IPO Strategies: Tips and Tricks for Successful Investing
In the fast-paced world of stock market investing, getting an allotment in an Initial Public Offering (IPO) can feel like striking gold. Many investors, myself included, often pray for that elusive IPO allotment. With oversubscription levels soaring, it sometimes feels like a matter of luck. But don’t worry, there are strategies you can use to increase your chances and make the most out of IPO listings—even if you don’t get an allotment.
In this article, I will share three key strategies to help you navigate the IPO landscape: one pre-listing strategy to boost your chances of getting an allotment and two post-listing strategies for making the most of missed opportunities.
Strategy 1: Increase Your Chances of Allotment
With the intense competition for IPO allotments, it can often seem like the odds are stacked against you. For example, in the case of Buzz Housing Finance Ltd., the IPO size was ₹500 crore, but bids were received for ₹1.2 lakh crore—an amount nearly 1.2 times India’s GDP! When faced with such oversubscription, it’s no wonder many investors walk away empty-handed.
So, what can you do? One simple trick is to apply through multiple Demat accounts. You can apply using the Demat accounts of your family members to increase the number of bids. In my case, I apply using six different accounts: mine, my husband’s, my father-in-law’s, my mother-in-law’s, and two HUF (Hindu Undivided Family) accounts. The more applications you submit, the better your chances of securing an allotment.
Strategy 2: The CARR Strategy – Post-Listing Investment
Now, let’s talk about what you can do if you don’t get an allotment. Missing out on an IPO doesn’t mean you should entirely give up on the stock. Enter the CARR strategy, which is based on fundamental analysis.
Suppose you were ready to invest ₹1,50,000 in a particular stock. Even if you didn’t get an allotment, you can still invest in it after it is listed. Here’s how:
- Invest half the amount on day one: When the stock lists, invest half (₹75,000 in this case) of what you originally intended.
- Invest the remainder based on price corrections: If the stock price falls by a pre-defined percentage (e.g., 10%), invest another portion. You can divide the remaining amount into two or three slots and invest at various correction levels.
Though this strategy seems contrary to technical analysis, where we’re advised not to “catch a falling knife,” the CARR strategy is rooted in the belief that the stock has strong fundamentals. Thus, corrections in the price may present buying opportunities at lower levels.
Strategy 3: IPO Base and Breakout – A Price Action Approach
The third strategy focuses on price action analysis, specifically at IPO base formation and breakouts. This strategy is useful when the stock, after listing, initially drops but then recovers to challenge its day-one high.
Here’s how it works:
- After the stock lists and starts to decline, it forms what is called an IPO base.
- Once the stock starts to rise again, it challenges the day-one high price.
- You can enter at either the breakout point (when the stock breaks through the day-one high) or at the retest point (when the stock tests the breakout level after initial resistance).
For example, JG Chemicals and Premier Energy showed excellent IPO base formations followed by breakouts, offering great entry points for investors who missed out on the initial allotment. However, not all stocks will form this base immediately. Sometimes it may take several days or weeks before this pattern emerges, as in the case of Tata Technologies, where an IPO base is still in its early stages.
Lessons Learned from 2024’s IPOs
Looking at the IPO landscape of 2024, we see that out of the 54 companies listed, only 6 are currently in the red, while the rest have generated positive returns. Some, like Jyoti CNC and Premier Energy, have delivered staggering gains of 253% and 151%, respectively. Even if you missed out on an allotment, it’s clear that post-listing strategies can offer significant opportunities.
Conclusion
In conclusion, whether you’re a seasoned investor or new to the IPO game, these three strategies—applying through multiple Demat accounts, the CARR strategy, and the IPO base breakout strategy—can help you navigate the often chaotic world of IPO investing. Keep an eye on fundamentally strong stocks and don’t lose hope if you miss the allotment. There are always ways to get in, post-listing, and potentially profit from the stock’s performance.
If you’ve tried any of these strategies or have your tips for increasing your chances of getting an IPO, let me know in the comments below!