Blindly Treading The IPO Route May Lead To Losses

The sequence is unmistakable. First, there would be a prolonged bull run in the secondary market. Next is the turn of the primary market to follow the action. It happens always, and it is no different this time. Want some proof ? Look up the number of initial pubic offers or IPO (the first public issue of shares by a company) lined up in the recent past. Read some of the names. Does it ring a bell? None, right? Well, that is the whole point, say financial advisors.

According to them, many dubious companies are in the process (some already have) to cash in on the investors fancy for stocks, following a continuous bull run in the market for the last four years. “There is nothing new in the trend. Every time you see the market booming, you will also notice that a lot of companies are readying up their initial public offers . In fact, they have been waiting for the right time,’’ says a prominent broker in Dalal Street. “The sad part is along with genuine companies, a lot of dubious characters also get into the market. They know they can cash in the favourable sentiment in the market.’’

That says it all. Sure, we have glorious example of Dhirubhai Ambani, who raised money from the stock market to build companies of his dream. However, there are hundreds of dubious characters who also sold dreams and raised money from the market, only to vanish overnight with investors’ hard earned money. “When the market is booming, everyone wants a piece of the pie. It is difficult to get allotment in good IPOs in a booming market. Disappointed investors would then turn to dubious issues, thinking they can make quick bucks. When the tide turns, they end up with dud shares,’’ says an investment advisor.

The intention is not to dissuade investors from subscribing to IPOs or forcing them to look at every IPO suspiciously. It is to make them aware that the rule of the game is not different for IPOs. It is the same as you buy any stock. You have to do your research if you want to make money . Don’t think every IPO would fetch you profit on the day of listing at the stock exchange . “Be it the secondary market or primary market, you should always remember that you can make money only on quality stocks. For that you have to look at the track record of the company, its management, the industry..., ’’ warns the broker.