IPOs: The best bet to lose your money

Written by: Sunil Fernandes
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IPOs: The best bet to lose your money
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It's the same story in the IPO market for the just concluded financial year 2011-2012 - a set of happy promoters on one side and poor investors who lost money on the other side. Goodreturns.in did a check of the IPOs that raised money in 2011-2012, and found that investors lost in most of the IPOs during the just concluded financial year, apart from a few like MCX, Flexituff International, Rushil Décor, Tree House Education and Onelife.

The best bet to lose your money

Muthoot Finance which came out with an IPO at a share price of Rs 160 is currently traded at Rs 130, L&T Finance Holdings which came out with an IPO at Rs 52, is currently traded at Rs 46.85, Paramount Print, which came out with an IPO at Rs 32, is trading at Rs 6, Future Ventures IPO offer price of Rs 10 has a CMP of Rs 9, Taksheel Solutions offer price of Rs 150, against current price of Rs 14.50. An analysis of the other IPOs that came out during the year also suggests the same loss making trend for investors.

Steep pricing the issue

IPOs have been priced very aggressively by promoters, so as to extract the maximum price from investors. This has invariably resulted in investors losing money when the shares list. There is no fixed mechanism to set a price, but the general price to earnings and price to book value parameters have shown a tendency towards aggressive pricing. Investors too fail to look at the standard parameters and compare them with industry peers before investing in an IPO. They more often go on hearsay, rather than seek professional advice. 

Sample this: According to information from SEBI in 1995-96 there were 1426 initial public offerings (IPOs), making it as many as 118 IPOs in a month on an average. In the just concluded 2011-2012 financial year ending March, IPOs have trickled down to just 34, an average of just under 3 IPOs a month.

Should the pricing of IPOs be a little moderate, we could see original allottees making money and interest in the IPO market returning. Until then, it's going to be a herculean effort in regaining investor confidence in an effort to create a thriving IPO market.

GoodReturns.in

Read more about: ipo, mcx
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