With hullabaloo around the IPOs hitting the markets yet again following the trend throughout 2021, with the companies going public in a rush, a primary consideration is that a trend in the market can be a double-edged sword with the flip side risk commensurate to the upside potential. The motto in the investment parlance should be "You Win Some, You Lose Some". While India's primary market has attracted a lot of interest from the investors with more than 2X funds raised by firms on a Y-o-Y comparison between 2020 and 2021 (till end of Oct'2021, and several still tentatively lined up before the end of the year), not all who received allotment garnered a fortune.
Many investors have been searching online and consulting financial advisors for strategies and tricks - tracking GMP, putting through multiple applications through demat accounts held by friends and family, applying at the earliest possible from the IPO opening hours etc to improve the chances of getting an allotment in a ‘Good IPO’. However, these strategies seldom work in a highly unpredictable IPO market. No wonder, Warren Buffett said it right: “An IPO is like a negotiated transaction - the seller chooses when to go public but it’s unlikely to be at a time that is favourable to you.”
The real game analysis and predictability is built upon the capability to segregate the bad apples (over-priced, over-valued, poor quality business, and disastrous motivation for listing) from the right bets (growth prospects, business & industry stability, and future earning potential). Many times expectations and IPO price are too high to subscribe at the time of IPO. As a company takes some time to deliver on expected growth, impatient investors or investors with a myopic vision (just for profit making to make a few quick bucks) sell out. Investors who are optimistic of the changing situation and macro- or micro- economic factors that will or may influence the price movement, buy in or stay invested and benefit from any appreciation. Only savvy investors understand the meaning and value of being “patient” with companies which have long-term potential.
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