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NEW DELHI: Initial Public Offers (IPOs) are the trend of the season as more companies are lining up to sell shares to the public. Just last week, five companies finished underwriting their IPOs. The response to these IPOs was overwhelming as they collectively received subscription requests worth around Rs 26,000 crore. However, these five companies have plans to raise only Rs 7,400 crore.
Analysts say investors’ recent enthusiasm for these IPOs could be due to the attractive valuations at which these companies are offering their shares to the public. Investors should also be aware that 2023 has been a good year for IPO investing so far. Of the 43 IPOs that have been listed on the stock exchange mainboard so far in 2023, 20 have closed the trading day with a gain of over 20%. Only six returned less than 10% on the listing day and only seven ended the listing day below the IPO issue price. Given the high probability of price gains, the IPO frenzy is anything but surprising.
Exit strategy in the event of a bumper listing
However, all private investors investing in IPOs must also have an exit plan. Not all IPOs that generate blockbuster profits on the trading day manage to maintain these profits in the short and medium term. This makes an exit plan all the more important for those who are faced with massive stock market losses.
Investment experts say public equity will always be mispriced – be it low or high. A low mispricing is a buying opportunity, a high one is a selling opportunity. However, the return expectations and the individual’s willingness to take risks are much more important.
So what should you do if the IPO was listed on the stock exchange with a record profit?
“It depends entirely on the investor’s investment objective and his assessment or future value. When the stock has reached its peak and no longer offers any return, it might as well withdraw the capital and reinvest it. But if she’s happy to hold the stock and the stock still has a lot to offer, doing nothing could be more valuable than doing something to do it,” said Utkarsh Sinha, managing director of Bexley Advisors, one Boutique investment bank. The price development data of the IPOs listed in 2023 show that many of them will lose the profits made on the day of listing.
For example, Ideaforge Technology recorded almost 100 percent gain with a closing price of Rs 1,295.5 on the trading day over its issue price of Rs 672. However, over the next four months, the stock lost most of the gains and is now trading at Rs 773. only 15% above the issue price. While there are few examples of such strong corrections following an IPO, investors should still understand why they are investing in an IPO. If they only care about listing profits, they should book profits and look for other better IPOs to invest in. According to Mahavir Lunawat, Managing Director, Pantomath Capital Advisors Pvt. Ltd, a shortened time frame for listing IPOs means investor funds would be blocked for a shorter period. “Investors now have the opportunity to obtain early credit and liquidity for their investments, allowing them to analyze and participate in further IPOs,” he says.
Exit strategy in the event of a subdued price
When investing in IPOs, you should always keep in mind what kind of stock market loss you are willing to accept. It is very likely that the IPO in which you have invested is listed at a discount to the issue price. However, if you are convinced that the company, business model and management are good and you see potential for the future, stick with your investment. However, if the price continues to decline after the quote and breaks through your stop-loss target (if any), don’t be afraid to exit. “The biggest mistake retail investors make is reacting to market sentiment. They buy when the stock is high and sell when it is low, driven by greed or panic. Avoid that and go back to basics and analysis,” says Utkarsh Sinha of Bexley Advisors.
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NEW DELHI: Initial Public Offers (IPOs) are the trend of the season as more companies are lining up to sell shares to the public. Just last week, five companies finished underwriting their IPOs. The response to these IPOs was overwhelming as they collectively received subscription requests worth around Rs 26,000 crore. However, these five companies have plans to raise only Rs 7,400 crore. Analysts say investors’ recent enthusiasm for these IPOs could be due to the attractive valuations at which these companies are offering their shares to the public. Investors should also be aware that 2023 has been a good year for IPO investing so far. Of the 43 IPOs that have been listed on the stock exchange mainboard so far in 2023, 20 have closed the trading day with a gain of over 20%. Only six returned less than 10% on the listing day and only seven ended the listing day below the IPO issue price. Given the high probability of price gains, the IPO frenzy is anything but surprising. Exit strategy in the event of a bumper listing However, all private investors who invest in IPOs must also have an exit plan. Not all IPOs that generate blockbuster profits on the trading day manage to maintain these profits in the short and medium term. This makes an exit plan all the more important for those who are faced with massive stock market losses. googletag.cmd.push(function() {googletag.display(‘div-gpt-ad-8052921-2’); }); Investment experts say public equity will always be mispriced – be it low or high. A low mispricing is a buying opportunity, a high one is a selling opportunity. However, the return expectations and the individual’s willingness to take risks are much more important. So what should you do if the IPO was listed on the stock exchange with a record profit? “It depends entirely on the investor’s investment objective and his assessment or future value. When the stock has reached its peak and no longer offers any return, it might as well withdraw the capital and reinvest it. But if she’s happy to hold the stock and the stock still has a lot to offer, doing nothing could be more valuable than doing something to do it,” said Utkarsh Sinha, managing director of Bexley Advisors, one Boutique investment bank. The price development data of the IPOs listed in 2023 show that many of them will lose the profits made on the day of listing. For example, Ideaforge Technology recorded almost 100 percent gain with a closing price of Rs 1,295.5 on the trading day over its issue price of Rs 672. However, over the next four months, the stock lost most of the gains and is now trading at Rs 773. only 15% above the issue price. While there are few examples of such strong corrections following an IPO, investors should still understand why they are investing in an IPO. If they only care about listing profits, they should book profits and look for other better IPOs to invest in. According to Mahavir Lunawat, Managing Director, Pantomath Capital Advisors Pvt. Ltd, a shortened time frame for listing IPOs means investor funds would be blocked for a shorter period. “Investors now have the opportunity to obtain early credit and liquidity for their investments, allowing them to analyze and participate in further IPOs,” he says. Exit strategy for subdued listings When investing in IPOs, you should always keep in mind what kind of listing loss you are willing to accept. It is very likely that the IPO in which you have invested is listed at a discount to the issue price. However, if you are convinced that the company, business model and management are good and you see potential for the future, stick with your investment. However, if the price continues to decline after the listing and breaks through your stop-loss target (if any), don’t be afraid to exit. “The biggest mistake retail investors make is reacting to market sentiment. They buy when the stock is high and sell when it is low, driven by greed or panic. Avoid that and go back to basics and analysis,” says Utkarsh Sinha of Bexley Advisors. Follow New Indian Express channel on WhatsApp
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