PIT-IPOs - Reader's Choice :The Theory is Modified!!!

Thanks to the readers who gave their comments for my previous article and got me seriously thinking. I have not written in vibe for the past weeks just to figure out how should I convince the readers or should I get convinced by them? Well, at the end, the market has taught me. It's finally the market that will drive all our decisions. Let's elaborate the same.

Currently, the Allahabad Bank I(S)PO is running and on the first day itself it got subscribed fully at the higher end of its price-band. This takes me back to December, 2002 when Allahabad Bank came with its original IPO. They came with a fixed price and that was at par. Can you believe this ? Within two and half years the price has gone up by NINE times. But here the price is not an issue, the issue is how the original IPO was, compared to this I(S)PO of the same Bank.

Well, as far as I remember in those days the market trend was bearish, and was just at the starting point of a bull phase. The government announced favourable recovery policies for the banks, and Canara Bank had already announced its IPO. Then came the Allhabad Bank IPO. The IPO was just subscribed fully hardly 2 times and you can understand that when an IPO is subscribed only 2 times overall, the retail segment must not have been subscribed fully. That suggests, all the retail investors got what they applied for. One of my friends applied for 200 shares(the minimum, total Rs. 2000 - can you believe this ? Today the same company's I(S)PO requires minimum application of Rs. 6000+, that in-turn suggests it is a bull market and the previous phase was the bear), and he got the firm allotment.

Consider if he applies today again with the minimum required no. of shares, will he get any? We all know the answer and that was the question raised by the readers too. I believe, the theory Portfolio Investing Through IPOs(PIT-IPOs) should have one important clause added:
It will work best during the bear market.

Now, I believe the readers will agree with me, and hopefully we shall be creating more wealth by applying for these PIT-IPOs during bear market. As this must have happened to all those who have invested in IPOs during 2002-2003. Now, the time has come when we should rest-atleast for the IPOs and wait for the bear again. This should give us great wealth creating opportunities. Well, few on the street have already started predicting the same - but we feel the bear is still a year or two away.


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