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Fishing in IPO mkt calls for caution

This article was posted on Jul 21, 2009 and is filed under Press Releases

Mumbai: Dalal Street is agog with talks of an imminent revival of the initial public offer (IPO) market. The newfound enthusiasm in the secondary market and the successful listing of a recent IPO have prodded stock market gurus to predict the resurrection of the segment, which has been comatose for over a year now. However, investment experts warn that individual investors, especially those with little experience in the market, must not get carried away in the rush to make money from IPOs. They advise investors to be cautious in their optimism.

“The talk of revival in the IPO market is a bit premature. Let us first figure out whether the confidence in the secondary market would remain the same for sometime before turning the focus on primary market,’’ says a mutual fund (MF) manager. “Just because the IPO of Mahindra Holidays & Resorts India got listed at 5% premium doesn’t mean t action is going to hot up in the IPO market,’’ he adds.
Mukesh Dedhia, director, Ghalla & Bhansali, also feels the current optimism in the market should be viewed in the right context. “The mood has definitely changed and investor confidence is slowly and steadily improving,’’ he says.

“Everyone is confident now because the market has climbed 300-400 points in three days. This is mainly because Goldman Sachs and JPMorgan have posted good results. And since both of them are US-based and in the financial service sector, it had a positive impact. Speculators are taking advantage of it and ramping up the prices. Probably, they will take the market to 16,000 levels,’’ he adds. He too believes it is too early to say whether the confidence would continue or whether it would revive the IPO market.

Experts also warn investors that a prolonged weak sentiment in the secondary market could kill the green shoots in the IPO market for a long time. “The IPO market always picks up only after a prolonged bull run in the secondary market. The moment there are any bad signs in the secondary market, the primary market becomes muted,’’ says the fund manager.
They also cite another reason why investors, especially novices, are better off in the secondary market. “Why would you pick up the shares of a new company when shares of companies in the same industry with proven track record are available in the secondary market,’’ asks Dedhia.
“Let these firms prove themselves first and then you can buy their shares.’’ Experts also believe IPOs are priced aggressively these days and don’t always guarantee premium listing.
If you insist on betting on IPOs, experts would like you to do a thorough research on the company—the promoters, business model, industry, valuations, and so on—before picking them up.

source: Economictimes

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