124308RIL has remained flat in last two months, should one buy its shares now or not?

The year 2023 is about to end. From share market’s point of view, it has been quite an action packed year. Nifty touched record high of 20,222.45, despite the fact that since September, FPIs are on a selling spree due to high interest rates. Then in October, we witnessed the start of the Israel-Hamas war.

During this time we have also witnessed a lot of activity in the primary market. Overall, 46 IPO hit the market and many more are in the pipeline.  However, in order to understand the correct picture of the primary market, it is important to look at the situation of the primary market in the last two years. In the last two years, Nifty has given a positive return of 7.5%.

During the period, the performance of the BSE IPO index has been completely opposite. During these two years period, the IPO index has fallen 12%.

In the last two years, 101 IPOs tried their luck in the market, and 19 of them are currently trading below their issue price. In other words, investors are facing losses in share of only 19 companies, while 82 IPOs are still yielding positive returns. Now, the noteworthy aspect is to understand the performance of the primary market from the perspective of the IPO index, which has declined by approximately 12%, or to focus on those 82 IPOs, where returns range from around 2.5% to 360%.

Another thing to understand is that prominent companies are among the IPOs trading below their issue price, This includes companies listed in November 2021 like Paytm and PB Fintech, along with Delhivery and LIC that entered the market in May 2022. These are the companies that had a significantly large issue size, and in some cases, they also had a substantial retail quota or received substantial investments from retail investors. In other words, there was significant subscription from retail investors in these IPOs.

Retail investors often form their investment strategy based on recommendations in brokerage house reports or promises made during press conferences. However, investing in an IPO is not a gamble. When we invest in an IPO, we are committing to a company for at least 2-3 years, providing it with funding. It is crucial to analyze all parameters for the company, but in the case of IPOs, instant analysis is required. In other words, investing in IPOs poses a higher risk compared to the secondary market, where figures, reports, and results are readily available.

Looking at the plight of top names, one thing is clear: having a big brand or a high subscription does not guarantee good returns. If you don’t know how to read about a company, you could still fail even by investing in giants like LIC. On the other hand, if you know how to read, you can make money in companies like Cello World and RR Kabel.

Despite being such a large unorganized market, investors in Cello World’s IPO are making approximately 21% returns in just about a week. Meanwhile, RR Kabel has generated more than 50% returns in less than two months, even though the market for cable manufacturing companies is highly crowded.

Now the question is, if investing in IPOs is a bigger gamble compared to the secondary market, should one invest in a company’s IPO or wait for 1-2 quarters, understanding all the figures and results before making an investment?

But the biggest question is whether one should now invest in the IPOs of companies trading below their issue price, when the results are out. Because if investment could be made in them during the IPO, then trading below the issue price provides a solid opportunity, doesn’t it?

In conclusion, it can be said that relying solely on big brands or high subscription figures, along with just looking at brokerage house reports, is not the right approach for investing in IPOs. If someone does not fully understanding the business, management, results, or promises, there is no harm in waiting for 1-2 quarters after the listing. If there is any hesitation or doubt, seeking advice from an investment advisor is also a prudent step. It’s essential not to throw one’s hard-earned income into the stock market recklessly.