Why investing in a Smallcase may be a better strategy than IPO investing

1. Why investing in a Smallcase may be a better strategy than IPO investing? 2021 was wrecked by the Coronavirus-led pandemic that jolted even the strongest of economies. But there was a beacon that shone brightly in the financial markets – and the year became synonymous with it. Year 2021 has come to be known as the year of IPOs. Many home-grown startups and some very popular companies such as Zomato and Nykaa went public in the year. After the successful listing of Zomato on the stock exchanges, the graph of Unicorns and startups eyeing Dalal Street scaled newer heights. The India markets saw 62 companies making their way to the stock market to raise funds. The IPO frenzy jammed well with the average Indian investor for whom the picture probably looked something like this: Companies are listing on the stock exchange at a premium, and this is a fantastic way to make money in the short term via listing gains. Testimony to this is the fact that retail participation at the markets exploded in 2021. After being stagnant at 20 million for decades since the dot-com bubble burst, India’s investor population suddenly expanded by over 15 million since the pandemic.

2. However, has the IPO investment strategy helped investors to the tune they expected it to? In this blog, we find the answer to this and understand how investing in a smallcase might be a better strategy than stowing money away and waiting for allotment in an IPO or praying for gains. Here’s how some of the top IPOs of 2021 fared viz-a-viz their listing price and performance at the stock market post their listing. PayTM Ever since the company released the issue price of Rs 2,150 per share, there were murmurs of the stock being overvalued, ultimately leading to the scrip listing at a discount of 9% at Rs. 1,950 per share. Interestingly enough, the stock closed at a loss of 27% on its listing day itself (at Rs. 1,564 per share). As of 15 March, 2022, approximately 70% of investor wealth has been wiped out; the stock continues to be on a downslide. Alas, India’s biggest IPO thus far has not made any money for the hopeful investors yet since its listing. Nykaa Nykaa’s IPO was one of the most celebrated IPOs in the Indian stock market. With an issue price of Rs. 1,125 per share, it was listed on the stock market at a 77% premium at Rs 2,001 per share. However, within 3 months of its listing, the company’s scrip has come down to Rs. 1,422 per share (as of 15 March, 2022), with insiders selling stocks worth $19 Million and general sentiment in the market being down. Read More About investing in a Smallcase may be a better strategy than IPO investing