Wealth creation from an initial public offering occurs when investors remain invested for a period, reaping the benefits of compounding earnings, according to analysts.
Investors should be very cautious with the IPO market. Data suggest 30% of the companies listed over the past eight years have not hit the listing price, according to Bharat Lahoti, fund manager at Edelweiss Asset Management Ltd.
The IPOs come in phased manner and the optimal approach to investing in newly listed stocks is through systematic investment plans. Investors utilising the SIPs tend to have a superior experience compared to those relying on lump-sum investments, Lahoti said.
The fund's time horizon is three to five years, making it less suitable for investors with a short-term outlook and, therefore, they are advised to steer clear of this fund, Lahoti told NDTV Profit.
The IPOs come with its own set of challenges. Historically, only 15% have delivered substantial returns, according to Mrin Agarwal, founder of Finsafe India Pvt.
Lahoti stressed on the importance of quality consciousness. not all IPO companies generate profits. Many IPOs fail to meet quality metrics, underscoring the need for investors to prioritise growth and quality in their investment decisions.
Liquidity stands as a crucial factor in the IPO market, he said. "We closely monitor liquidity when establishing positions."
How To Select An IPO?
Investors are advised to adopt a two–three-year perspective when investing in IPOs. The holding period is also influenced by the number of IPOs, tending to decrease when there is a higher influx of offerings, according to Lahoti.
There are three ways to pick from a bucket of IPO:
Secular growth Ideas
Niche companies within a buzzing sector
Avoid companies where there is a lot of corporate-governance issue.
Strategically build stock positions over time and avoid the urge to hastily invest during the IPO stage, Lahoti said.
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