Should you join the IPO rush? A simple guide for the savvy investor

IPOs, or Initial Public Offerings, are always a hot topic in stock market investing. Lately, there’s been a lot of excitement with many new companies, like Honasa Consumer (Mamaearth), starting to sell their shares to the public.

Looking ahead, the stock market is buzzing with activity. There are 77 companies lined up, waiting to launch their IPOs. Of these, 29 have already got the go-ahead, and others are waiting for approval. We expect to see about 14 new companies on the stock market soon. This busy time in the market is probably because more people are buying things, businesses are using their full potential, and generally, people are feeling good about spending money.

But here’s the big question: Is it always a good idea to buy these new IPOs as soon as they come out? Let’s look closer at investing in IPOs and consider why sometimes it might be wiser to wait and see how things go before putting your money in.

The IPO Attraction and Its Downside
The excitement around IPOs is understandable. They offer the first chance to grab a piece of a potentially promising company. However, the initial glitter sometimes means long-term gold. Take Honasa Consumer Ltd., for example. Despite the hype, its stock had a lukewarm listing and has shown unpredictable performance. This scenario is not unique and is a cautionary tale about the risks involved in IPO investments.

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High-Profile IPOs: Expectations vs. Reality
Big names sometimes mean significant returns. For example, the much-talked-about LIC India IPO must live up to its billing. Despite its size and emotional appeal, the stock is listed at a discount and continues to trade below its issue price. This story is separate. Do you remember Reliance Power’s IPO in 2008? Or the more recent listings of Kalyan Jewellers and Paytm? All these examples remind us that popularity doesn’t guarantee success in the stock market.
Waiting Can Be Worthwhile
There’s often more clarity post-listing. A company’s financials, fundamentals, and market performance become more apparent. This transparency can give a better picture of the company’s worth than the initial IPO rush. By waiting, investors can make more informed decisions based on a company’s performance rather than getting caught up in the IPO noise.
Exploring Other Avenues
While the IPO frenzy can be tempting, remember the existing gems in the stock market. If you’re keen on a particular sector, like life insurance, you might find better value and less speculation in stocks that have been around and have a track record.

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The Changing Face of IPOs
Today’s IPOs often serve a different purpose than they did decades ago. Instead of primarily raising funds for growth, many modern IPOs are about providing an exit for existing shareholders. This shift raises questions about the real value for new investors through the IPO.

A Reality Check from Recent IPOs
The stories of Nykaa, Zomato, Paytm, and Policy Bazaar – once hot IPOs now trading at significant discounts – offer a reality check. They illustrate the importance of looking beyond the hype and doing homework before jumping into an IPO.

The Sensible Approach to IPO Investing
It’s okay to let a company list and watch from the sidelines. Observe its market performance, management decisions, and financial growth. This approach allows you to make a more informed and less impulsive decision.

Final Thought
In the world of IPOs, patience is often a virtue. While the excitement of a new listing is undeniable, it’s not always the path to investment success. Remember, the first chance isn’t the only chance. A thoughtful, researched approach to IPOs, balanced with a look at existing market options, can lead to smarter, more rewarding investment decisions.

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(Chakrivardhan Kuppala is Co-founder and Executive Director at Prime Wealth Finserv. Views are own)

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