Investment in IPO needs careful thought and proper revision of the sector and company fundamentals. It does not mean that investment in IPO will yield good returns every time. This article throws light on the risk factor of IPOs and also suggests a way to play safe in the IPO market.

As soon as an Initial Public Offering (IPO) is advertised, Ramesh Chauhan calls his broker and asks him what he thinks about this new issue. The broker tells him that the share is in the price band of Rs. 50-60 and it will be issued by the book building process in multiples of 200 shares and he expects that it should open at a minimum of Rs.75 per share. Ramesh requests him to send three applications, one on his name, one on his wife’s and one in the name of his son. This is the most common way an IPO issue is analyzed by an Indian investor. There is nothing wrong in the approach. It is to be understood that such a behavior stems from the fact that most IPOs have been historically listed at a very good premium. The only issue that the Indian investor is concerned about is whether the shares will be allotted to him or not. The primary reason behind this is yet another characteristic of an IPO in India that it would have been oversubscribed a number of times. This kind of response to an IPO raises a moot question, “Is IPO always a good bet?” Therefore, the present research probes into the statistics of IPOs in the last five years at the National Stock Exchange (NSE). It also attempts to answer issues like, should one immediately sell the shares allotted on the listing of IPO? Or, should it be held for a longer period? If one holds the shares, how long should it be held?

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