IPO vs QIP shares: Amid the buzz of around ₹30,000 crore money getting raised in the Indian primary market through fresh Initial Public Offerings (IPOs) in the next two months, retail investors are eagerly waiting for the launch of fresh IPOs from the quality business houses like Bajaj Housing Finance, Haldiram, Prestige Estate, Ola Electric, Swiggy, Waree Energy, etc. However, if we go by the expert's opinion, the Indian stock market is preparing for a fresh rally after Modi 3.0 took charge in the centre. They said that most of the ministers had been retained in the business and economy-related ministries, which means continuing the policies in these ministries.
So, a non-listed company would try to benefit from this bull market, and hence, a good number of IPOs are expected to hit the Indian primary market in the next few months. However, they also mentioned that a company initially made a public offer to raise money either for the promoters or the company. So, most IPOs coming in a bull market are offered at a higher valuation, leaving very little room for a retail investor. Those looking at options other than the stock market in the equity market should look at the QIPs the listed companies offer to raise funds for the company. In most QIPs, a company provides placement issues lower than the stock price, leaving much on the table for investors. Though QIPs are not for retail investors, they may help retail investors find a value pick for their portfolio.
Comparing the two investment options, Avinash Gorakshkar, Head of Research at Profitmart Securities, said, "In the current stock market, we are heading for a fresh bull market or, say, pre-budget rally. So, many IPOs are expected to hit the Indian primary market in the next two months as promoters also benefit from secondary market trends in the primary market. So, a company planning to offer shares in the primary market may prepone their plans and try to launch their IPO in an upcoming bull market."
However, it's crucial to note that in a bull market, a promoter often offers a public issue at higher valuations due to the positive sentiments in the secondary market. This trend can lead to overpriced shares, potentially resulting in losses for investors. When the bull trend ends, these newly listed overbought shares can experience a significant drop, causing the listing gain of medium to long-term investors to dry up rapidly. This underscores the potential risks of investing in IPOs during a bull market.
"A listed company launches QIP, and the money raised goes into the books of the company, whereas in the case of IPOs, money raised may or may not go into the books of the company. Apart from this, after calculating the floor price, a company can give up to a 5 percent relaxation to the QIP investors. If the premium has risen and goes beyond 10 percent, it is time to scan the company's balance sheet and previous few quarter results," said Sandeep Pandey, founder of Basav Capital.
Retail investors must adopt a medium to long-term perspective when considering QIP investments. While they can't invest directly in QIPs, this strategic approach can help them make the most of the opportunities presented by QIPs. This understanding can instil a sense of patience and strategy in retail investors.
"So, a rising premium of a QIP and strong response by the QIP investors should be taken as a positive signal by a retail investor regarding the QIP share," said Sandeep Pandey.
For retail investors with a limited amount for investing, QIP shares can offer significant advantages over IPOs in the current bull market. Avinash Gorakshkar advises that if QIP shares meet certain parameters like a rise in the premium post-QIP announcement, a strong response by QIP investors, a strong balance sheet of the company, and strong quarterly numbers in the recent quarters, retail investors are advised to consider investing in QIP stocks. However, he emphasizes that this strategy is best suited for medium to long-term IPO investors, and intraday traders should not attempt to implement it.
Disclaimer: The views and recommendations above are those of individual analysts, experts, and broking companies, not of Mint. We advise investors to check with certified experts before making any investment decisions.
