The IPOs of the last 10 years were profitable by 221% on the first trading day. If you waited for a week, your profit increased to 270%.
How much money will an IPO make you in NEPSE?
Applying for IPO is an almost-sure-profit investment strategy in NEPSE.
This is because every IPO should be issued at Rs. 100 per share, no matter the company. This means that you can profit by investing in an IPO of a company and selling it at a higher price when it is listed in NEPSE.
However, there have been talks of introducing the book building process lately. This might reduce the profits made in IPOs.
Basically, book building allows companies to issue an IPO at a higher, premium price, which is often more than Rs. 100 per unit.
Nevertheless, the process will surely take a long time to be implemented. And much to our delight, many upcoming IPOs will still be issued at Rs. 100 per share.
About this research
So we know that IPOs are profitable. But how profitable?
You can’t just buy your shares and wait for an eternity to realize your profits. You will have to sell it someday.
So, a common investor should think about when to sell for the best returns.
You might think holding for the long term is smart, but how about the time you lose? At the same time, watching your stock roar upward after you sell too quickly isn’t fun either.
This means that there must be an optimum time frame to sell so that you get the maximum returns in a minimum amount of time.
To find out that thin window of maximum opportunity, I researched all the IPOs of the last 10 years or so.
To summarize, this is what I did:
1) List all the IPOs issued and listed in the last 10 years or so.
2) Note their closing price on the first trading day.
3) Closing price after 7 trading days.
4) Closing price after 30 trading days.
5) Closing price after about a year.
6) Percentage of profits in each of these timeframes.
1) A handful of companies do not have their stock chart because of the merger/acquisition process. Hence, I failed to note their data.
Here we go
Now, let me present the table here. I will interpret what it means after you study the table.
Tip: If you are on a mobile device, use it in landscape mode to view this table better.
|Company Name||First day close||Profit||One week close||Profit||One month close||Profit||One year close||Profit|
|NADEP Laghubitta Bittiya Sansthan Ltd.||650||550%||766||666%||1436||1336%||451||351%|
|Panchakanya Mai Hydropower Ltd.||136||36%||118||18%||123||23%||89||-11%|
|Kalika Power Company Ltd.||121||21%||110||10%||103||3%||80||-20%|
|Ankhukhola Jalabidhyut Company Ltd.||102||2%||99||-1%||84||-16%||54||-46%|
|Upper Tamakoshi Hydropower Ltd.||224||124%||263||163%||225||125%||249||149%|
|Joshi Hydropower Development Company Ltd.||279||179%||201||101%||84||-16%||68||-32%|
|Samudayik Laghubitta Bittiya Sansthan Ltd.||650||550%||712||612%||765||665%||765||665%|
|Ghalemdi hydropower Ltd.||190||90%||214||114%||88||-12%||69||-31%|
|Shivam Cement Ltd.||418||39%||330||10%||388||29%||487||62%|
|Universal power Company Ltd.||270||170%||146||46%||93||-7%||73||-27%|
|Mountain Hydro Nepal Ltd.||101||1%||87||-13%||105||5%||88||-12%|
|Panchthar Power Company Ltd.||255||155%||163||63%||138||38%||100||0%|
|Sparsha Laghubitta Bittiya Sanstha Ltd.||302||202%||417||317%||441||341%||680||580%|
|Nepal Agro Laghubitta Bittiya Sanstha Ltd.||311||211%||422||322%||540||440%||540||440%|
|Ganapati Microfinance Bittiya Sanstha Ltd.||237||137%||326||226%||493||393%||737||637%|
|Himalaya Urja Bikas Company Ltd.||144||44%||160||60%||140||40%||93||-7%|
|Gurans Laghubitta Bittiya Sanstha Ltd.||279||179%||385||285%||398||298%||619||519%|
|Swabhimaan Laghubitta Bittiya Sanstha Ltd.||281||181%||416||316%||749||649%||840||740%|
|Union Hydropower Ltd.||150||50%||103||3%||62||-38%||50||-50%|
|Infinity Laghubittta Bittiya Sanstha Ltd.||343||243%||400||300%||467||367%||744||644%|
|Swadeshi Laghubitta Bittiya Sansthan Ltd.||338||238%||343||243%||801||701%||1524||1424%|
|Chhyangdi Hydropower Ltd.||323||223%||221||121%||163||63%||127||27%|
|Himalayan Power Partner Ltd.||363||263%||445||345%||370||270%||251||151%|
|Nepal Hydro Developers Ltd.||322||222%||252||152%||217||117%||121||21%|
|Support Microfinance Bittiya Sansthan Ltd.||313||213%||390||290%||817||717%||784||684%|
|Radhi Bidhyut Company Ltd.||170||70%||194||94%||209||109%||172||72%|
|Arambha Microfinance Bittiya Sansthan Ltd.||260||160%||321||221%||658||558%||633||533%|
|Nepal Seva Laghubitta Bittiya Sansthan Ltd.||312||212%||402||302%||691||591%||389||289%|
|Rairang Hydropower Development Company Ltd.||256||156%||153||53%||152||52%||106||6%|
|Ngadi Group Power Ltd.||277||177%||403||303%||340||240%||230||130%|
|Khani Khola Hydropower Co. Ltd.||353||253%||276||176%||215||115%||148||48%|
|Green Development Bank Ltd.||277||177%||358||258%||484||384%||580||480%|
|National Microfinance Bittiya Sansthan Ltd.||506||406%||648||548%||1511||1411%||2200||2100%|
|RSDC Laghubitta Bittiya Sansthan Ltd.||346||246%||532||432%||1159||1059%||983||883%|
|Dibyashwari Hydropower Ltd.||348||248%||232||132%||242||142%||146||46%|
|Suryodaya Laghubitta Bittiya Sansthan Ltd.||495||395%||544||444%||1118||1018%||1479||1379%|
|Arun Kabeli Power Ltd.||326||226%||441||341%||450||350%||265||165%|
