Investment in IPO

As you all know that, in the coming week some IPOs are coming. So my question is, Whether it will be worth to invest some money in the IPOs.

If no, Please suggest me some good mid-cap stocks where I can invest around Rs.10000 rupees, which will give me a handsome amount after 2-3 years.

Malaya Naik


Welcome MalayaDa to valuepickr,

Malaya is almost like a elder brother to me. We are from same area (his home is 10-15 km from my village in orissa). Has known him from my summer internship days (2004). Recently have told him about valuepickr in a social gathering, and bang!!! he is here.


Hi Malaya

I never invest in IPOs at launch. Reasons are:

  1. Information asymmetry - promoters/selling shareholders always have the inside edge

  2. In almost all cases, there is a 60-90 day overhang for insiders/anchor investors

to sell their shares

If you have a trading mindset ie. sell the shares after or at the day-1 pop, returns are meaningful only when you apply in the HNI segment (where you could get an IPO allocation that contributes meaningfully to the portfolio). Even then, your average returns would depend on your IPO picks and market conditions.

My advice: Wait for the dust to settle then invest. If you feel a stock is a long-term wealth creator, you really don’t lose anything from sacrificing the 20% listing pop (if it happens) by being a bit late to the party.

On that note, I don’t think any of the upcoming IPOs are worth being in a long-term portfolio. Especially Bharti Infratel.

The reason I am not bullish on Bharti Infratel is the telco business model in India. The industry landscape is gravitating towards a 4 player market. This will likely cap tenancy at 2 to 2.5 max for BIL (both RCom and RIL will not use BIL towers); BIL is currently at 1.85, this figure is most likely window dressed for your viewing pleasure ahead of the IPO.

Indian tower rental yields are not commensurate with interest rate levels; this is reflected in ROCE (5% for BIL). A deep valuation discount to global peers is needed as this is a leveraged business, one company borrows at 3-4% and one at 8-10%.

In the evolution of the US telco infrastructure business, high telecom operator debts forced a sale of infrastructure business, which the tower owners were able to fund via cheap debt, leveraging EPS upwards. The second stock price kicker came from reclassification of the tower owners as REITs, driving a different class of money into the sector.

The IPO valuation is too high (45x P/E and 12x EV/EBITDA for earnings that have grown 10% CAGR over the last 3 years). And Bharti is selling 10% so there is an overhang of 15% either via a OFS or new equity (to keep public float @ 25% as mandated by SEBI).

I see this stock dropping atleast 50% one year post IPO. I hope it makes it to the F&O segment soon.

L&T Technology Services IPO opens on 12 September, price band of INR850-860 per share