Eight Tips for Retail Investors for applying in IPO for Listing Gains

I have been very active in the IPO market for the past 5 years. In these 5 years, I have applied in well over 100 IPO’s. Of these I have booked a small loss of Rs.1 per share in only 1 IPO – Indian Bank

I have been getting a lot of enquiries from retail investors who apply in IPO’s for the purpose of listing gains. A lot of them have been making listing losses by applying in the wrong IPO and/or by following wrong strategies. Hence, I thought I should share some tips which I have been following to make “investing in IPO’s” profitable for retail investors.

The truth is, investing in IPO is an easy, low-risk way to make an average of 2-3% in 20 days. A 2 -3% return can seem very low on a nominal basis, but when you calculate the annualised return it becomes very attractive. You can make an annualised return of about 30%, ona an average, easily by investing in quality IPO’s by following the guidelines mentioned below. Infact I have made an annualised return of over 125% in a few IPO’s like the Sun TV IPO, Parsavnath IPO, Infoedge IPO (naukri.com IPO) and a few others. Now tell me which other investment class with similar risk reward structure will give you as much returns.

Here are eight guidelines that should be followed by retail investors to select the IPO’s to invest in and make sure the risk involved is minimum and at the same time ensuring chances of allotment are very high.

These tips are applicable only to those investing in IPO’s for listing gains

Tip – 1 : How do you select which IPO’s to invest in? Do research and a detailed fundamental analysis of the company? Read third party research reports? Listen to rumours, tips and gossip? Well, If you have been doing this in the past, I would suggest that you stop doing this immediately. Trust me on this – Its of no use. As a small investor, you will never get access to all the information you need to do your own analysis of the IPO. Don’t read third party research reports either because most of them would have a conflict of interest. Investment banks and brokerage firms through their reports might try to push the IPO’s of their clients and ensure that they retain getting that company’s business in the future. Magazines and newspaper reports can be biased and vested interests can be involved.

You would by now be wondering how else you could select IPO’s. Here is a simple secret. Blindly invest in a particular IPO, if the institutional category is oversubscribed by over 5 times. Institutional investors have access to information that retail investor will never have access to. This sometimes involves even insider information. So, just leverage on their analysis.

Tip – 2 : Always invest at cut-off price. The “cut off ” feature is an excellent facility that is offered only to retail investors. Make sure you make use of this facility.

Tip – 3 : Make sure you apply for the maximum shares possible that a retail investor is eligible to applyfor (Rs. 1 lakh limit). If you apply for the minimum shares its like throwing darts on a dart board. Most probably you will not get allotment and you would just end up locking your money for 20 days.

Tip – 4 : If you find 3 or 4 IPO’s which are good but have only 1 lakh of capital to invest, select the best IPO among the 3 and invest in it. Don’t split your money. You might end up not getting allotment in any of the IPO. Diversifying doesn’t work in IPO’s

Note – The next tip might seem unethical. So all of you out there who are very particular about ethics, kindly do not read the fifth tip. Further, It is just my personal opinion and I don’t endorse or recommend the following tip. It has worked for me in the past, but it might not work in future. I would take no legal liability / responsibility if you choose to follow the next tip and you get into trouble.

Tip – 5 : Many people would think this is not ethical but I do. I always apply for an IPO through a cheque. Once the final subscription figures are released and if I find that either the institutional investor category has been subscribed less than 5 times or if I find that the retail investor category has received much higher response than the institutional investor category (increases the chances of a bad listing, since most retail investors would sell on listing and there would be a huge selling pressure on the day of listing) or if I find to my dismay that the IPO has been oversubscribed by more than 50 times or so, then I would go ahead and give a stop payment.

As mentioned already, I’m not endorsing or recommending the previous tip. Its just my personal strategy / opinion.

Tip – 6 : If you want to invest more than 1 lakh in a particular IPO, invest in more than 1 application. Never invest more than 1 lakh per application. You can invest in your spouse’s name or your mom/dad’s name

Tip – 7 : Update your ECS details and make sure you write the following in bold and very clearly in the IPO application form.
1) Your name
2) Your DP details

If your name or DP number is incorrect or unclear, then you will face unnecessary delays in getting the shares alloted and you wouldn’t be able to sell on listing. Also make sure you opt for ECS refund. Cheques can be lost or delayed and lazybones like me would take over 1 month to deposit a cheque in the bank. ECS is hassle free and safe.

Tip – 8 : Sell of the shares alloted to you on the day of listing. Sell 50% between 9.55 and 10 AM and the rest in the afternoon. The shares of that particular IPO might do well in day 2 and day 3 and in subsequent weeks too, but I have seen an equivalent number of IPO’s which have witnessed a huge fall in the second and third day after listing. You have invested in the IPO for listing gains, so make sure you sell it off as soon as the company lists on the stock exchange. This way you will be exposed to the least amount of risk.

Well, That’s about it. If you feel I have left out any point, please do feel free to add it as a comment. Hope these tips would be of use to the readers of this blog. If you find them useful and want to buy me lunch 😉 or if you want to simply send me feedback you can mail me at info@bullishindian.com