How do past performances and market conditions influence the Indian IPO scenario, and what strategies should retail investors consider in volatile times to enhance their chances of allocation?
The Indian stock market, like its global counterparts, has always been influenced by past trends and prevailing market conditions. When it comes to IPOs, these factors become even more pivotal. Here’s a breakdown:
Company Track Record: Companies with a consistent profit trajectory, reputed management, and a clear growth strategy often get better attention and potentially higher oversubscription.
- Sectoral Performance: Companies from sectors currently in favor (e.g., tech during the IT boom, pharma during health crises) might see a heightened interest.
- Overall Market Mood: Bullish markets often lead to successful IPOs with high demand, while bearish phases might see subdued interest.
How Volatility Works?
- Price Band Fluctuations: In highly volatile times, companies might price their shares conservatively to ensure full subscription.
- Oversubscription Levels: Volatile periods might reduce oversubscription levels, as investors could be wary of parking funds.
Strategies during Volatile Periods:
- Focus on Fundamentals: A company with strong financials can be a safer bet during turbulent times. Analyzing balance sheets, P&L statements, and cash flow can offer insights.
- Limit the Greed Factor: While listing gains are attractive, it’s essential to have a long-term perspective, especially when the market is choppy.
- Diversify Applications: Instead of going all-in on one IPO, spreading applications across multiple offerings can spread risk.
- Monitor Anchor Investors: Before public bidding, look at who the anchor investors are. A strong line-up can often be a positive signal.
Stay Informed:
- Listing History: Analyze the past few IPOs’ listing performances. If many are listing below their issue price, it could be a cautionary tale.
- Global Cues: Global financial crises, geopolitical tensions, or global market downturns can influence Indian IPO sentiment. Staying updated on international events is crucial.
- Real-life Instance: The IPO frenzy during the end of 2020 and early 2021 was a testament to how market euphoria can influence subscription rates. However, several retail investors got their fingers burned during the subsequent market correction. Those who focused on company fundamentals and had a diversified approach fared better.
The benefits of getting IPOs are undeniable, but they come with their share of risks. Always make decisions based on thorough research, especially during volatile market conditions.