IPO में निवेश करने से पहले ज़रूर देखें | 6 IPO Mistakes | ET Money हिंदी

Over the last 18 months a number of Indian companies have accessed the capital markets via the IPO route. In fact, the year 2021 witnessed an IPO every three days which together accounted for over 1.3 lakh crores in funds mobilized. Incidentally, 2022 in spite of all its troubles has managed to keep the momentum going with 53 companies raising over 45,000 crores in capital until the mid of June. Of course, the last 2-3 years have seen some big tailwinds with many tech startups, E-commerce companies and SMEs going public a growing interest from retail investors and the emergence and expansion of fintechs which are looking to make it a lot easier for everyone to invest.

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Chapters

00:00 Introduction
01:59 Inadequate research
04:32 Ignoring valuations
06:33 Investing For listing gains
07:26 Grey market bias
08:29 Following the herd
10:35 Basing decision on subscription data
11:35 Summary

???? MISTAKE 1: INADEQUATE RESEARCH

The secret to identifying a good IPO is to back it up with good research. Now, people generally do some research but honestly, reading a curated article in a business newspaper or watching some Youtube video is not what I can qualify as adequate preparation. So, here’s what we propose you do when you next come across a potential IPO to invest into BUSINESS MODEL, PRODUCT, SERVICES AND CUSTOMERS, INDUSTRY, COMPETITION & GROWTH, FINANCIAL HEALTH, PROMOTERS AND MANAGEMENT BACKGROUND, RISK FACTORS

???? MISTAKE 2: IGNORE VALUATIONS

The valuation of an IPO is perhaps the most critical of all quantitative parameters. And in today’s day and age this becomes all the more important, as we see a lot more non-profitable technology enabled companies accessing the capital markets. Up until recently, SEBI regulations permitted only profit-making companies with a pre-tax annual profit of at least 15 crores to list in the Indian stock exchanges which essentially removed most if not all tech-start-ups from listing in India. But then in the year 2020, SEBI made some changes in its approach paving the way for loss-making companies to list in India with the caveat that institutional investors need to hold 75% of the shares.

???? MISTAKE 3: INVESTING FOR LISTING GAINS

The biggest storyline driving IPO investing are the quick returns one can make on listing day. And yes, while there are many examples of stock prices rising and we have also seen many stocks declining in value on listing day. If we look closely, stock prices get spiked and corrected many times on listing day which opens up a matter of timing and luck for the offloading investors. Further and especially in cases where the IPO has not been oversubscribed by much it seems everyone has the same idea of selling on listing day which ends up driving down the stock price much below the IPO price levels.

???? MISTAKE 4: GREY MARKET BIAS

Another mistake many IPO investors make is to pay too much attention to the grey market. So, the grey market is an unofficial stock market where investors trade in the shares of unlisted companies i.e. before these shares get officially launched in a stock exchange. And yes, while the grey market does help in gauging investor interest and in estimating the IPO listing price in some cases one should also note that these markets are unregulated, have zero rules and are open to serious manipulation.

???? MISTAKE 5: FOLLOW THE HERD & FALL FOR THE MARKETING HYPE

IPOs too have this tendency of being washed up with promoters, underwriters and investment bankers creating positive vibes to ensure over-subscription of the issue. This is done via roadshows, advertising, news features, twitter etc. and since there is nothing wrong in marketing or hyping up a proposal. It comes down to the investor to not get influenced by this marketing push and to base one’s decision on more qualitative and quantitative parameters.

???? MISTAKE 6: BASING DECISION ON SUBSCRIPTION DATA

Yet another common mistake made by IPO investors is to pay higher attention to the subscription data in spite of it being prone to manipulation. News flows in just before the IPO that some marquee big-shot investor has put in a few crores and that many HNIs are investing in the grey market. This play is called the subscription hype and for retail investors, these act as clues that the biggest players in the game are interested in this company, however inadequate and rumor-filled it might be.

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