IPO gains: Looking to make a quick buck? Strong IPO listing offers no guarantee of sustained gains

Mumbai: Investors looking to wager on Initial Public Offerings (IPOs) to make a quick buck may be better off selling the newly- acquired shares in the issue soon after the listing. This is because the first-day pop does not ensure that such bets would continue to do well in the subsequent weeks.

Of the over 100 mainboard IPOs listed on the exchanges from January 2023 till date, shares of 22 companies were locked in the highest tradable limit (upper circuit) of between 5% and 20% on the listing day, according to Samco Securities. But over half of these stocks have not been able to maintain the bullish momentum over the next one month.

Out of the 18 companies listed for over a month, 11 fell between 0.4% and 40% in their first month of the listing (from the second day of debut), while eight returned between 7% and 90% in this period.

Analysts said investors in IPOs looking for short-term profits must mostly sell on the listing day.“For those applicants who’ve applied to the IPO just for listing gains, they may exit sooner than later, and can get out on the first day itself if the shares are locked at an upper circuit,” said Arun Kejriwal, founder of KRIS, a Mumbai-based investment consultancy firm.

RBZ Jewellers was the top gainer in the first month of listing with 89.7% gains. The stock has gone up 45.6% since listing.

Strong Listing Gains may Not Sustain
Vibhor Steel Tubes has been the weakest performer after the first-day pop. The stock has fallen 34% since listing.

Investors who want to hold beyond the listing day must keep a close watch on the subsequent price trend.

“We’d suggest the investors who’ve been allotted shares in the IPO ride the momentum and listing day highs, as long as the stock is trading above its listing day high price,” said Apurva Sheth, head of research at Samco Securities. “If the share falls below listing day’s closing price, it means the stock may trade lower from these levels.”

Shares of companies listed most recently including Tolins Tyres, Shree Tirupati Balajee Agro Trading, Orient Technologies and Bajaj Housing Finance too have slid after the strong opening day show.

Bajaj Housing Finance shares closed at ₹163.74 on Friday, lower than its listing day’s closing price of ₹165.

Kejriwal suggests using a trailing stop loss for those wanting to hold longer.

“They can put a stop loss as the stock’s previous day’s high, so if the share falls below that level, they can exit,” he said.
Sheth recommended investors who would want to buy a newly-listed stock wait for six months.

“This would ensure that the frenzy dries down and all stocks that entered the market at high valuations would have fallen,” said Sheth. “Also, by then, selling pressure and anchor lock-in would have ended and investors would be able to analyse two quarterly results before deciding on investing,” he said.