Beyond The Listing Day: Understanding the short-term dynamics of mega listing IPOs

In recent days, the conventional greetings among friends and colleagues have shifted from “Namaste” and “Kaise Ho” to a new trend centered around “IPO Allotment Laga kya” due to the heightened excitement surrounding initial public offerings (IPOs) and their remarkable market debuts. This enthusiasm is fueled by a pervasive Fear of Missing Out (FOMO) among investors, leading to unprecedented levels of oversubscriptions. In the midst of this frenzy, investors are applying indiscriminately for major IPOs in the hopes of capitalizing on their lucrative listings.

Given the substantial gains witnessed on listing days for recent IPOs, it’s understandable why investors are eager to participate. Once investors successfully secure allotments, the next dilemma arises—whether to swiftly sell the shares at the peak of their listing gains or to ride the momentum for a while longer. This article delves into an analysis of the top-performing IPOs with bumper listings over the past eight years, aiming to unravel their short to medium-term performance trends.

The Year 2023 has been a fantastic year for IPO investors, with its top 10 listing IPOs reporting an average listing gain of 83.2%. However, it might surprise you that this is actually the second-best year in the past decade. The best year has been 2021, where the top 10 IPOs reported average listing gains of a mammoth 127.7%.

Further it is interesting to note that, after massive listing gains, the stocks historically have gone on a little correction or have remained sideways for the next one month. From 2016 to 2022, the average one-month gains of the top 10 listing IPOs have been negative four times, flat for one and positive for only two times.

This underperformance of the mega listing IPOs in the short period is further highlighted by the fact that in the current calendar year 2023, 83% of the top 10 listings have reported a negative one month return post the listing day. This trend holds true for other years as well.

The observed underperformance of mega listing IPOs in the short term can be attributed to various factors, primarily stemming from the speculative nature of investor behaviour driven by the FOMO.

Investors hastily engage in IPOs, driven by the expectation of immediate listing gains, resulting in inflated valuations detached from a company’s intrinsic value.

Following the initial listing day excitement, market dynamics shift as IPO allottees seek to capitalize on significant gains, triggering a stock sell-off and contributing to corrections or sideways movements.

This phenomenon reflects the influence of short-term trading sentiments over the company’s fundamentals. Furthermore, the post-listing period serves as an opportunity for market forces to realign stock prices with realistic valuations, as inflated initial gains may prove unsustainable without solid financial performance. Investors initially attracted by the prospect of quick profits may exit positions, adding to downward pressure.

Thus, investors should exercise caution, conduct thorough due diligence, and consider a more long-term perspective when participating in IPOs to navigate the volatile initial phases of newly listed stocks. It’s crucial for investors to let the dust of euphoria settle and, when clarity emerges, make informed decisions regarding their positions.

Technical Outlook

Nifty marked an all-time high of 20,267.90 breaking its previous high of 20,222.45. It took nearly 77 days to attain a new high from the previous high.

Nifty gained 5.18% in November and formed a bullish candle that has engulfed its previous four months’ candles while on a daily chart, index is exhibited unwavering bullish momentum as well.

Nifty is trading above all key moving averages and holds strong support around 20,000 levels. RSI is comfortable holding 74 levels, indicating overall strength.

According to the Fibonacci retracement, if the index crosses 20,350 levels, we could expect 20,550-20,620 levels in the coming week.

After a three-month sell-off, Foreign Institutional Investors (FII) turned net buyers, worth Rs. 3875.8 crore, while Domestic Institutional Investors (DII) also bought Rs. 14,253.6 crore in the month of November.

We anticipate that Nifty FMCG and Metal will continue to outperform in the coming week.