IPOs: Look before you bid

With the Initial Public Offerings from Global Broadcast News and Akruti Nirman boasting huge over-subscription numbers (42 times and 79 times, respectively), one may be tempted to conclude that the primary market is recovering from its slump. But such a conclusion may be premature. The break-down of subscription numbers reveals that high-net-worth individuals and institutional bidders have been the key drivers of response this time around, rather than retail investors. However, the bids appear to be influenced, to some extent, by short-term considerations. For one, runaway response has been reserved only for companies piggybacking on fancied themes in the market, such as media or real estate or mobile aggregation, where listed stocks of a similar genre have delivered impressive gains. Second, response to IPOs also appears to have been influenced by the listing performance of the companies in the immediate past; a few good listings in a particular sector seem to contribute to a pile-up of bids for the ones that open later. With several offerings originating from companies with a novel business model or in a nascent business, it is easy to get carried away by the prospects of spectacular growth. The difficulty of assigning a valuation to such "idea" stocks has also encouraged ambitious pricing. Under the circumstances, retail investors may be better off sticking with a cautious and selective approach to investing in IPOs.