Stellar listing gains: Book profits if there are bumper gains say experts

• Strong IPO buzz and heavy marketing drive up listing gains of a few stocks, which should be encashed, advise experts.
• Retail investors should refrain from participating in IPOs, and wait for six months for a stock to cool off.
• Ideaforge, Netweb Technologies, Aeroflex Industries, Utkarsh Small Finance Bank gave good listing gains, but fell flat after.

It’s been a fabulous week for investors who applied to initial public offers (IPOs) hoping to make a killing on listing day. Tata Technologies gave a stellar triple-digit listing gains, IREDA was very close to doubling wealth with 87% gains and small-cap stock Gandhar too presented a pleasant surprise with 78% gains.

Those who were lucky enough to be allotted these stocks are left with the question — should I sell or hold on for more gains in the future? Experts say that bumper gains are a cue for them to make money, especially in stocks which saw sharp gains.

“The recent IPOs of Tata Technologies, IREDA, Gandhar Oil were attractively priced. Therefore, they saw bumper gains on listing day. We believe that investors are better off by selling such shares and locking in listing gains. In most cases, stocks do give opportunity to re-enter at lower levels,” Apurva Sheth, head of market perspectives & research at SAMCO Securities tells Business Insider India.

‘IPO value not true value’

The IPO season of 2023 has been rewarding for investors. The average listing gain has been 29.4% for debuts till the first half of the year, according to Primedatabase. But companies that saw stellar listing gains like Ideaforge shed a part of its value over time.

The stock performance of other debut-stars like Netweb Technologies, Aeroflex Industries and Utkarsh Small Finance Bank has been tepid after stellar listing gains. Vishnu prakash R Punglia and Cyient DLM however are exceptions.

Extremely high investor interest, heavy subscriptions in the IPO period can turn the needle away from true valuations and their future potential, experts insist.

“IPOs generating a strong buzz due to a unique business model, effective publicity and good brand identity can post a fair listing gain even in the event of lower earnings visibility, as a result of high demand from investors. If an investor is subscribing to such IPOs, they should look to book listing gains,” Sunil Shah, group CEO and MD at Khambatta Securities tells Business Insider India.

Sell (Gandhar), Hold (Tata Tech) & Accumulate (IREDA)

Amongst freshly listed pack of companies, Prashanth Tapse, senior VP of research at Mehta Equities advises allotted investors of Tata Tech to book 50% profits if the stock moves over ₹1,400 and hold the rest for long term, as he believes the engineering R&D major is a potential ‘doubler candidate’. The stock had closed at ₹1,314 on its debut on Thursday.

At the same time, Tapse sees limited upside from the current levels for Gandhar Oil, which has managed to narrow the gap with peers. He advises its investors to book profits. For IREDA, he advises investors to ‘hold for long term’ and accumulate on dips as it holds the potential to provide healthy long term returns.

“Companies with strong fundamentals, i.e. those with a proven solid business model and robust earnings visibility, are the ones investors should look to stay invested in,” says Shah.

Companies with the best listing gains in 2023
Source: Axis Capital, BSE

IPOs – not for retail investors

The IPO rush tends to ignore facts like overpriced issues and other troubles. The reason being the IPO financing that large investors receive, who apply and sell immediately on allotment. But this liquidity leaves the stock, and that’s what drives prices down, insist experts.

“IPO financing does drive up the demand for IPOs due to the additional liquidity it infuses, and it further brings in more investors looking for listing gains. That said, the recent curb on IPO financing imposed by the RBI and changes announced by SEBI relating to the allocation methodology are expected to negatively impact IPO financing,” said Shah.

The impact of IPO financing driving up listing day gains is reducing. In April 2022, RBI mandated non-banking financial companies (NBFCs) to not lend more than ₹1 crore per borrower for subscribing in IPOs. Markets regulator SEBI too mandated to keep one third of the HNI quota shares for applicants below ₹10 lakh, which is also known as small HNI category.

“All these measures led to considerable reduction in IPO financing. This has led to limited impact on the listing day,” says Sheth.

Sheth also insists that IPOs are generally overpriced and retail investors are better off without participating in them. He insists that retail investors should get into newly listed six months after listing wherein the stock has had time to cool off and consolidate.

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