|Samata Microfinance Bittiya Sansthan Ltd.||411||311%||456||356%||990||890%||1329||1229%|
|Synergy Power Development Ltd.||265||165%||318||218%||241||141%||135||35%|
|Forward Community Microfinance Bittiya Sanstha ltd.||1051||951%||1365||1265%||3836||3736%||2499||2399%|
|United Modi Hydropower Development Ltd.||329||229%||408||308%||352||252%||190||90%|
|Mirmire Micro Finance Dev Bank Ltd.||414||314%||550||450%||2225||2125%||2900||2800%|
|Mahila Sahayatra Micro Finance||351||251%||607||507%||1521||1421%||866||766%|
|Barun Hydro Power Co Ltd.||304||204%||400||300%||322||222%||400||300%|
|Janautthan Samudayik Lagu Bitta Bikas||419||319%||528||428%||1219||1119%||3776||3676%|
|Api Power Co. Ltd.||307||207%||395||295%||372||272%||549||449%|
|Womi Microfinance B.S. Ltd.||399||299%||558||458%||1333||1233%||1392||1292%|
|Saptakoshi Bikas Bank Ltd.||316||216%||556||456%||490||390%||276||176%|
|Mero Microfinance Bittiya Sansthan Ltd.||392||292%||487||387%||1183||1083%||2300||2200%|
|Laxmi Laghubitta Bikas Bank||307||207%||445||345%||575||475%||944||844%|
|Sana Kisan Bikas Bank||605||505%||674||574%||906||806%||1405||1305%|
|Sanima Mai Hydropower||324||224%||533||433%||530||430%||783||683%|
|Kalika MicroCredit Dev. Bank||399||299%||572||472%||679||579%||1025||925%|
|Naya Nepal Laghubitta Bikas Bank||352||252%||477||377%||960||860%||1040||940%|
|Mithila Laghubitta Bikas Bank||376||276%||441||341%||851||751%||907||807%|
|Century Commercial Bank||280||180%||334||234%||364||264%||321||221%|
|Ridi Hydropower Dev. Co. Ltd.||306||206%||428||328%||635||535%||410||310%|
|KANCHAN DEV. BANK Ltd.||196||96%||165||65%||110||10%||133||33%|
|MANJUSHREE FINANCIAL INS. Ltd.||150||50%||120||20%||118||18%||118||18%|
|RELIANCE FINANCE Ltd.||150||50%||178||78%||136||36%||171||71%|
|SWAROJGAR LAGUBITTA BIKAS BANK||168||68%||182||82%||304||204%||1203||1103%|
|NLG INSURANCE CO. Ltd.||275||175%||435||335%||477||377%||862||762%|
|Kanchan Dev. Bank||196||96%||165||65%||110||10%||133||33%|
|Gurans Life Insurance||317||217%||236||136%||107||7%||110||10%|
|Corporate Dev. Bank||341||241%||259||159%||104||4%||106||6%|
|Muktinath Bikas Bank||289||189%||171||71%||144||44%||281||181%|
The data shows that IPOs are generally profitable both in the short term and relatively long term.
Note that I did not study the data after a year of the company being listed in NEPSE. This is because I am a momentum swing trader, and one year itself is a tediously long time frame for me.
To summarize, all the IPOs of the last 10 years were profitable by 221% immediately after listing on the first trading day. If you just waited for a week, your profit increased to 270%.
Moreover, if you sold your shares 30 trading days after listing, you would have a profit of a whopping 459% in average.
Finally, the IPO shares held on for about a year gave an equally impressive 538% profit to investors.
Other insights during the research
1) I observed that immediately after a company’s shares are listed in NEPSE after IPO, the stock goes through a phase of a continuous bull phase with green candles.
This might last for a few weeks or a month. Thus, this means that someone can buy the shares during the first few days and sell near the peak of this initial bullish aggression.
This strategy may be useful to those for whom the IPO shares were not allotted. Moreover, since only about 10 units are allotted, other investors can also add up on their portfolio.
2) Another insight I learned is that since a month’s average profits and a year’s average profits are similar, it is better to sell after a month than wait an entire year.
Of course, a year’s average returns is still higher, but why waste 11 more months holding the stock when you could use the money to invest in another IPO or other promising stocks in the secondary market?
Now, I understand that by now, value investors and fundamental analysts want to kill me for what I just said. But understand that each person has a different strategy. I do not want to waste more time just to benefit a few more from the buy-and-hold strategy. Money is important, but so is time.
1) Selling on the first day of trading is quite difficult.
This is because, in general, there is very less volume in the first few trading days. Not much shares exchange hands.
Thus, although I have summarized the closing price in the first day and the average returns, selling in the first day itself may not be that practical.
2) Companies of the Hydro-power sector are losing since the last 10 years. Some of their share price are below the IPO price, i.e. Rs. 100 per unit. Since the sector itself is losing, this means that at least 80% of the companies of that sector are also losing.
Do your homework while investing in upcoming hydro company’s IPO. My advice is to avoid such companies altogether.
I was always curious about how profitable IPOs could be. If you were too, I sincerely hope you benefitted from this article.
I really enjoyed researching for this. It felt almost like a game.
If you want me to research on similar topics related to the stock market of Nepal, kindly drop a comment. This is the kind of research that anyone can do with a device and an internet connection. See you in the next article!