is considered as the Last Trading Price (LTP) for the calculation of overall gains wrt
to issue price
(Source: Ventura Securities)

# Profit is too small for the effort and patience it takes

Sometimes, markets take a while to ascertain the true potential of a newly listed company.

 For instance, SBI Cards got listed at a discount during the initial days of the coronavirus pandemic. However, it bounced back sharply over the last 5-6 months. Similarly, Gland Pharma too had a mediocre listing but as investors recognized its strengths, the company came into the limelight. Interestingly, Likhita Infrastructure has rallied sharply post budget.

You never know, you may get some multibagger stocks in IPOs.

Companies that stuttered initially but raced ahead later

March 08, 2021 is considered as the Last Trading Price (LTP) for the calculation of overall gains wrt
to issue price
(Source: Ventura Securities)

The key takeaways are:

• IPOs can provide you a great opportunity to make listing gains without taking too many risks if you choose the right ones
• IPOs can offer you an early access to businesses in sunrise industries
• Not all IPOs do well hence you should evaluate the potential of every company before investing
• Yes, you need some luck to get allotted shares in IPOs but don’t overestimate that factor

Please Note (read as a disclaimer): None of the stocks discussed in the article are recommendations to buy, hold or sell. This could just be the starting point for deeper analysis that you might want to carry out on your own. You may also take professional help as you feel appropriate.

If you are investing in any family run company, besides governance, you may also want to take stock of significant developments in the lives of the promoters. Sometimes, their personal life can overshadow market sentiments. Also pay attention to issues such as pledging of shares by the promoter group and the working capital.

You may also like to read: IPO watch: story vs valuation what matters the most to you?

Disclaimer:

We, Ventura Securities Ltd, (SEBI Registration Number INH000001634) its Analysts & Associates with regard to blog article hereby solemnly declare & disclose that:

We do not have any financial interest of any nature in the company. We do not individually or collectively hold 1% or more of the securities of the company. We do not have any other material conflict of interest in the company. We do not act as a market maker in securities of the company. We do not have any directorships or other material relationships with the company. We do not have any personal interests in the securities of the company. We do not have any past significant relationships with the company such as Investment Banking or other advisory assignments or intermediary relationships. We are not responsible for the risk associated with the investment/disinvestment decision made on the basis of this blog article.