Many potential investors are disappointed if a company’s IPO is a success. It may cause a wave of FOMO (fear of missing out) among people who were unable to get allotments in the IPO.
But ‘Missing out’ and taking a ‘wait and see’ approach may not necessarily be detrimental. According to stock market professionals, investing six months or a year after listing is preferable than capitalizing on the listing day excitement. To understand India’s present IPO boom, we shall look at the 2021 data, a year of record-breaking fundraising in which investors went crazy for fresh offers. Of the 46 stocks listed at a premium to their issue price in 2021, 67% provided positive returns to investors who deferred a year before purchasing the stock. Approximately 65% of the stocks have increased in value if you had purchased those six months after their initial public offering.
In 2021, 64 equities were issued, with 46 debuting at a premium and 14 seeing a spectacular increase of at least 50% above the issue price. In 2024, approximately 80% of the 51 stocks launched thus far have debuted at a premium. The median listing gains in 2021 (among stocks that made their debut) were 29.2%, compared to 31.2% this year.
Historical evidence typically suggests that a gradual approach to IPO investment might produce greater profits.
The early increase in a stock’s price following an IPO is frequently driven by excitement and speculation; but, when the market cools down and investors’ emphasis is more on a company’s fundamentals, the stock’s price is prone to settle. This might allow investors to enter the stock at a more favorable pricing. In many situations, early price increases are motivated by speculation, emotion, and the prospect of quick gains. However, patiently waiting for a year or two for the buzz to die down allows investors to decrease their exposure to short-term price volatility, and perhaps buy shares at a lower value, by undertaking full due diligence on the company’s financials and business plan. By doing this, the investors will also prevent overvaluation.
