 "IPOs: Focus on buying for the long term")
When stock markets are doing well, retail small investors suddenly find the appetite for undue risks. So, many dabble in penny stocks in which even a small movement can lead to huge profits or losses. Similarly, many even borrow to invest in initial public offerings (IPOs) and follow-on public offerings (FPOs) of companies for a quick buck — not the best of strategies. From that perspective, 2015 was an interesting year. While collections through IPOs were Rs 13,500 crore, the highest since 2010, for stock markets, the year wasn’t that good. The Sensex is likely to close lower this calendar year. So, in an overall dull year, promoters were able to raise significant money.
What about returns? IPOs have done well this year. Of the 62 IPOs this year, 44 have given positive returns since launch. These include offerings of small- and medium-scale companies. While there are companies which have returned over 100 per cent, they are mostly ones whose issue prices are less than Rs 50. Among those who were priced above Rs 100, VRL Logistics (97 per cent), Syngene International (62 per cent) Manpasand Beverages (57 per cent), and InterGlobe Aviation (55 per cent) are the top gainers.
Says Arun Kejriwal, investment advisor: “2015 was a good year for public offerings. Two out of three offers have made money for investors. However, many would have not got enough shares to make significant amounts due to over- subscription.”
Gaurav Mashruwala’s solution is simple: “If you like a company and want to go for the IPO, set a target of shares you want to acquire. If you do not get those in the offering, buy it in the secondary market.” Mashruwala usually likes follow-on offers and divestment programmes of the government.
IPO investing, for starters, has to be on a case-to-case basis. For example, whether it is a cyclical, defensive or growth-oriented stock. From a portfolio perspective, one should see the role the stock is likely to pay. “If you have a portfolio of Rs 1 crore and are investing Rs 1 lakh or so, it will really make little sense because it will not add much value to the portfolio,” he adds. Another important thing to check is whether there are other similar stocks in the portfolio, as it may cause an overweight of a particular sector which might hurt the earnings prospect of the portfolio. Ideally, don’t buy because of euphoria but because you believe in the company.
What about returns? IPOs have done well this year. Of the 62 IPOs this year, 44 have given positive returns since launch. These include offerings of small- and medium-scale companies. While there are companies which have returned over 100 per cent, they are mostly ones whose issue prices are less than Rs 50. Among those who were priced above Rs 100, VRL Logistics (97 per cent), Syngene International (62 per cent) Manpasand Beverages (57 per cent), and InterGlobe Aviation (55 per cent) are the top gainers.
Says Arun Kejriwal, investment advisor: “2015 was a good year for public offerings. Two out of three offers have made money for investors. However, many would have not got enough shares to make significant amounts due to over- subscription.”
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According to experts, this is an interesting situation for retail investors. Since the maximum they have to invest is only Rs 2 lakh, in good issues which are oversubscribed, they will rarely get many shares. “In good issues, they might get just one lot worth Rs 15,000-20,000. Unless the investor buys more shares from the secondary market, it really does not make sense in investing such a small amount for the long term,” says an investment advisor.
Gaurav Mashruwala’s solution is simple: “If you like a company and want to go for the IPO, set a target of shares you want to acquire. If you do not get those in the offering, buy it in the secondary market.” Mashruwala usually likes follow-on offers and divestment programmes of the government.
IPO investing, for starters, has to be on a case-to-case basis. For example, whether it is a cyclical, defensive or growth-oriented stock. From a portfolio perspective, one should see the role the stock is likely to pay. “If you have a portfolio of Rs 1 crore and are investing Rs 1 lakh or so, it will really make little sense because it will not add much value to the portfolio,” he adds. Another important thing to check is whether there are other similar stocks in the portfolio, as it may cause an overweight of a particular sector which might hurt the earnings prospect of the portfolio. Ideally, don’t buy because of euphoria but because you believe in the company.