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Initial Public Offerings (IPOs) are a great source of wealth creation for long-term investors. Nonetheless, IPO listing gains make them equally attractive to short-term investors. Don’t understand the listing gains meaning?  

What is the meaning of IPO listing gains?

Well, in layman’s terms, the listing gain is the difference between the price at which an IPO is offered to the public and the price at which it gets listed (first price) on exchanges. For example, Varun applied for the shares of DFG Limited in the IPO which was priced at, say, Rs 100 per share. The stock quoted Rs 120 at listing—which made Varun the listing gains of 20%—Rs 120 on the investment of Rs 100. 

What transpires to listing gains?

Technically speaking, a demand-supply mismatch makes it possible to generate listing gains. If the demand for shares at the time of the IPO outstrips supply, naturally, many investors fail to get the allotment. Those who don’t get the allotment in IPO try to buy shares on the day of listing—especially the big institutional investors. As demand exceeds supply, prices jump resulting in listing gains for the investors who got the allotment during the IPO. 

What affects the IPO listing gains?

  • Company’s growth outlook: This is one of the most important factors that drives IPO listings. Companies that operate in sunrise sectors and depict high growth potential usually manage to pull in a lot of investors, thereby driving demand for the shares during the IPO. 
  • Company’s brand story: Retail investors often get influenced by the familiarity of the brands of an IPO-bound company. For instance, it’s far easier for a popular cosmetic brand vis-à-vis a hardcore B2B engineering company to make an IPO pitch to retail investors. 
  • Valuations: Moderate valuations attract investors. IPOs of companies that purposefully leave some money on the table for IPO investors receive huge oversubscription. Valuations and IPO listing gains are often inversely proportional. Higher valuations lead to lower chances of making listing gains and vice-versa. 
  • Grey Market Premium (GMP): Grey market is a shadow market that runs in parallel to the primary market. Here, investors unofficially bid for IPOs before they get listed. When grey market investors are ready to pay a price which is higher than the issue price, the issue is said to command a premium.  This, in turn, improves the prospects of the issue. IPO investors shouldn’t take grey markets too seriously. Nonetheless, they do offer directional guidance. 
  • Market conditions at the time of listing: Difficult market conditions often erode the prospects of listing gains. In contrast, favourable market conditions and upbeat investor sentiment help even weak IPOs sail through.  

Now let’s see how the recently listed IPOs have fared on their stock market debuts. 

Analysis of recent IPO listing gains suggests that the calendar year 2023 has been quite an eventful and productive year for primary markets. Although a few companies such as JSW Infrastructure, Mankind Pharma and RR Kable got listed only recently, they have been well-established names in their respective industries for years. They haven’t disappointed investors. 

Report card: recent IPO listing gains 

5 Recent IPOs of 2023 so far

CompanyListing DateOffer Price Listing PriceListing Gains
IREDA19-Nov-23325056.30%
Fedbank Financial Services30-Nov-23140138-1.60%
Gandhar Oil Refinery30-Nov-23169296.4074.80%
Tata Technologies30-Nov-235001200140%
Flair Writing Industries01-Dec-2330450365.60%
02 December 2023 has been used as the cut-off date for this article
(Source: Ventura Securities)

And the lacklustre movers have been

CompanyListing DateOffer Price Listing PriceListing Gains
Udayshivakumar Infra03-Apr-2335350.0%
Updater Services04-Oct-23300299.90.0%
Zaggle Prepaid Ocean22-Sep-23164162-1.2%
IRM Energy26-Oct-23505479-5.1%
Yatra Online28-Sep-23142130-8.5%
15 November 2023 has been used as the cut-off date for this table
(Source: Ventura Securities)

Recent IPO listing gains have been chiefly dominated by smaller and niche businesses. ideaForge Technology has been the best-performing IPO of 2023. The laggards are far and few. Interestingly, there have been instances wherein listing gains were negligible or even completely absent, yet stocks managed to attract investors after a few days of listing. 

The case in point is Zaggle—a SaaS company operating in Fintech and Protean e-Gov Tech. Both of these stocks have marched up approximately 50% after making a tepid debut. This  shows that sometimes smart investors may come in after the noise once the listing gains get dispersed. 

The key takeaways 

Several factors determine the quantum of lPO listing gains which include growth prospects, brand story, valuations, grey market premium and market conditions at the time of listing. Nonetheless, listing gains is just one way to benefit from new listings. If you choose the IPOs carefully, they offer long-term wealth creation opportunities to serious investors.


Disclaimer:
The blog is for information purposes only and anything mentioned herein shouldn’t be construed as a fundamental reason to buy/hold/sell any stock. Furthermore, the information provided in the blog and observations made therefrom shouldn’t be treated as the extension of recommendations made on the other properties of Ventura Securities. If you follow any research recommendations made by our fundamental or technical experts, you should also read associated risk factors and disclaimers.
We strongly suggest you to consult your financial advisor before taking any decision pertaining to your finances. Asset allocation becomes extremely relevant.
We, Ventura Securities Ltd, (SEBI Registration Number INH000001634) its Analysts & Associates with regard to blog article hereby solemnly declare & disclose that:
 We do not have any financial interest of any nature in the company. We do not individually or collectively hold 1% or more of the securities of the company. We do not have any other material conflict of interest in the company. We do not act as a market maker in securities of the company. We do not have any directorships or other material relationships with the company.
We do not have any personal interests in the securities of the company. We do not have any past significant relationships with the company such as Investment Banking or other advisory assignments or intermediary relationships. We are not responsible for the risk associated with the investment/disinvestment decision made on the basis of this blog article.

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