Dalal Street Investment Journal - - COVER STORY -

IPOS will re­main the dar­ling of re­tail in­vestors ow­ing not only to the re­cent de­cent per­for­mance, but also be­cause of lu­cra­tive IPOS in the pipe­line this fis­cal.

The is­sue with in­vestors' par­tic­i­pa­tion in IPOS is that if the is­sue is of good qual­ity, there is huge par­tic­i­pa­tion from both re­tail and in­sti­tu­tional in­vestors. Hence, in the end, the al­lo­ca­tion of shares is min­i­mal due to over­sub­scrip­tion. So the prob­lem is that in­vestors do not get de­cent al­lot­ment for good is­sues, and for

not-so-good is­sues, in­vestors do not want any ex­po­sure. How does any­one make money in such a sce­nario. Here is where the IPO fund­ing can be used in­tel­li­gently by in­vestors to im­prove their chances of al­lo­ca­tion and to make some money by us­ing flip­ping strat­egy. How­ever, even when one is adopt­ing the IPO fund­ing route for par­tic­i­pa­tion , in cases of IPOS get­ting huge re­sponse, the break even point is pushed higher, thus mak­ing the whole game riskier. IPO fund­ing can be used when there is rea­son­able data (sub­scrip­tion) to sup­port

the suc­cess of the IPO and the risks are fully known by the in­vestor.

In­vestors will have to take a port­fo­lio ap­proach and de­cide on how much funds should be al­lo­cated to IPOS. In a bull mar­ket sce­nario, the op­por­tu­nity cost of park­ing funds in IPOS goes up and no in­vestor can af­ford to have his cap­i­tal blocked in an un­pro­duc­tive man­ner when the stock prices are ap­pre­ci­at­ing. IPO in­vest­ing needs to be done care­fully and should in­volve con­sid­er­able amount of ba­sic home work.

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