Staying away from IPOs

Should You Invest in Major IPOs?

In recent years, many investors have been excited about initial public offerings (IPOs). Big IPOs often attract a lot of attention, with the expectation of making quick profits. However, the actual performance of these IPOs can vary greatly. Let’s take a look at some of the biggest IPOs over the last decade and how they performed on listing day.

The Biggest IPOs and Their Performance

Several big IPOs have faced losses on their first day of trading. For instance, the most recent example is Hinda India, which had an issue size of ₹27,000 crores and saw a 7% loss on listing day. Similarly, in 2022, LIC also experienced a 7% loss. Paytm, which was one of the largest IPOs in 2021, had a staggering ₹18,000 crore loss. Not all IPOs perform poorly; for example, Coal India’s IPO in 2010 gained 39%, making it one of the most successful listings. However, other large IPOs like Reliance Power and GIC have seen declines of 17% and 4%, respectively.

The Risk of Following the Crowd

Many retail investors tend to jump into IPOs simply because they are backed by big names or have media hype surrounding them. Often, institutional investors and venture capitalists have already earned their profits before the IPO, leaving less room for retail investors to gain. These early investors, like venture capital firms and private equity groups, aim to maximize their returns before allowing retail investors in, and the general public may be left holding shares that quickly decline in value.

Retail Investors and the IPO Hype

The idea that IPOs always make money can be misleading. In many cases, retail investors follow the crowd without doing proper research. They buy into the hype, thinking that big-name companies will automatically lead to profits. However, as we’ve seen, this is not always the case. The emphasis on prominent names often leads to a cycle where investors follow trends rather than looking at the true value of the company.

Caution is Key with IPOs

Investing in IPOs requires a cautious approach. Before diving into an IPO, it’s important to ask yourself whether you see real value in the company. If you are unsure about assessing the company’s value, it might be best to avoid investing in IPOs altogether. Sometimes, it’s better to wait and observe the stock’s performance after three to six months, once the initial hype has settled.

Avoiding the Short-Term Gamble

Many IPOs have turned into high-risk gambles in the short term. Whether it’s after 3 months or 6 months, some stocks stabilize while others continue to fall. This is why many experts suggest waiting to see how the stock performs in the market before making any investment decisions. IPOs can offer opportunities, but they also come with significant risks, and it’s important to approach them with careful consideration.

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