IPO Myths

by Manshu on September 26, 2006

in Articles

There exist several myths about IPOs, which lure the investors into applying for each and every IPO that come in their way. The general perception is that IPOs are a fail-safe way to make money and that if one invests money in an IPO returns are guaranteed.

This is the greatest myth about IPOs. Many IPOs will result in losses for the investors, the prices of the same will go down because of several reasons like a weak company, over pricing, weak management or simply because the price fell along with the general markets. A look at the table below shows you how many IPOs have failed in the past.

A second myth about IPOs is that if one steers clear of the smaller companies and invests only in IPOs of well-known companies one will make guaranteed profits. This is also not true as we can see that a lot of well-known companies like HT Media, Provogue, OBC, Allahabad Bank, Jindal Polyfilms, T.V. Today Network are listed in the table below.

These are all big companies and chances are that most investors would have heard of them before the IPO. But still they figure in the list and the most likely reason is that the issue was over priced.

This is an important learning for all of us. Even our team got carried away and gave a good recommendation for Jet Airways, which was trading below the issue price some days back and made the same mistake. However we learnt from our mistake and investors who would have taken a hard look at our recommendation for Provogue would have avoided burning their fingers.
We will keep this article shorter than the average size of most of our other articles simply because we feel that these are two very very important things for investors to keep in mind and its best that these two points sink in and are internalized by all investors so that they can avoid burning their fingers in the stock market and especially with IPOs.

 

S.No. Name Price as on 27th Oct 2005 Issue Date Issue Price
1 HT Media Ltd. 427.35 04/08/2005 to 10/08/2005 Rs.530
2 Shri Ramrupai Balaji Steels Ltd. 17.3 08/07/2005 to 14/07/2005 Rs.22
3 Nectar Lifesciences Limited 199.35 22/06/2005 to 28/06/2005 Rs.240
4 Provogue (India) Ltd. 136.25 10/06/2005 to 16/06/2005 Rs.150
5 Jindal Poly Films Ltd. 289.9 09/06/2005 to 15/06/2005 Rs.360
6 Oriental Bank of Commerce 235.15 25/04/2005 to 29/04/2005 Rs. 250
7 Allahabad Bank 76.85 06/04/2005 to 12/04/2005 Rs.82
8 Jai Prakash Hydro-Power Ltd. 30.3 22/03/2005 to 29/03/2005 Rs. 32
9 Datamatics Technologies Ltd. 87.7 12/04/2004 to 19/04/2004 Rs. 110
10 Dishman Pharmaceuticals & Chemicals Ltd. 131.9 29/03/2004 to 07/04/2004 Rs. 175
       
11 T.V. Today Network Ltd. 76.9 18/12/2003 to 27/12/2003 Rs. 95
12 D-Link (India) Limited 126.75 20/2/2001 to 27/2/2001 Rs. 300
13 Creative Eye Limited 9.1 03/11/2000 to 09/11/2000 Rs. 50
14 Pritish Nandy Communications Limited 49.6 04/09/2000 to 11/09/2000 Rs. 155
15 MRO TEK Limited 70.65 04/09/2000 to 09/09/2000 Rs. 95
16 Shree Rama Multi Tech Limited 15.7 15/01/2000 to 21/01/2000 Rs. 120

{ 1 comment… read it below or add one }

Jojo Joson December 20, 2011 at 4:32 pm

I think “Infosys” also faced the same issue when they went for IPO. In their case it may not be an “over priced” IPO but may be, at that time, investors may not had that “Go for it” kinda attitude for IT industry!

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