Indian IPO Market - Mad rush?

Indian IPO Markets

Why is it that Indian Investors are so crazy about IPO's?

There was lots of action in the Indian IPO (Initial Public Offering) market ….with the sudden fall in the equity markets the action seems to have died down!

Let us look at why IPO’s are hot with the public? Why does a person invest in IPO's?

Companies go in for IPO's when they want to sell a part of their equity to the public and use the money (raised from public) for specific needs. IPO money is debt free (no need to pay interest)…but is compensated with dilution of equity.

What are the things I should keep in mind while investing in IPO’s

* What kind of business is this company in? How is the sector growing, what are the potential risks?

* Do I understand the company business, its promoters and its past performance?

* What are the growth prospects of the company in the long term?

What is happening these days is very different - The IPO makret is over heated with many IPO's hitting the market in quick succession....most of the IPO's are fully valued and hence don't have much scope for upside...people (including me) subscribe to the same without understanding risks of the listing, valuation and long term prospects.

The only reason people seem to be investing in an IPO is “I will be able to double/triple/quadruple” my money when this IPO lists in the secondary market…call it pure luck if you are able to get 50-100 % return consistently on these IPO’s !

Why is it that getting 50-100% (or more !!!!) returns consistently not feasible?

* Companies understand that people are willing to go to any extend to get good shares and hence are pricing the IPO’s very aggressively – Valuations are on the higher side and a further premium on listing is not realistic/sustainable

* Short sighted view of other investors (investors are people who can invest for a longer time and hence buyers would be a better term right !!!) who want to sell on listing – This selling pressure will bring down the price

* Some of the risks/valuation concerns of the stock come out only once the subscription is complete or once the stock lists, a classic case being the Reliance Power issue on NSE recently…before the IPO opened many fund/brokerage houses recommended a buy on the stock without looking at the valuation…the IPO was over subscribed a whooping 100+ times and then came the valuation concerns from all fund houses…where were these people when the IPO was in subscription…where these risks/valuation concerns hidden !

People need to apply judgment when investing in stocks…they should buy into businesses which they understand and only buy stocks from a long term perspective !

Happy Investing :)

Cheers,
Vaithee