The Upcoming IPO Boom. Should You Invest?

There IPOs listed on the Indian stock market today.

Meason Valves took the top spot in terms of listing gains at about 90%. In fact, it almost doubled investors wealth on closing.

The eagerly anticipated listing today was EMS and it did not disappoint. The stock listed at a premium of about 34% over its issue price.

There was also Unihealth Consultancy which was a SME IPO. It made a tepid debut with just about a 2% listing gain.

All three stocks closed in the green on a day when the Nifty was down 0.8% and the market sentiment has taken a hit.

This goes to show that there is a lot of demand for these newly listed stocks.

We believe this enthusiasm for IPOs is not going to go away any time soon.

In this article, we will elaborate on this and answer the question about the best way to go about investing in these IPOs.

Read on...

The IPO Boom

The Indian stock market has been the place to be if you've been looking for quick IPO profits.

This year, before today, the main board saw 25 listings but the action has been over in the SME side with 103 listings. The capital mobilised through SME IPOs is the highest since their inception in 2012.

In fact, it won't be a stretch to say India is one of the busiest primary markets of 2023. Indian stock exchanges have achieved global prominence by ranking first in terms of the number of IPOs and eighth in terms of issue proceeds for the year 2023.

As per a popular IPO reference site, Chittorgarh, as on 21 September end of day, there are 6 IPOs open and 9 to be listed after closing their applications.

There are also 12 IPOs that will open for subscription soon. There is an IPO opening tomorrow, Manoj Vaibhav Gems 'N' Jewellers.

Many investors have discovered that big profits can be found in the lesser-known and under-the-radar SME IPO market as most of these SME IPOs have listed in the green this year with big gains.

In fact, the IPO of Sungarner Energies more than tripled on listing day!

Investing in SME IPOs can be compelling as long term investments as well.

This is because some of them have strong growth potential, and are typically in their early stages of development. They provide an opportunity for investors to enter at an early stage and potentially benefit from significant future expansion.

SMEs often operate in niche markets, exhibit innovative business models, or offer unique products/services, creating opportunities for attractive returns on investment.

Also, including SME IPOs in a portfolio can provide some diversification by spreading risk across different sectors and industries.

And then there are the gains.

The post listing gains have convinced investors of the potential of SME IPOs. The overall biggest gainers in 2023 have been Krishca Strapping Solutions and Exhicon Events Media Solutions. Both are up close to 350%, more than 4.5 times over their issue prices!

These returns are truly mind-blowing as they have come in 2023 itself i.e. within a few months. Back in February, we wrote to you about 4 SME IPOs that rallied up to 1,200% in a year.

Investors expect multibagger returns over a period of a few years. To get the same kind of profit in a matter of months, is an incredible feeling.

But is this sustainable? Can these stocks crash? If so, then by how much? Also, what should investors keep in mind when investing in the upcoming IPOs?

Let's answer these questions...

Investing in Upcoming IPOs

Companies like to come out with their public offers when the sentiment in overall market is good.

In recent two weeks, the primary market has become a hive of activity with numerous new public offerings, and this trend is only gaining strength.

Looking ahead, the second half of the financial year 2024 is expected to see the launch of IPOs by more than 70 companies.

For more information on IPOs, check out the list of upcoming IPO's.

But it's important to remember that if the market's sentiment turns negative, these IPOs will be postponed.

IPOs are an attractive investment avenue as a company that receives a new infusion of capital is likely to grow. But it's important to not forget the basics of investing.

You see, investing in an IPO is like investing in any other business. So before you plan to invest in an IPO, check the company's fundamentals and prospects.

But for an unproven business with no listing history, a product or service with great potential is not enough. You need to give extra weightage to the quality of management and founders.

You must spend enough time assessing their vision, thought process, and execution abilities. Only once you have a 360-degree view of the business, should you consider investing in one.

To drive home the reasons for our caution we suggest reading these two articles - Top 5 IPOs Destroyed Rs 3.5 Trillion in Wealth and Key Takeaways of Tech IPOs.

A Word of Caution About SME IPOs

As far as SME IPOs are concerned, they are high risk investments. It's crucial to acknowledge that their ascent can be as swift as their descent.

Unlike mainline IPOs that are vetted by the market regulator, SME IPOs are managed by exchanges.

Also, the minimum investment required is high compared to the mainboard IPOs.

While some SME IPOs have delivered massive gains, investors must be cautious and conduct thorough research before even considering an investment.

It would be correct to say that SME IPOs stand at the intersection of high risk and high reward in the stock market. Hence, an investor must spend more time that usual thinking carefully about their investment horizon and risk appetite.

In conclusion, we suggest watching the video below where Richa Agarwal, our smallcap editor, explains what to look for in a winning IPO.

Happy Investing!

Disclaimer: This article is for information purposes only. It is not a stock recommendation and should not be treated as such. Learn more about our recommendation services here...