Investors focus more on listing gains, less on long-term; reveals data

Kolkata: There is an IPO tsunami on Dalal Street. In the midst of the public issue frenzy, an interesting fact has emerged -- almost half of the IPO investors sell their allotted shares within a week of listing. Data from April 2021 to December 2023 show that an average of 42.7% of investors sell their allotted shares in public issues within a week. This points to the fact that many investors focus more on listing gains than on a company's long-term prospects. In a sense, this also keeps up the interest of many investors on GMP or Grey Market Premium, which indicates the listing gain. Millions of IPO applicants attach a lot of importance to GMP, notwithstanding the fact that it is an extremely volatile unofficial indicator and that it does not guarantee any listing gain.

Till November 13, as many as 90 IPOs have been launched which cumulatively raised Rs 1.51 lakh crore. This is almost equal to the entire capital raised by companies in 2024. Analysts point out that often there are significant discrepancies between the issue valuation and the market price after listing. The Lenskart public issue recently grabbed headlines for what many considered excessively high valuations. The company was valued at Rs 70,000 crore which was 10 times its annual sales and 230 times its FY25 earnings. However, investors lapped it up with the retail portion attracting 7.56 times subscription.

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Though there is a rush to invest in IPOs, investing in public issues is not without a fair share of risk. And much of it stems from discrepancy between issue valuation and the market price post listing. Data show that about 40% of the IPOs launched between 2021 and 2025 are trading below their issue price now.

If one considers data from the 2021-2025 period, approximately 60.4% of the stocks are still trading above their issue price. On the other hand, while 39.6% have dipped below their issue price. This means that investors have suffered losses in about two out of every five IPOs. Therefore, IPOs should be picked with discretion.

Between April 2021 and December 2023, investors sold an average of 42.7% of their allotted shares in IPOs within a week's time. This indicates that a lot of investors focus more on listing gains than on long-term prospects of a business. The interest of retail investors in IPOs has remained high. The following data process this point:

In 2021, average subscriptions: 19.27 times

In 2022, average subscriptions: 7.47 times

In 2023, average subscriptions: 23.59 times

In 2024, average subscriptions: 34.15 times

In 2025, average subscription: 24.28 times

The focus on listing gains is a risky approach. Quick listing gains could mask a company's true financial and business health. Analysts say retail investors should avoid jumping into an IPO simply because of the herd mentality. One should thoroughly review the prospectus, assess the risks, cash flow, and valuation.