Should you invest in the upcoming IPOs? Find out

To kick-start its divestment drive, the government has cleared the initial public offerings ( IPOs) from two large PSUs—Hudco and IREDA. This has generated quite a buzz in the market, largely because of the successful listing of some of the recent companies such as Equitas Holdings and Ujjivan Financial Services.

Given that IPOs have been a mixed bag for the retail investor, how should they approach the upcoming IPOs? “Only good and established companies are entering the market now. Most of them are also offering shares at valuations comparable to peer group stocks and that is good for investors,” says Prithvi Haldea, Chairman and Managing Director, Prime Database.

Investors should focus on the quality of companies and not be concerned with investing through the primary (IPOs) or secondary market (stock exchange). “Apply only for quality IPOs. There are several quality stocks available in the secondary market at good valuations,” says Kishor P. Ostwal, CMD, CNI Research.

Several old IPOs are also quoting at significantly low prices, but reckless bottom fishing may not be a good idea. “Investors should not buy into a counter just because its price has crashed. They need to see the company’s prospects, valuation, etc.,” cautions Ostwal.

Investors can pick up the good stocks from the secondary market once the hype generated by the IPO fades and the counter settles at lower levels. For instance, Inox Wind, a leading wind solution provider, got listed at Rs 438—a 35% premium to its issue price of Rs 325 in April 2015— but crashed to Rs 243 because of the fall in crude oil prices and the negative sentiment it generated for the alternative energy industry. Subsequently, Inox Wind was able to overcome the challenges and doubled its market share to 23% in 2015-16. Investors can now buy Inox from the secondary market with a long-term perspective.

A good bet
Mahanagar Gas (MGL) has declared its price band—Rs 380-Rs 421 per equity share of face value of Rs 10—for its IPO, and bidding will be open between 21 and 23 June. The offer for sale is from MGL’s parents—GAIL and BGAPH—so, the money from the IPO won’t flow into the company. Since CNG is 30% and 58% cheaper compared to diesel and petrol respectively, MGL should continue to benefit from its growing city gas distribution market and this has made analysts bullish. “MGL offers a secular growth story at reasonable valuation. The issue price of Rs 421 implies a PE of 12. We recommend investing with a long-term view,” says Avishek Datta of Prabhudas Lilladher in a recent report.