The IPO game

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: media limelight.

Some of the lessons gleaned from this study and conversations with leading investment experts and merchant bankers are:

Lesson 1: Know the game rules

One of the biggest mistakes that investors make while entering into the IPO market, reckon experts, is that they don’t know what they want. “If you know where you want to go, you will land up there,” says Singh. There are gains to be made from a lot many places. First, the listing gains, then there are gains that come from holding the scrip, based on a desired time frame.

Listing gains can be a tricky game to play, as it is also driven by the sentiment factor. Outrageously horrible issues list at handsome gains in euphoric times. And in bearish phases sound issues are listed at a discount.

Then there are unscrupulous promoters who are involved in price rigging as there is no circuit breaker for IPO listing. Isolating them can be a challenge, something that the investor community can stay away from.

Also, playing the listing gains game requires you to have a greater focus and discipline as well. “Stocks that rally on listings also have a tendency to retreat with speed on the very same day,” says a broker. The case in point is the prestigious DLF issue which was priced at Rs 525, immediately gained on listing and rose to above Rs 700 levels. The very same day it crashed back to record a small gain over the listing price. It’s a high risk game, the broker avers. “It becomes difficult for even us to know when a price reversal will come through,” he adds.

A study reveals that a majority of companies with high listing gains often see the share price retreat back to the listing price within a month. So if you are playing the listing gains game, the strategy should be to cash out quickly. The other game is long-term investing. And this requires patience and diligence normally associated with investing.

Lesson 2: Know the player