The current IPO craze has turned the primary market into a lottery exclusively for retail investors. The chances of getting an allotment in the targeted IPO are slim. Those who receive the allotment have a portion of the shares applied for. Since January 2018, IPOs have seen average retail subscriptions more than 27 times since listing, with gains of over 50%. IPOs yielding 15%-50% gains have recorded an average of around 13x subscriptions. So many individuals would likely have missed out on these stellar benefits.
Also, even if you do get the allotment, your chances of hitting the jackpot are slim. Succeeding in an IPO is like betting on the toss of a coin. While many new listings have created phenomenal wealth, many have proved worthless. Since January 2018, 44% of new listings have achieved an annualized return of over 15%. Twenty-two small-caps listed on exchanges have turned mid-caps during this period and the other four small-caps have become large-caps. At the same time, many new listings have also gained momentum. Around 31 per cent of the companies listed between January 2018 and October are currently in the red. Five mid-caps have switched to small-caps after debuting on exchanges in 2018. Four small-caps have been suspended. Obviously, investors need to be very tight-lipped while investing in an IPO.
For investors who are put off or unsure which IPO to target, the Edelweiss Recently Listed IPO Fund offers an alternative route. This one-of-its-kind thematic fund was launched in 2018 as a closed-end fund, Edelweiss Maiden Opportunities – Series 1. It was converted into an open-ended avatar when it completed its term in June this year. As the name suggests, its sole purpose is to invest in companies that go public through IPOs. The fund cherry picks 30-40 best ideas out of 100 recently listed and upcoming IPOs. Its top picks currently include Amber Enterprises, Sona BLW Precision Forgings, Gland Pharma and Insurance.
Very few IPOs are eligible for investment
Oversubscription keeps many retail investors out
Experts believe that this vehicle presents a better way to participate in an IPO. Amol Joshi, Founder, PlanRupee Investment Services argues, “The lure of quick profits drives investors to put money in any IPO, which is a recipe for disaster. better to let go mutual fund Do due diligence and remove the junk.” Investors have a better chance of getting exposure to new listings through the mutual fund vehicle, said Santosh Joseph, founder and managing partner, Germinate Investor Services. “Institutional quotas or anchors of IPOs A fund house is in a more advantageous position to get the allotment through book subscription. Even if it defaults, it can buy the shares at an appropriate time after listing.
The exit time is another factor that investors themselves struggle with while investing in an IPO. Most drop out soon after listing, missing out on potential future gains. Impatient investors often sell out if the company takes time to achieve the expected growth. Bharat Lahoti, fund manager, Edelweiss AMC, says, “A lot of money can be made even after listing as the earnings momentum for the new business can continue for a long time. A longer holding period is required to fully capture these opportunities. A professionally managed fund is in a better position to do this. Moreover, the portfolio of the fund is likely to have very little overlap with any existing diversified equity fund that you hold. Traditional flexi-cap funds have an average exposure of less than 10% to new listings.
what should be taken care of
The fund has a strong performance track record. It has achieved an annualized return of 36.7% in the last three years, while the S&P BSE500 TRI return is 21.85%. Still, given the nature of the IPO market, investors should take this performance with a pinch of salt. Be aware of the risks associated with IPOs. The fund has a distinct inclination towards the middle and little hat The basket looks at Joshi. Many of these companies have not been tested across business and economic cycles. Some new technology-driven firms are yet to make profits. This gives the fund a different risk profile as compared to traditional diversified equity funds. Select IPO aspirants may opt for this route as the fund does not have the right of investors to choose the IPO.
Investors looking to tap quality IPOs in overseas markets may also soon find a convenient way out. Motilal Oswal AMC has filed for a new fund- Motilal Oswal S&P US IPO and Spinoff ETF. This will allow investors to bet on new companies in the US markets. Experts say that international investments should preferably be in the form of diversified funds and not in the form of thematic offerings.