Investment education: When to sell after the IPO?

After the IPO, the first question of many investors is - "When will I sell this share?"  Some say that you should wait for a few circuits, some say that it will be more beneficial if you keep it for a long time. But the same rule does not apply to all IPOs. The right decision depends on the company's situation, market conditions, value, its goals and risk appetite. An IPO is the process by which a company sells its shares to the public for the first time. Many new investors in Nepal enter the stock market through IPO, as it is usually possible to apply for Rs 100 per share and start investing with a small amount. But just because IPO is done, it does not guarantee that the shares will always be profitable. Therefore, after listing, the decision whether to sell or keep should be made carefully.

First of all, you have to look at the IPO company. Whether the company is profitable or loss-making, whether the business is likely to expand, whether the debt is high, what the management is like, how strong the sector is, and whether it has the ability to pay dividends in the future are important. If the company's fundamentals are weak, it may be safe to sell and exit when good profits are generated after listing. The second thing is to see how much the share price has increased after the listing. If an IPO that is priced at Rs 100 has increased manifold within a short period of time after listing, then there is also an increase in risk. Many new investors get lured by continuous circuits and don't plan to sell. But the price in the market does not always go up. If you don't take any decision when you see a profit, that profit may decrease later.

Thirdly, your goals should be clear. Is your objective to book profit in short term or to make long term investment? If you are a short-term investor, it is better to plan in advance to sell when certain profits are made. But if the company is strong, has the potential to grow profits, has the potential to pay dividends, and the future of the sector is good, it may be worth holding for a long time. Fourthly, the condition of the market should also be looked at. If NEPSE is in a strong trend, turnover is good and investor sentiment is positive, demand after the IPO listing may be good. But if the market is weak, the turnover is reduced or the shares of the same sector are under pressure, there is a possibility that the IPO of a good company will not go much higher. Therefore, not only the company, but also the overall market environment is important.

Fifthly, it should not be ignored that the shares in the IPO are low stakes. Many people have only 10 shares, so they may think that "I have so few shares, I will keep them anyway". But investing education is about developing right habits with small amounts. If you learn to plan and make decisions even in 10 shares, mistakes will be reduced in making big investments in the future. A simple way to sell an IPO would be to protect the profits if the company is weak but has made good profits after the listing. If the company is medium then sell or partially hold after some profit. If the company is strong, the profits are likely to increase and the price is not yet too expensive, then holding for the long term can be considered. But this decision should always be based on facts, not rumours.

Many investors keep holding shares after the IPO listing in the hope that they will “go higher”. But both greed and fear are risks in the market. If the stock you bought at Rs 100 goes up to Rs 300, 400 or 500 then you should think beforehand how much profit you will be satisfied with. It is never wrong to book a profit, especially if the fundamentals of the company are weak. But not all IPOs should be sold immediately. Some companies are able to give better returns in the long run. Some of the companies in banking, insurance, manufacturing, hydropower or other sectors may have business expansion, regular income, good governance and dividend potential. If such a company has an IPO, it may be better to think long-term rather than sell based on short-term fluctuations.

Taxes and duties should also be taken into account when selling an IPO. Capital gains tax and broker commission are charged on selling shares. Therefore, selling hastily at a small profit may reduce the actual amount received. Investors should understand the real profit after selling costs, selling price, fees and taxes. When your investment objective is met, the company's value appears to be far above its true potential, or the company's fundamentals are weak, the decision to sell can be made. But if the company is strong and the long-term prospects are good, the decision to hold may be justified.

In conclusion, the decision to sell or hold after an IPO should be made based on the company's condition, value, market sentiment and your goals, not based on listing rumors, circuits or social media suggestions. Even starting with a small amount in an IPO teaches great investment discipline.