Can Retail Investment Be a Guiding Point for Choosing IPOs?

Retail investors have a strong affinity for IPOs due to the potential for quick listing gains. However, it is important to note that while IPOs can offer significant profits, there are instances where these offerings can result in substantial losses right from the first day of trading, making them potential wealth destroyers.

In recent years, retail investors have developed a fervent affection for Initial Public Offerings (IPOs), demonstrating a growing interest in participating in the public debut of companies. Traditionally, IPOs were seen as exclusive opportunities reserved for institutional investors and wealthy individuals. However, with the rise of online brokerages, accessible information, and a democratization of investing, retail investors are now enthusiastically joining the IPO bandwagon.

In our analysis of 564 IPOs observed which were launched between 2018 and 2022, we categorized them into two groups based on their size: IPOs with an issue size exceeding Rs 200 crore and IPOs with an issue size below Rs 200 crore. Among the 155 IPOs with a larger size, 100 IPOs yielded positive returns (more than 1%), while the remaining 55 IPOs generated either flat or negative returns. There were more IPOs with smaller sizes, totaling 409, and out of these, 247 IPOs resulted in positive returns, while the remaining 162 IPOs showed either flat or negative returns.

Based on the aforementioned data, it is evident that IPOs with retail subscriptions exceeding 30 times have generally yielded positive returns, with a lower number of IPOs showing negative returns. Notably, among IPOs with an issue size exceeding Rs 200 Crore, none have resulted in negative returns on their listing day.

These were the top Performer IPOs during 2018-2022 on their listing day:

These were the worst Performer IPOs during 2018-2022 on their listing day:

IPOs with Huge Retail Subscriptions and their return over listing price on their listing day:

IPOs (Issue size less than Rs 200 crore) with Huge Retail Subscriptions and their return on their listing day:

Recent data reveals a shift in the behavior of retail investors, showcasing their increased astuteness in identifying IPOs worth investing in. This represents a departure from the previous trend, highlighting a noteworthy transformation in retail investor decision-making.

Still, to navigate IPOs successfully, retail investors should conduct thorough research on the company, its industry, and potential risks. It is essential to understand the lock-up period and diversify their portfolio to mitigate risk. Setting realistic expectations, staying informed, and considering professional advice can help investors make informed decisions. Being prepared for volatility and thinking about investment horizons are also crucial. By following these tips, retail investors can approach IPOs with a greater understanding and increase their chances of making well-informed investment choices.