Small IPOs trade way below their record highs
Monday, 3 May 2010
MUMBAI, May 2 (Economic Times): Good things come in small packets, so goes the saying. But the adage will have to make an exception when it comes to the post-listing performance of quite a few small-sized (Rs 1.50 billion and less) initial public offerings in the past few months.
This has led many retail investors to believe that smaller public issues offer a better chance of easy gains.
But many brokers advise restraint, as the probability of being saddled with dud shares is equally higher. According to data, 161 of the 220 small-sized public issues since 2005, are trading between 40-95 per cent below their record highs seen during the peak of the bull run. This, despite the market more than doubling from its lows of March 2009.
Brokers say most of these stocks are unlikely to cross their peaks anytime soon. Investors who are still holding on to the shares or those who had bought the shares at higher levels would be better off booking their losses or profits, they say.
Pyramid Saimira, Vishal Retail, XL Telecom, Niraj Cement, Dhanus Technologies, Uttam Sugar Mills, Resurgere Mines, Greenearth Resources, are among the stocks quoting way below their record highs.
Interestingly, some of the stocks currently at a steep discount to their record highs, are quoting between 100-600 per cent above their issue prices. Brokers say this is an indicator that the current market prices could be closer to the fair value of these shares.
Because of the small issue size, most stocks rise sharply after listing. Very often, this is due to deliberate underpricing or the result of a group of operators cornering the floating stock and then ramping up the prices.
The spectacular gains attract a new set of investors at higher levels, and also induces some of the existing investors to hold on to their shares.
"Many investors feel they have spotted the next blue chip in the making, but the if the gains are too good to be true, it is better to book profits," says a BSE broker.
The trend in mid to large-sized issues (Rs 400 and above) has been similar, with 26 out of the 51 IPOs since 2005, trading between 40-90% below their record highs.
This has led many retail investors to believe that smaller public issues offer a better chance of easy gains.
But many brokers advise restraint, as the probability of being saddled with dud shares is equally higher. According to data, 161 of the 220 small-sized public issues since 2005, are trading between 40-95 per cent below their record highs seen during the peak of the bull run. This, despite the market more than doubling from its lows of March 2009.
Brokers say most of these stocks are unlikely to cross their peaks anytime soon. Investors who are still holding on to the shares or those who had bought the shares at higher levels would be better off booking their losses or profits, they say.
Pyramid Saimira, Vishal Retail, XL Telecom, Niraj Cement, Dhanus Technologies, Uttam Sugar Mills, Resurgere Mines, Greenearth Resources, are among the stocks quoting way below their record highs.
Interestingly, some of the stocks currently at a steep discount to their record highs, are quoting between 100-600 per cent above their issue prices. Brokers say this is an indicator that the current market prices could be closer to the fair value of these shares.
Because of the small issue size, most stocks rise sharply after listing. Very often, this is due to deliberate underpricing or the result of a group of operators cornering the floating stock and then ramping up the prices.
The spectacular gains attract a new set of investors at higher levels, and also induces some of the existing investors to hold on to their shares.
"Many investors feel they have spotted the next blue chip in the making, but the if the gains are too good to be true, it is better to book profits," says a BSE broker.
The trend in mid to large-sized issues (Rs 400 and above) has been similar, with 26 out of the 51 IPOs since 2005, trading between 40-90% below their record highs.