IPO FEVER: HOW TO SEPARATE THE WHEAT FROM THE CHAFF

Rohit* started equity investing with a long-term approach, but soon moved to the IPO (initial public offering) market, tempted by quicker returns.

- PRASENJIT PAUL

For any IPO, right from the day of subscription closure, it takes only three working days for listing. Rohit realized that this was a golden chance to rotate capital for short-term returns.

His belief was strengthened when he saw multiple IPOs generating steep returns on the listing day itself. Lured by short-term return opportunities, he began subscribing to nearly all IPOs.

However, within a few months, he noticed a problem—he was not receiving allotments in the IPOs that fetched big returns on listing day, but was instead getting allotments in those that generated nominal returns or even losses on listing day. He continued holding such stocks in the hope of selling them later at cost price. However, losses in those stocks widened. After six months, he became frustrated to see heavy losses in his IPO portfolio, despite multiple IPOs generating outsized returns in the same period.

Rohit is not alone. In my interactions with retail investors, I have observed the same issue—investors don't receive allotments in profitable IPOs, and the IPOs allotted to them yield nominal profits or listing day losses.