We had come out with the StockViz 5-day rule for IPOs back in July-2012 which basically stated that “if it [the stock] doesn’t pop within the first 5 days, chances are that it never will.” And subsequent performance of IPOs have validated that rule.
Since August-2012, there have been 53 IPOs, of which only 2 have made any real money for investors over the long-term: JUSTDIAL and REPCOHOME. Here’s how the 5-,10-,20-,50-,100-,200-day average return for IPOs look like, juxtaposed on the NIFTYBEES ETF return:
The IPOs that made money were not slam-dunks either. Here’s a splattering of commentary on Just Dial:
- Hindu Business Line: Avoid (source)
- Economic Times: Avoid (source)
- Aditya Birla Money: Avoid (source)
- Microsec: Seems unattractive, subscribe for listing gains (source)
- HDFC Securities: Avoid (source)
- GEPL Capital: Subscribe (source)
- VS Fernando: Avoid (source)
There simply isn’t enough information about the company to evaluate whether the stock is a good investment or not at the time of the IPO. However, if you followed the rule, you would have cut your losses and retained the winners.
When it comes to investing in IPOs, remember the StockViz 5-day rule!