4 stocks to consider instead of investing in IPOs | Economic Times

Primary market investors are not immune to normal greed and fear. While most rush to buy fancied IPOs, they totally avoid the ones that get listed at lower prices or go below issue price. However, there is no need to avoid all stocks that are quoting below their issue price. Since the sentiment is negative, smart investors can pick up some good stocks from this space. To identify potential winners, we have shortlisted companies that got listed in the past five years, excluding those that got listed in the past year. We then sorted the stocks on the basis of their potential upside.Three of the four stocks are small-time financial institutions, pulled down mostly because of the financial market crisis and negative impact of covid on their earnings. While things stabilised after the first wave, the second wave threatens to torpedo their earnings again. Though analysts are cutting their earnings estimates, they retain buy. “Though we are reducing our earnings estimates for 2021-22 by 21%, we retain long-term buy on Bandhan Bank, given strong liability build-up, asset diversification strategy away from MFI, superior return profile and reasonable valuations,” says a recent Emkay research report. Situation is similar for Spandana Sphoorty and most its buy recommendations are based on its underperformance in the past one year—only 22% return in a year when the Sensex returned 65% during the same period.Investors can tap stocks quoting below issue price 82854604However, the situation is different for RBL Bank. Though it has outperformed the Sensex on yearly basis, it has underperformed in the past three months, mostly because of the concern about the second wave. RBL Bank also missed the earnings estimates for the fourth quarter of 2020-21 and its first quarter of 2021-22 outlook looks bleak. However, several brokerages have decided to upgrade this stock to buy because it is still quoting at reasonable valuation. “We think the current valuation of RBL Bank (0.8 times its adjusted book value in 2022-23) is undemanding and provides a good margin of safety if we take into account 11% ROE by 2022-23,” says a recent Nirmal Bang report. Varroc Engineering, an auto component company, also did well on yearly basis, but is suffering now because of the lower intake by auto companies. However, analysts feel that this bad phase will be behind Varroc soon. 82574199Also read: Many IPOs will hit stock market soon: Why you need to be cautious about investing in theseAlso read: Why a large number of IPOs hitting the stock market is a warning sign