POSTED BY December 17, 2010 12:06 am COMMENTS (6)ON
What do you guys think of the 2lakh retail limit for IPOs? I have stopped investing in good IPOs after the recent increase in retail limit from 1 to 2 lakhs. MOIL and PSB were subscribed so heavily you may not get allotment even if you applied for full 2lakh rs application.
Do you think this SEBI move has really helped the retail investors?
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6 replies on this article “Increase in IPO limit…any good for small investors?”
I dont completely agree with you about retail no investing in IPOs. If you get a good IPO like coal india- good size with good pricing , they should definitely invest…but definitely for long term not for listing gains only.
I think we can benefit from 2 Lakh limit if the issue size is very big like that of coal india where we can get more no of shares . But small and good issues with good pricing will be heavily subscribed and it will be lottery.
The real test whether IPO investing is good or bad is compare the overall portfolio (include the IPOs, other non-IPO individual stocks, etc).
Now compare it with an appropriate benchmark (Nifty/Sensex/CNX 500). Also compare it with a reasonably performing equity fund.
If your portfolio is performing better than these, then it is great. Go ahead full steam with your individual stock pickings, whether IPO or non-IPO.
But do not compare performance of a single IPO (that too in a very short term), with a properly diversified portfolio.
Hope I am able to deliver the larger message.
Increase in IPO limit is good for retail investors since chances of getting shares is higher. Chances also get reduced if there is oversubscription in retail category which usually happens.
@Ramesh, if there are good quality stocks then retail investor should participate. Take CIL,MOIL etc.
For IPOs, the retail investor is “always” better off not participating because of the following reasons:-
1. You have given the example of CIL,MOIL,etc. Add SJVN,NHPC,OIL. Also FPO of NTPC,Power Grid,etc.
2. If an individual is investing for listing gains, that is a pure gambling event and not investment. 🙂 Also, pay short term capital gains. If you have loss, I think most of the retail investors would not be doing a proper use of that loss with future gains.
3. If the individual is investing for long term, then it is a lot better to invest in companies who have good business growth,etc and not in a company with no or little past record.
4. Also look behind the walls. A company preparing for IPO has to pay the merchant bankers,lead managers,etc (about 5-7%), do a lot of advertising (needs money), etc. In short, a lot of expenditure which is largely unnecessary for the underlying business of the company.
5. IPOs come only in bull market. Why? Because people think irrationally in that environment. Why dont they come in bear markets! Why govt / companies postpone their IPOs when the “market sentiment” is down?
Now a days allotment in IPO is like a lottery. If you are lucky you will get some allotment.
Infact after increasing the limit to 2 lakhs we have seen more members investing 2 lakhs for an ipo. This is will definitely hamper the chances of small investors who invest only 25k as they will hardly get any allotment.
Recent IPOs of Coal India and MOIL have given excellent returns to the investors in a very short duration which is tempting many more investors to jump in. A good example was Punjab and Sind Bank IPO which was subscribed over 40 times in retail alone.
Investing in IPOs is not good for retail investors, whatever be the limit. 🙂
They are better off investing in MF if they want to participate in equity markets.
IPO=its probably overpriced.