Profiting from IPOs in Nepali Stock Market NEPSE

IPO Profit: 8,240% Profit in Jyoti Life Insurance (JLI)

I was allotted 10 shares in the IPO Allotment of Jyoti Life Insurance. IPOs are almost always profitable because of NEPSE’s criteria for companies to issue their IPO at a minimal price of Rs. 100 per share.

This might change after NEPSE adopts the book building method of issuing an IPO. Until then, investors are up for a profitable ride. This is why we have so many Demat accounts in the country to apply for Initial Public Offerings. The numbers went up like crazy after the pandemic in such a short time.

Anyways, if you have gone through this research article of mine, you know that I do not like to keep holding a stock when it goes through undecisive and sluggish activity. Based on my research, I have found out that the IPO shares witness exhaustion in the initial buying aggression after about a week of being listed in NEPSE.

The same happened in the case of Jyoti Life Insurance (JLI). The opening range for the first transaction was set from Rs. 120.29 to Rs. 360.87. The first transaction was made at the upper limit of Rs. 360. NEPSEs’ online trading platform showed a huge volume of piling buy orders and no sell orders on the first day.

Since IPOs are considered to be almost always profitable, allottees refrain from selling them too early. Thus, the trading of newly listed IPO shares is difficult. The stock kept hitting 10% positive circuit breakers for 10 trading days straight. Investors do not want to sell something that is profitable, and the buyers thus have to offer higher to lure sellers and make them sell.

However, everybody has a price, at least in the stock market. On the 11th day, sellers began to come in. The stock went as high as Rs. 998 but the stock had bounced back when I checked the TMS. This had never happened on previous days. On the days before, the stock would open at a price and keep gaining till it hit the 10% positive circuit breaker.

Candlestick chart of Jyoti Life Insurance showing how I sold my IPO shares at Rs. 974 per share.

My research has taught me that this is a signal of supply trying to meet the demand. For IPO stocks, this might mean days of inactivity before the stock resumes its upwards trend. As such, it is wise to sell the shares than to wait and watch your stock go sideways.

I put my sell order at Rs. 974.

10 shares sold at Rs. 974 each. A gross return of Rs. 9,740. After deducting broker commission and tax, my broker sent me Rs. 9,240.85 yesterday. Given that the initial investment was Rs. 1,000, this gave me a return of 8,240% on my capital.

Not bad for an investment period that lasted less than two months (from the IPO issue date).

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