Do's and Don'ts of Investing in IPOs

Worldwide, IPO markets are often viewed as a lottery, wherein successful allottees are able to sell their holdings at a huge premium on listing. While this went well till 2008, this arbitrage has faded over time at least in India.

Post 1992 the promoters are free to price their offering as per the market demand, which resulted in promoters realizing the maximum value of the issuance. Unlike secondary market, primary market is a promoter to investor transaction where like any other business the seller tries to realize maximum value by adopting all sorts of strategy. Reliance Power was hugely subscribed and then was a huge failure because the company had nothing on ground but the promoters through their Investment bankers tried very hard to sell the future value at an exorbitantly high price. The stock is still languishing below it's IPO price. 

However it's not that always bad to go for an IPO provided you approach them as investments rather than lotteries. One should always consider following points before going in for an IPO:

Wonderla Holidays IPO allotment to Retail Investors unfair

Individual small retail investors have been hugely disappointed with the IPO of Wonderla Holidays as far as the allotment of shares are concerned. Many individual investors who applied for one or two lots hoping to get shares as per SEBI's minimum allotment rule, have not received any shares. As expected the stock listed at 165 on the listing day as on 9th May 2014 but many of the small retail investors who had the applied in the IPO couldn't gain as they have not been allotted any shares.

There was huge demand for shares in the HNI category which were rumored to have borrowed 4000 crores to apply in the IPO at very high interest rates. 

http://www.business-standard.com/article/markets/rich-investors-borrowed-rs-4-000-cr-to-bet-on-wonderla-public-offer-114042400842_1.html

There is a possibility of company management and these HNI investors forming a nexus and gain at the expense of retail investors. There was huge grey market activity in the marketplace as well. As per SEBI rule each retail investors must get minimum allotment to encourage wider participation (See articles below).

Bharti Infratel IPO : Price Band, Size, Valuation

Bharti Infratel Ltd, the tower arm Bharti Airtel Ltd, is set to raise up to INR 4,500 crores in the month of December through it IPO. The company set a price band of 210-240 rupees per share for its IPO, which will open on Dec.10 for cornerstone investors and a day later for the public, closing on Dec. 14, it said on Friday. At the upper end of the price band, Bharti Infratel would raise about 45.3 billion rupees ($825 million).

In the sale of 188.9 million shares, or 10 percent of the company, Bharti Infratel will sell about 146 million new shares, while four of its stockholders, including arms of Singapore state investor Temasek and Goldman Sachs, are selling 42.7 million shares, according to the regulatory filing.Bharti Airtel, which owns about 86 percent of Bharti Infratel, will not sell any shares.

IPOs in December 2012

With the successful IPO issue of Mumbai based Tara Jewels, IPO market seems to have seen the light at the end of the tunnel. The issue, which closed on 23rd November, was oversubscribed 1.97 times. 

There are some five to six IPOs lined up for subscription in December which includes popular names like Bharti Infratel and CARE among others. Following are the details of issues up for grab in the following month:

Indian IPO Performance Report - 2011

The year 2011 has so far been pretty dull as far as Indian Stock Markets are concerned. But many companies came out with IPOs and raised money from public.

Unfortunately due to lofty valuations and bad market sentiments most of them have performed badly and are down significantly from their issue prices.

Following is the month wise detail of IPOs and their performance as on 30th September 2011 with respect to their issue price.

L&T Finance fixes IPO price at Rs. 52

L&T Finance Holdings priced its initial public offering (IPO) near low end of the price band, raising $252 million in a market that has seen fewer new issues so far this year due to weak markets.

IPO losers of 2011

Out of the 15 companies that came out with IPO in 2011, nine entities, including PTC India Financial Services and Future Ventures India, are attracting negative returns in the range of 16-75%.

IPO	CMP	Issue Price	Return
Acropetal Technologies	22.7	90	-75%
Shilpi Cable Tech	18.65	69	-73%
Sarvalakshmi Paper	10.5	29	-64%
Omkar Speciality Chem.	53	98	-46%
Paramount Printpackaging	24	35	-45%
PTC India Financial Services	18.9	28	-32%
Sanghvi Forging	65.85	85	-22%
Future Ventures India	8.09	10	-19%
Innoventive Industries	98	120	-16%

*CMP as on 3rd June 2011.