Why are retail investors obsessed with IPOs?

livemint.com:

₹500 per share, with the stock listing on the exchanges at around ₹1,200. So, retail investors who managed to sell their newly issued shares at ₹1,200 would have made a huge gain of 140% on the issue price, and that too in a very short period of time from the day of applying for the company’s shares to the day of its listing. Investors investing up to ₹2 lakh in an IPO are categorized as retail investors.

So, did it make sense for retail investors to get excited about this IPO? Not really. The retail portion of the IPO was subscribed around 16.5 times, implying that on the whole, investors got two shares for every 33 they applied for. Of course, this was on average, and hence, many retail investors did not get any allocation at all.

Now, let’s consider someone who had applied for and got the minimum order quantity of 30 shares. At an issue price of ₹500, this meant an investment of ₹15,000. Investors who had sold their shares at the listing price of ₹1,200 would have received ₹36,000 for it and made a profit of ₹21,000 or a gain of 140%, ignoring taxes, the fact that the money was locked for a few days and other expenses.

Now ₹21,000 is pretty good for a day’s income. But other than a brief thrill, it didn’t change the investors’ lives in any meaningful way, implying that looking for listing day gains cannot be a wealth generation strategy. Another example here is that of Zomato, which listed in late 2021.

The retail part of its IPO was subscribed 7.5 times. Given such huge demand, on its listing day, the share price opened at a premium of a bit more than 51% over the issue price. But many retail investors didn’t get an allotment at all.