Don’t wait, sell that IPO on Day 1

It may have been a prudent idea to sell most initial public offer (IPO) shares on listing day rather than holding them for one or two years, a Mint analysis of the top 200 new share sales by issue size since 1999 shows.

Data sourced from primary market tracker Prime Database shows 177 of the top 200 IPOs have completed at least a year since their listing. Of these 99 stocks had one-year returns that lagged the listing day pop. The year-end price of 84 stocks fell below the IPO issue price.

To be sure, some of these might have listed at the very end of a bull run or economic upcycle. However, looking at it another way, the one-year return of 95 stocks lagged that of the benchmark Sensex index.

The numbers get worse when two-year and three-year returns are compared to the listing day pop. The table along side has details. In other words, the frenzy and hype surrounding IPOs, more often than not leads to good trading propositions but not investment ideas.

“The big question that investors need to consider is am I buying at a fair price or not?,” said Nilesh Shah, MD, Kotak Mahindra Asset Management Co. “In India, the mistake that retail and institutional investors commit is they start looking at grey market premiums and decide on their investment in the IPO.”

The grey market is usually driven by HNIs (high net worth individuals), who put in bids to subscribe to large chunks of an