Why should you avoid IPO hype in a bull market?

In the Indian stock market around $3billion is raised in 2021 through IPOs (Initial Public Offering) is 65% of the total money raised through IPO in 2020 was $4.6billion.

Money raised in 2020 and 2021 is too big and such money can be raised through IPO only when the bull market is going on. Thanks to retail investors, foreign investors, and money that was invested in markets for liquidity.

A story that will help you avoid IPO

In 2008 Reliance Power IPO was coming and the market was fully hyped as people were saying it’s Reliance IPO, the power sector is going to boom, and a lot of such stories. Many people were in dreams and had got hope from this IPO as it was a reliable investment in Reliance.

IPO was oversubscribed by 73 times at the price of Rs.450/share. But as soon as it got listed within 4 minutes the price dropped down to Rs. 332/share and all the dreams of investors vanished at the same time. Investors lost billions of their hard-earned money and some didn’t recover to date.

In the last 10 years, 207 IPOs came, and only 21% of those yield 100% returns. 7.73% gave 50% returns and the rest all gave negative returns in long term. Due to this reason value, investors don’t worry about the buzz in the IPO market as it works completely like a lottery system.

In Berkshire Hathway’s shareholders meeting 2016, Warren Buffet said, “You don’t have to worry about what’s going in the IPO market as people win a lottery every day it should not affect your investment strategy.

Conclusion

In 2021 as people are waiting for the next IPOs to come and multiply their worth quickly by investing in them. Nothing wrong with this as who doesn’t like quick money, but just be alert about market hypes as most of the IPOs in long run give a small percentage of returns.

Before applying for an IPO you should read DRHP (Draft Red Herring Prospectus) which gives you complete information about the company’s fundamental analysis.

Happy Investing!!!

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