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Many experts tend to become extremely critical of the short-term profit making tendencies of traders and investors, especially in the IPO (Initial Public Offering) market.

Questions such as:

  • How to earn money from IPOs over the short-term?
  • Is it okay to make IPO listing gains and exit stocks on the day of their listing?
  • How to generate higher IPO profits?

May generate a dissuading response. However, at times, investing in IPOs just for listing gains may be a good trading strategy.

Yes, equities are generally meant for the long-term but, why let go of short-term opportunities?

While we don’t encourage speculation in any form, here’s a slightly unconventional perspective for you, without disregarding risks associated with equity investing.

Start investing in IPOs with a small amount…    

Generally, the minimum investment quantity for IPOs ranges around Rs 15,000. Assuming you have Rs 15,000 lying idle in your bank account after meeting all obligations for the near future, you can use this chunk as your rotating IPO capital.

Sounds okay? Now let’s understand the process.

When IPOs receive an overwhelming response, retail investors shortlisted by lottery get the allotment of just one lot (in most cases). So, you can avoid blocking more funds for IPOs and aim to invest in just one lot.

Since your primary motive here is to earn listing gains, you can free up all your capital on listing of a stock and apply to another issue with the same capital.

Strategy to earn money from IPOs

Considering the below Table, if you had invested in the IPO for Syrma SGS Technology on August 12, 2022; you would have made a listing gain of 19% (or Rs 2,856 on one lot of 68 shares) on August 26, 2022.

Table 1: Summary of IPOs listed in late 2022

Company NameIPO opened onIPO closed on Listing dateListing gains
Syrma SGS Technology Ltd.12-Aug-202218-Aug-202226-Aug-2219%
Dreamfolks Services Ltd.24-Aug-202226-Aug-20226-Sep-2255%
Harsha Engineers International Ltd.14-Sep-202216-Sep-202226-Sep-2235%
Electronics Mart India Ltd.04-Oct-202207-Oct-202217-Oct-2252%
DCX Systems Ltd.31-Oct-202202-Nov-202211-Nov-2238%
Fusion Micro Finance Ltd.02-Nov-202204-Nov-202215-Nov-22-2%
Global Health Ltd.03-Nov-202207-Nov-202216-Nov-2218%
Bikaji Foods International Ltd.03-Nov-202207-Nov-202216-Nov-227%
Five-Star Business Finance Ltd.09-Nov-202211-Nov-202221-Nov-22-5%
Archean Chemical Industries Ltd.09-Nov-202211-Nov-202221-Nov-2210%
Kaynes Technology India Ltd.10-Nov-202214-Nov-202222-Nov-2232%
Inox Green Energy Services Ltd.11-Nov-202215-Nov-202223-Nov-22-7%
Keystone Realtors Ltd14-Nov-202216-Nov-202224-Nov-223%
Uniparts India 30-Nov-202202-Dec-202212-Dec-2022-7%
Sula Vineyards12-Dec-202214-Dec-202222-Dec-2022-7%
Landmark Cars Limited13-Dec-202215-Dec-202223-Dec-2022-9%
Abans Holdings12-Dec-202215-Dec-202223-Dec-2022-20%
Kfin Tech 19-Dec-202221-Dec-202229-Dec-2022-1%

(Source: ACE Equity, NSE)

A gain of Rs 2,856 on the investment of Rs 14,960 within a fortnight wasn’t a bad deal.  Furthermore, you could invest in the IPO of Harsha Engineers International Ltd on September 14, 2022 by recycling your original capital. This IPO fetched a listing gain of 35%—even better.

This is not to say, you will make a hefty profit on every listing. In fact, it is prudent to remember that even when applying for just one lot, your IPO bid may not be allotted at all, while at other times, you may not make any gains. And there will be times when multiple IPOs will align for subscription at the same time. Under such circumstances carefully consider where you should apply.

Here’s some more food for thought, have you noticed that IPOs launched in December 2022 haven’t done well on listing? Were they not the right candidates to bet on?

Historically, whenever the overall market sentiment was weak and markets fetched negative returns, IPO markets too, performed poorly.

As you can see in Table 2, the markets generated negative returns in September and December 2022; thereby affecting IPO issuances and their performance. We had fewer listings in September, and in December, and the listings turned out to be unprofitable.

Table 2: Monthly performance of Nifty 50

MonthNifty 50 monthly return (%)
Aug-223.50%
Sep-22-3.70%
Oct-225.40%
Nov-224.10%
Dec-22-3.50%

(Source: NSE)

Factors that may affect the IPO's listing gains:

  • Popularity of the company amongst investors
  • Growth prospects of the company
  • Offer price
  • GMP (Grey Market Premium)
  • Market sentiment at the time of listing

Bottom line

Eyeing short-term opportunities in the IPO market doesn’t mean being greedy or turning a blind eye to investment risks. Rather, it means managing risks intelligently. Nobody minds reaping legitimate double digit gains in a fortnight. The key is to pay close attention to factors that vastly affect the potential listing gains.

 

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 there 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 consult your financial advisor before taking any decision pertaining to your finances.

We, Ventura Securities Ltd, (SEBI Registration Number INH000001634) its Analysts & Associates with regard to the 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 the 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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