IPO Mania: Drilling down the facts

2016 and 2017 have been the years of Indian stock market with BSESensex giving roughly 37% of absolute returns which was hovering around 24,800 level on 1st Jan 2016 and is at 34000 at the time of writing this article. However, there is one uncharted territory which seasoned investors generally avoid to step in, viz. IPO and has produced even better returns. The S&P BSE IPO index has generated absolute returns to the tune of 64% in the same 2 year timeframe.

One of the main reason to avoid IPO’s by investors group has been the fact that the price at which any organization would offers its share to general public will always be above its actual value. Would you want to sell your land any cheaper than what market can offer? No right!! Hence, the market pundits believe, there are always ample opportunities in open market which are at better valuations.

But last two years have made investors rethink this belief and go all hands in with the IPO’s. The reason of this market rush is liquidity more than ever. Market valuations, do not justifies the price on offer, however more and more investors entering primary markets is the reason and it is not going to stop for next decade as market indicates.

In the below pie chart, I have tried to compile the 65 companies that have come up with IPO’s during 2016-Jan till date. And we can see that though a sizable percentage of companies have given returns of more than 100%, there are still stocks, which have given negative return of as low as -43% (CL Educate Ltd.). Hence, market has observed the stock quality first and then only reacted to the security even in these liquid times.

IPO Returns in last two years

Subscription figures have also played a vital role in the short term returns, specially listing gains. However this has not always been true for all the stocks and hence stock quality has been the most vital parameter as always. Some companies tried to take advantage of this market rush and IPO mania, but market reacted strongly and ditched them making others correct the asking price.

The euphoria around the IPO’s seems far from over yet and we would see more number of IPO’s getting listed in year to come as we looking at even stronger and liquid market in year 2018.

Stay with us to read more articles lined up on how to make easy IPO selection and make profit, because in the end, profit is what matters.

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