The Hindu Business Line : Learning from the trends

WHAT do these trends signal for retail investors in book-built IPOs? You could probably keep the following pointers in mind when deciding on your investment strategy:

As listing gains are no longer a certainty, consider investing through the IPO only if you are sure that it will offer the best entry point into the stock. If in doubt, wait for a stock to list before you take exposures. You may then have greater flexibility to invest at prices at which you are comfortable; you may also have more information on which to base your decision.

Approach an IPO in much the same way as you would a secondary market investment. Consider exposures to an IPO only if you feel the company's business will offer reasonable scope for growth over the long term. If the business is new, seek informed inputs on its prospects before participating in the offer. If it is not, check if an already listed company is available at more attractive valuations.

Raising short-term borrowings to bid aggressively in an IPO is a far riskier proposition now. This would be a viable strategy only if the stock offers substantial listing gains. This may not happen in a majority of the cases.

Do not bid for substantially more shares than you would like to hold in your portfolio. With a higher proportion of the shares on offer now set aside for retail investors and the degree of over-subscription on the wane, the probability of your securing allotment is higher. Retail investors often bump up their bid size to improve their chances of securing allotment, and to qualify as non-institutional investors. This strategy may not yield good results any longer.

If you want to be sure of securing allotment, bid at the cut-off price rather than at the upper end of the price band. This will not save you any money. But, this way, you will be casting your vote with the majority of bidders in the offer, who may get you a fairer deal in the pricing of the offer. With institutional bidders beginning to dominate the show, a larger proportion of the offers may be priced at in-between points in the price band.

If you have invested in an IPO because you are convinced about the business and it has listed below offer price, hold on. Prices on listing are often distorted by exaggerated speculative activity on the sell side. Some of the recently listed stocks have firmed up significantly after listing below their offer price. The stock may trade at more realistic levels once more information about the company's business and financial performance begins to filter in.

Article E-Mail :: Comment :: Syndication :: Printer Friendly Page

Stories in this Section
Investment quiz

FAQ on buybacks

Rana Sugars: Accept/Sell in market

Sale by invitation only!

Question `n' auto

Changing rules for the IPO investor

Learning from the trends

Turnaround sectors are good bets

Tracking the regulatory trail

SBI Magnum Global: Invest in small lots

HDFC Prudence: Invest