Post-IPO Performance: Important Trends You Need to Know

• Strong investor confidence, fair valuation, and solid financials contribute to IPO success. 

• Low subscription rates, overvaluation, and weak financial health can signal poor performance.

• Bullish markets often drive IPO success with high investor interest, whereas bearish markets can lead to poor post-listing performance due to lower demand.

• Key strategies for management include evaluating management, setting stop-losses, diversifying your portfolio, monitoring regulations, and adjusting investments based on market conditions.

In 2024, India saw the highest number of IPO listings since 2017. With new IPOs being introduced, investor attraction has increased as well. But as veteran investors know, not all IPOs perform well. So, if you are looking to invest, it is important to be prepared for post-IPO performance and make the right calls. 

Doing this will enable you to secure your investment by minimising risk and potentially maximising your gains. Learn more about post-IPO performance, trends, and tips to manage your investment.

You can typically categorise the post-IPO performance into success and failure. To do that, you need to look at several factors. Here are some key determiners that can help you gauge whether the IPO will perform well or not:

• High subscription or oversubscription can indicate strong investor confidence, which can lead to gains.

• Fair IPO valuation aligned with growth potential and market condition can increase the demand, indicating better performance.

• Generally, consistent revenue growth, healthy margins, and profitability indicate better performance.

• Low subscription, or under subscription, generally indicates low market interest and confidence, implying poor performance.

• Overvaluation in relation to the company’s growth potential and market conditions can indicate poor performance.

• If the company has poor financial health, inconsistent revenue or high debt, it can indicate poor performance.  

Market conditions and several other factors heavily influence the share market. Understanding these factors and their impact is crucial to having the right strategy for your IPO investment. It can help you determine where to stay invested or cut your losses, which can ultimately help you achieve your goals. 

Here are some crucial factors influencing post-listing trends and performance:

In bearish markets, investor interest may be low, leading to poor performance. In a bullish market, investor interest is generally high, leading to better performance.

If the subscription is high, it shows reasonable investor confidence, which can help boost post-listing performance. In the case of low subscription, the confidence is low, generally leading to poor performance.

Some shareholders have a lock-in period, and during this time, they cannot sell their shares. However, once the period ends, they are free to do so. If investors sell their shares, it can lead to increased stock volatility after an IPO listing as the supply of shares increases.

If the company has strong and consistent financial health, it will typically lead to a positive performance after the IPO listing. You should look at several financial ratios to understand the company’s financial health. These include: 

• P/E: Price-to-Earnings Ratio

• EPS - Earnings Per Share 

• D/E - Debt-to-Equity Ratio

When a company goes public, it comes under more scrutiny and has to adhere to laws and policies that protect the investor. If this proves to be challenging, the company’s reputation will be negatively impacted, which may negatively affect the stock price.

Once you have your IPO allotment and it is listed, you need to take some measures to ensure that your investment is secure. Here are some tips for managing IPO investments:

• Evaluate the management team, as a strong team can mean better performance

• Keep an eye on market movements to gauge the performance and time your exit, if needed

• Set a stop-loss instruction to minimise your loss (to sell your share if it reaches the predetermined price)

• Focus on diversification to mitigate the risks of unpredictable market movements and keep your investment secure

• Stay informed about regulations and any changes to them, as they affect the company’s performance and, thereby, the stock performance

• Rebalance your portfolio when needed to ensure it aligns with your risk tolerance and financial goals

Now that you know the post-listing trends and how to gauge the post-IPO performance, you can manage your shares and ensure security. You should also consult with financial advisors to ensure you make the right decision and don’t accidentally miss out on long-term IPO returns or face significant losses.

1. Why do some stocks dip after an IPO?

There can be several reasons why the IPO price may see a dip after the listing day. Some of these are:

• Market conditions

• Low investor confidence

• Weak financial health

• Poor governance

• Regulatory challenges

• Increased competition

2. How long should I hold an IPO stock?

If you are investing for the short term, you can sell it on the listing day or once you see the desired gains. If you are looking for long-term IPO returns, you can stay invested and monitor the price. In either case, you need to thoroughly research and evaluate the company to ensure that you exit at the right time.

3. What is a lockup period, and how does it affect prices?

The IPO lock-in period applies to certain investors who cannot sell their shares until this period is over. The stock volatility after an IPO lock-in period ends is generally high if the investors sell their shares. So, the lock-in period helps to ensure that the stock price doesn’t see huge fluctuations with the added supply of shares. 

4. Should I buy more shares post-listing if the stock drops?

This depends on the market condition and expected movement. If the post-IPO performance is expected to be consistently poor, the price may continue to dip. This can lead to further loss. However, if the price is expected to go up, you can consider buying more shares to offset the loss and see some gains.

5. How do I gauge long-term potential vs. short-term volatility?

To do this, you will need to research the company, its financial health, market conditions, industry outlook, dividend strategy, growth potential, and more.

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