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Why You Should Not Invest In IPOs

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In an Initial Public Offering, there are usually two components:

1. Fresh issue of shares from the company
2. OFS – Offer For Sale from its promoters. Through this OFS component, early investors, including the company’s promoters, can sell a portion of their stake to the public.

When promoters hold a significant percentage of a company’s shares, it shows their confidence in the company. Promoters will likely have information about the company’s operations, financials, and industry outlook.

Their decision to hold a significant stake in the company suggests they are optimistic about its growth potential. Conversely, if promoters sell their shares (OFS), or reduce their stake in the company, it may signal that they are losing confidence in its prospects.

Either way, both Fresh issues of shares and Offer For Sale (OFS) are best avoided. The reasons are given below.

Whenever an IPO hits the market we start getting emails/SMS from our brokers or other sources to invest in the IPO. This is the reason why almost all IPOS gets oversubscribed.

However, data suggest not investing in IPOs.

Here is a List of Recently Failed IPOs:

Zomato – Online food delivery company – IPO came in July 2021 – A known brand yet failed
Sona BLW Precision Forgings – Auto parts manufacturer company – IPO came in June 2021
Nazara Technologies – The mobile gaming company – IPO came in March 2021
UTI Asset Management Company – An asset management company – IPO came in October 2020 – A known brand yet failed
PayTM – Digital payments and financial services company – IPO came in November 2021 – A known brand yet failed

And some others:

Reliance Power – A known brand yet failed
RateGain Travel Technologies
Cartrade Tech
Krsnaa Diagnostics
SjS Enterprises
Kalyan Jewellers India – A known brand yet failed
Fino Payments Bank
Aditya Birla Sun Life AMC
Suryoday Small Finance Bank
LIC – A known brand yet failed

No doubt investors of all these IPOs must be ruining their decision to invest.

And do not forget that you cannot invest a huge amount in IPOs. It is somewhere between 10 to 15k. So even if you make 10% on the listing day, what will you do with One Thousand Rupees?

If you want to invest in an IPO then have a long-term view. IPO is just another stock. When you invest in a stock, you do research before investing, right? Similarly, you should do research before investing in any IPO.

Many good company stocks are available relatively cheap compared to their valuations – invest your money there not in a new company. Not much is known about a new company except what we hear from brokers or some business channels. It is better to avoid them altogether.

I hope this article will help you to understand why it’s not good to invest in an IPO.




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About the author: Dilip Shaw I started trading stock markets since 2007. However my first 3 years were losses. Then I dedicated almost 1 year on studying, researching, paper trading options and learned a lot in that time. Since 2011 I am trading Nifty options profitably. Call me if you need any help trading options on 9051143004.

Comments on this entry are closed.

  • Neha Kayastha August 10, 2023, 2:35 pm

    Thank you

  • konka Anand August 10, 2023, 8:12 pm

    👍🤙
    Especially promoter’s stake selling IPO are worth less. Must avoid.

    ANAND

    Sent from my iPhone

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