Finding an IPO's Potential

The expedited listing of IPOs within a mere three days of closing the issue underscores a prevalent trend among investors who are eager to capitalise on profit opportunities quickly. This trend often involves a heavy reliance on easily accessible factors, primarily focusing on financial metrics. However, what if an investor is looking to identify a promising IPO investment opportunity that transcends conventional financial metrics? Mandar Wagh highlights the importance of incorporating qualitative factors alongside financial metrics to make informed investment decisions, underscoring their crucial role in shaping IPO outcomes

- Mandar Wagh

In the latter half of September 2023, the Indian benchmark indices came close to nullifying the gains made during the initial half of the month, marking the end of their longest winning streak since 2007. This downturn was primarily influenced by weak global cues, concerns about heightened inflation rates, surging crude oil prices, and an elevated 10-year Treasury yield. Additionally, the situation was compounded by foreign institutional investors offloading over ₹25,000 crore in the cash markets. Conversely, in the primary market, a different trend surfaced – one that remained exceptionally robust and vibrant.

It highlighted the unwavering optimism among investors, exemplified by the launch of 14 mainboard IPOs and numerous SME IPOs throughout the month of September. The Indian capital market experienced a noteworthy total of 36 mainboard IPOs throughout 2023, resulting in companies raising over ₹27,000 crore. Impressively, approximately 65 per cent of the funds raised in 2023 were concentrated in the July-September quarter. The majority of these IPOs not only attracted enthusiastic investor interest but also delivered impressive returns, defying the prevailing bearish sentiment.

The rapid listing of IPOs within just three days of issue closure has highlighted a trend among investors who seek to exploit these opportunities promptly. Investors in a rush to seize opportunities for profit frequently depend solely on readily accessible factors, such as the grey market premium (GMP), when making their investment choices. These factors may not consistently support sound decision-making. Such a situation can potentially perplex genuine investors, especially when faced with a multitude of simultaneous IPOs, the majority of which come with enticing GMPs. Let’s explore how financial parameters aid in evaluating IPOs to seize potential investment opportunities.