Invested In IPOs? What should you do now?
By Kaustubh Ghotikar, Prasanna Bidkar, Shashikant Singh, Saikat Mitra |
7/4/2011 11:38 AM Monday
Every bull market has always witnessed a torrent of IPOs. In a secular bull market, companies of all sizes and with all kinds of businesses jump on to the bandwagon of garnering funds to support their future business plans. It happened in 1988, 1994, 2000 and again in 2007. Th
e trend is so strong that one finds them being discussed all over the place. They form the hottest topic around workplaces, cocktail circuits and neighborhoods, enthralling every segment of investors’ who bet on them in the hope of making big bucks. All this sounds fairly good when the markets are rising.
Huge listing premiums have provided good gains for those who have flipped their allotments for some quick gains. In fact listing gains have become a phenomenon as far as the IPOs are concerned. But what happens to those who continue to hold stocks bought in an IPO and do not exit on listing? How do investors having a long-term perspective of the market benefit from holding these stocks? The real problem for those who continue to hold on to the stocks subscribed to in IPOs begins when the market tide turns over. In a bull market valuations are not some-thing that investors pay particular attention to. It is only in weaker times that issues crop up, thereby pulling down stocks to more realistic levels.
The market is presently in more or less a similar situation. It has been struggling to find a meaningful direction with many worries on the macro economic front plaguing it for quite some time now. In fact the scene for the IPOs is not very encouraging even globally. According to a Reuters report, a record USD 58 billion in withdrawn IPOs in Asia and muted market debuts are expected to force listing hopefuls to cut valuations to win over investors in the world’s top region for offerings. Investors who have bought into recent IPOs and who continue to hold those stocks have been facing a big dilemma of what to do with these stocks, many of whom have not been able to deliver value as perceived by the shareholders.
Investors are wondering as to when their investments will deliver value, if at all. We have tried to simplify their job by answering this question for them. If you look at the period between January 2009 and December 2010, a total of 93 companies have come to the market with either their initial public offerings or follow-on public offers. What we have done is to analyse the prospects of the stocks of those companies which came up with IPOs of more than Rs 1,000 cr in size during these two years. The reason for doing so is that investors are bound to be more stuck up in large-sized companies where the euphoria is often the highest. We have deliberately excluded companies - particularly PSUs which came up with their FPOs - because in those cases the price discovery was already in place. This left us with 13 companies which came to the market to garner more than Rs 1,000 cr during 2009 and 2010.
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