Spoilt for choice in IPOs

In the first four months of the current fiscal, IPOs collected close to Rs.28,000 crore. The month of August alone will see IPOs worth Rs.30,000 crore while the second half of the fiscal year will see IPOs to the tune of Rs.60,000 crore. In this deluge of IPOs, how to manage liquidity and how to really separate the wheat from the chaff. The latter is a lot more complex as it involves a number of tricky issues as well as intricacies. For example, people were worried about the idea of investing in loss-making digital companies. However, these IPOs have performed exceedingly well in terms of subscriptions and price. There are mega IPOs coming up like Paytm, Nykaa and others which will dry up the retail liquidity in the market. We are not even counting the LIC IPO, which is also expected to hit the markets in this year and could be worth around Rs.75,000 crore at a very conservative level. What the retail investors really need is a kind of rule-based approach to investing in IPOs and making a choice of which IPOs to invest in and which IPOs to avoid. 

Don’t be too long term

That seems to be contrarian advice. You always thought equities were meant for the long term. Why then to take a short-term view on IPOs. The reason is fairly simple. IPOs are in the midst of one of the biggest frenzies of recent times. In such frenzies, IPOs tend to command rich valuations. Hence, it would be best to play such IPOs for listing gains and then wait for a few quarters of numbers before taking a fundamental view on these stocks. Secondly, when there is so much oversubscription, there is bound to be selling pressure, not only from retail investors, but also from HNIs and QIBs over the next few weeks. It is always best to be fleet-footed in such cases and take profits where available at the first opportunity. Don’t wait long. 

IPOs only for novel themes

One simple rule to follow is to focus on IPOs for the novel themes. You can get steel and chemical stocks in large numbers in the secondary market. They also come with the advantage of track record and pedigree. There is not much that an IPO can offer in such sectors. The IPOs would really add value in sectors like digital or niche pharma where you do not have sufficient supply in the market. Remember, when you invest in an IPO, there is always the risk of the unknown. That is what makes it exciting and also a unique asset class. You just have to play it carefully!