IPO in NEPSE: Profit in a week, a month, a year? A look back at 10 years of data

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.

Limitation:

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%
Manjushree Finance	150	50%	120	20%	118	18%	117	17%
Chilime Hydropower	902	802%	941	841%	892	792%	590	490%
Gurans Life Insurance	317	217%	236	136%	107	7%	110	10%
Multipurpose Finance	351	251%	255	155%	87	-13%	66	-34%
Corporate Dev. Bank	341	241%	259	159%	104	4%	106	6%
Muktinath Bikas Bank	289	189%	171	71%	144	44%	281	181%
Average Returns		221%		270%		459%		538%

Findings

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.

Comments

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.

Wrapping Up

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!