The Surprising Truth About IPO Listings: What Investors Need to Know

Understanding IPO Listings

A strong listing pop, where a newly listed stock trades far above its Initial Public Offering (IPO) price, is often seen as a sign of success. However, according to Devina Mehra, founder of First Global, this is not always the case. In fact, a higher post-listing IPO price can signal a failure on the part of investment bankers to fetch the best price for the company.

What Do the Numbers Say?

Recently, some Indian stock market IPOs have seen narrower listing gains. On average, these companies have listed with a 5% gain, with 15 out of 29 companies listing at a premium of less than 5%. Since listing, the average returns for these companies have been around 7%.

The Role of Investment Bankers

So, why do investment bankers behave in this way? Mehra explains that investment bankers are paid bonuses based on the number of deals done and the amount of funds raised or fees earned. Their evaluation is only on their position in the league tables. This means that investment bankers are focused on maximizing the issue price for the company, rather than ensuring the stock performs well after the IPO.

Key points to consider:

• Investment bankers are not evaluated on the post-IPO performance of the stock.
• Their interests may not align with those of the banker syndicate or investors.
• Investors should be cautious of prominent global banks or domestic institutions attached to an IPO, as their interests may not be the same as theirs.

A Word of Caution

For investors, it's essential to understand that market conditions can change rapidly, and circumstances may vary. It's crucial to consult with certified experts before making any investment decisions. By being aware of these factors, investors can make more informed decisions and avoid potential pitfalls in the stock market.