Want To Invest In IPOs For Listing Gains in 2024? Here Are Key Factors To Consider!

2023 has been a remarkable year for the IPOs market with SME public offers outperforming even the mainboard IPOs. Data from FYERS showed that SME IPOs delivered an outstanding performance in 2023, providing investors with a whopping 95%, while BSE IPOs gained by 39%. However, with 2024 just around the corner, FYERS explain key factors that need to be considered while investing in IPOs.

The brokerage highlighted six key factors. These are:

1. Check for quality of management, book running lead managers (BRLMs) and the purpose of the IPO.

2. Read through the entire prospectus, reviews and ratings offered by brokerages and independent analysts.

3. Understand the business and its prospects, financials, valuations and competitive landscape.

4. Compare with peers/industry average for clarity on the company's positioning from the point of product portfolio relevance, pricing capability and margins.

5. Check the subscription status during the open period of an IPO. A very high subscription will result in non-allotment, and a subscription below 1X reflects the poor interest of investors.

6. Finally, look at the positioning of the stock market. Is the market in a downtrend, raising the possibility of the IPO being affected negatively or not?

According to FYERS, addressing these factors should help in investing in an IPO successfully. Also, note that there is a lock-in on the shares allotted to the anchor investor from the date of allotment in the public issue. At the end of the lock-in period, if anchor investors exit the company, it is a possible cause of concern.

It added that investing in IPOs for listing gains is very different from investing for the long term. While investor interest before and immediately after listing could be high, factors like sustainable business models, financial metrics, quality of promoter/management and growth prospects determine the longevity of investor interest.

Though IPOs from strong business groups or promoters tend to perform better, FYERS said that " extrapolating this hypothesis to different industries is not apt and a foregone conclusion."

Ultimately, it is the investors' responsibility to peruse through quarterly financials, management interviews, and analyst calls to understand the directionality of the business and its growth, it said.

In 2023, till December 10th, 50 companies launched their primary issuance, raising a total capital of Rs 44,744 crore. While the SME segment saw 166 companies raising an aggregate of Rs 4472 crore. Overall, 42 out of 49 mainboard IPOs listed with positive gains and 136 out of 166 SME IPOs closed in positive territory.

An interesting trend that the FYERS report highlights is that while a large pool of investors are only focused on getting the IPO allotment and listing gains, there is a much bigger opportunity after the IPO is listed. Several IPOs have given better returns ranging from 50% to 140% after the initial phase of listing.

Disclaimer: The recommendations made above are by market analysts and are not advised by either the author or Greynium Information Technologies. The author, the brokerage firm nor Greynium would be liable for any losses caused as a result of decisions based on this write-up. Goodreturns.in advises users to consult with certified experts before making any investment decision.