IPOs: Imaginary Profits Only? - Views on News from Equitymaster

Helping You Build Wealth With Honest Research
Since 1996. Try Now

  • MyStocks


Login Failure
(Please do not use this option on a public machine)
  Sign Up | Forgot Password?  

IPOs: Imaginary Profits Only?

Nov 12, 2008

The year 2007 could have been considered as the year of the initial public offerings (IPOs). Majority of the companies' IPOs were oversubscribed numerous times. And this too, in spite of these (IPOs) being fairly overvalued. However, since the beginning of this year, things have changed drastically.

The market sentiment has shifted to the opposite extreme. From buoyancy, the sentiment is now gloomy - both for companies intending to raise fresh money and investors who have burnt their hands in the IPO menace.

As per statistics from Centre for Monitoring Indian Economy (CMIE), the total amount of money raised in the domestic primary market (including public and rights issue and private placement) in the first six months of this fiscal has been Rs 389 bn. This is 60% lesser than the amount of funds raised during the first half FY08.

This is not the case in India alone. It is estimated that a total of 30 large sized IPOs the world over (valued at US$ 13.1 bn) were pulled out during October 2008. Incidentally, it is the highest volume of withdrawn offerings in a single month since 1995. As investors are fleeing to what is perceived as the safest asset to hold in these times i.e., cash, the IPO market has almost completely dried up.

  • Did you miss the Equitymaster WebSummit? Click here to catch up on the same

    The world has seen several cycles in the IPO market in the past, the last down cycle being the one post the dot-com crash. After this bubble burst in 2000, only 88 IPOs were issued worldwide in 2001 - the lowest annual total since 1979.

    As Benjamin Graham writes in his -The Intelligent Investor', "In every case, investors have burned themselves on IPOs, have stayed away for at least two years, but have always returned for another scalding. For as long as stock markets have existed, investors have gone through this manic-depressive cycle."

    Graham further writes, "In America's first great IPO boom back in 1825, a man was said to have been squeezed to death in the stampede of speculators trying to buy shares in the new Bank of Southwark. The wealthiest buyers hired thugs to punch their way to the front of the line. Sure enough, by 1829, stocks had lost roughly 25% of their value."

    Weighing the evidences objectively, intelligent investors should conclude that IPO does not stand only for -initial public offering'. More accurately, it is also a shorthand for - It's Probably Overpriced, or Imaginary Profits Only, or even Insiders' Private Opportunity. What do you say?

  • Equitymaster requests your view! Post a comment on "IPOs: Imaginary Profits Only?". Click here!

    1 Responses to "IPOs: Imaginary Profits Only?"


    May 26, 2016

    Almost all the IPOs have been given "Avoid" rating by EQM. The chart prepared by you shows that most of them have lost money after listing with very few exceptions. Large number of investors apply for IPOs and many of them do make quick money as shown by very high listing of most of the IPO scrips in recent times. If the market trend is up the IPOs are listed at high prices else they go for a loss on listing. The chart has an error as it shows a big loss in VA Wabag shares - not taking into account the split/bonus. VA Tech Wabag is one of the best tech companies. I think we missed an opportunity to invest in this company by missing out on the IPO.

    Equitymaster requests your view! Post a comment on "IPOs: Imaginary Profits Only?". Click here!

    More Views on News

    BSE Sensex at All Time High; POWER GRID Among Top Gainers (Market Updates)

    Jan 20, 2020 | Updated on Jan 20, 2020

    The BSE Sensex is trading at its all - time high of 42,105(up 0.4 %).Among the top gainers in the BSE Sensex today are POWER GRID. In the meantime, the NSE Nifty is trading at 12,377(up 0.2 %).

    Is 2020 Really Going to be the Year of Smallcap Success? (Profit Hunter)

    Jan 20, 2020

    Small caps small caps everywhere - but what if profits aren't really there? Here is how you should protect yourself in case the worst case scenario comes true...

    Your Safe Income Options for 2020 (The 5 Minute Wrapup)

    Jan 20, 2020

    What are you safest investing options in 2020 when interest rates fall.

    This is How I Trade the Market for Fast Profits (Fast Profits Daily)

    Jan 20, 2020

    In this follow up to my video about futures trading, I share my secrets for profitably trading futures contracts.

    Missed the Sensex 40,000 Bull Market? Here's How You Can Make Up for it podcast (Views On News)

    Jan 17, 2020

    This simple step will ensure that you participate in the next bull market.

    More Views on News

    Most Popular

    Will the IPOs in 2018 be as rewarding as the ones in 2017?

    In 2017 funds raised through IPOs is highest over a decade. And the stock market still flying high, some observers are predic...

    My Latest Stock Recommendation (Fast Profits Daily)

    Jan 10, 2020

    The story behind my latest stock recommendation and an important announcement.

    Saffron Curtain = Hindutva Rate of Growth? (The Honest Truth)

    Jan 8, 2020

    Will the Indian economy revert to a sub-3% growth rate?

    Your Safe Income Options for 2020 (Fast Profits Daily)

    Jan 9, 2020

    What are you safest investing options in 2020 when interest rates fall.

    Bet on These Smallcap Stocks for Success in 2020 (Profit Hunter)

    Jan 14, 2020

    The smallcap rebound finally seems to here... Make sure you aren't too late to make the most of the biggest wealth making opportunity in a decade.


    India's #1 Trader
    Reveals His Secrets

    Secret To Increasing Your Trading Profits Today
    Get our special report, Secret to Increasing Your Trading Profits Today Now!
    We will never sell or rent your email id.
    Please read our Terms


    Jan 20, 2020 11:55 AM