Should Listing Gains Drive Your Investment In IPO Issue?

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IPOs are hitting the market like never before and so far this year as many as 24 companies saw their presence in the IPO market and managed to mop up close to Rs. 37,000 crore.

Should Listing Gains Drive Your Investment In IPO Issue?

While some of the companies, when it comes to their pricing have been overvalued even after factoring the growth potential in the near term, the interest of investors did not seemed to recede. For eg: Prataap Snacks, a potato chips making company stock valued over 200 times in comparison to its earnings got a whopping oversubscription of 30 times and also listed with huge gains on making its debut at Rs. 1,270 on the BSE. The last traded price of the scrip on the BSE is Rs. 1246.70 which is a high P/E multiple and shall see some correction if financial performance of the company does not remain promising.

Know on what factors should you consider before ivesting in IPO issue, here.

Also, oversubscription in an IPO is not welcomed by experts, as it then lessens the chances of an investor getting the scrip issued. The phenomena is visible across categories in the market and is citing to be worrying as investors are putting their bets on these IPO only to make quick listing gains. Though, it is mostly a probability, that given the current stock market bull market, the investors might end up making gains on listings. The proposition does not hold true for all of the opened issues and in the light of the noted trend some of the IPOs also listed at a discount to the issue price and there is even a possibility of them running into the danger territory.

So, only if you expect listing gains and bet on the opened IPO issues, the idea is not a good one and the deal could prove to be detrimental for you as around this time some of the IPOs are highly overvalued.

Note that the recently issued IPOs have good business prospects and they can be splurged on in case you have a time horizon of 4-5 years in the investment.

Read more about: ipo, listing, valuation, pe multiple
Story first published: Friday, October 13, 2017, 6:41 [IST]
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