Why investing in a Smallcase may be a better strategy than IPO investing

Smallcase may be a better strategy than IPO investing

2021 was wrecked by the Coronavirus-led pandemic that jolted even the strongest of economies. But there was a beacon that shone brightly in the financial markets – and the year became synonymous with it. Year 2021 has come to be known as the year of IPOs.

Many home-grown startups and some very popular companies such as Zomato and Nykaa went public in the year. After the successful listing of Zomato on the stock exchanges, the graph of Unicorns and startups eyeing Dalal Street scaled newer heights.

The India markets saw 62 companies making their way to the stock market to raise funds. The IPO frenzy jammed well with the average Indian investor for whom the picture probably looked something like this:

Companies are listing on the stock exchange at a premium, and this is a fantastic way to make money in the short term via listing gains.

Testimony to this is the fact that retail participation at the markets exploded in 2021. After being stagnant at 20 million for decades since the dot-com bubble burst, India’s investor population suddenly expanded by over 15 million since the pandemic.

However, has the IPO investment strategy helped investors to the tune they expected it to? In this blog, we find the answer to this and understand how investing in a smallcase might be a better strategy than stowing money away and waiting for allotment in an IPO or praying for gains.

Here’s how some of the top IPOs of 2021 fared viz-a-viz their listing price and performance at the stock market post their listing.


Ever since the company released the issue price of Rs 2,150 per share, there were murmurs of the stock being overvalued, ultimately leading to the scrip listing at a discount of 9% at Rs. 1,950 per share. Interestingly enough, the stock closed at a loss of 27% on its listing day itself (at Rs. 1,564 per share). As of 15 March, 2022, approximately 70% of investor wealth has been wiped out; the stock continues to be on a downslide.

Alas, India’s biggest IPO thus far has not made any money for the hopeful investors yet since its listing.


Nykaa’s IPO was one of the most celebrated IPOs in the Indian stock market. With an issue price of Rs. 1,125 per share, it was listed on the stock market at a 77% premium at Rs 2,001 per share. However, within 3 months of its listing, the company’s scrip has come down to Rs. 1,422 per share (as of 15 March, 2022), with insiders selling stocks worth $19 million and general sentiment in the market being down.

PB Fintech (Policy Bazaar)

PB Fintech’s IPO journey started with its stock listing at a 17% premium at Rs. 1,150 per share as against its issue price of Rs. 980 per share. However, the three-month period from its listing has seen the stock price tumble. It trades at Rs. 788 per share as on 15 March 2022.

CarTrade Tech

Since its IPO, CarTrade stock has not made a penny for its investors. Laden with multiple factors like premium valuation and supply chain issues with the auto sector itself, to name a few, the stock seems to be stuck in an avalanche of bad pricing. The share listed at a 1% discount to issue price of Rs 1,618 but has since tumbled as much as 65% as of 15 March, 2022. It is now trading at under Rs 555 per share, as of 15 March, 2022.

All this goes on to prove two pivotal facts that investors must be aware of:

An IPO is not a hallmark of a company’s success.

And more importantly,

An IPO is not a guarantee of returns – listing gains or otherwise

This is not to discredit IPOs; some IPOs have indeed given stellar returns as listing gains or even turned multibaggers over the years. But note that such returns are privy to those investors who have the experience and wisdom to exit at the right time.

Is this alarming for an average investor who salts away their hard-earned money and invests it in an IPO in the hopes of it turning a cash cow?

While investing in an IPO is not incorrect, an IPO does not augur well for all companies who want a piece of the stock market pie (and you want a piece of!). Last year, many popular IPOs were companies that created hype around them but fared poorly in the market. While many of them listed at a discount, many have lost an overwhelming amount of wealth within a few weeks of their listing. Some of these IPOs have wiped out even 72% of investors’ wealth since listing. If your money was among this 72%, here’s how the IPO investing strategy might have fared for you:

1. Discounted listing

Let’s assume you signed up to get 20 shares each at an issue price of Rs 1,000. The stock is listed at a 10% discount at Rs 900 per share. Thus, you immediately lost Rs 10 per share, making it a collective loss of Rs 200 per lot.

2. Post-listing loss

As noted above, many companies listed on the stock exchange stooped to massive lows within a few weeks of trading.

The most crucial thing to understand here is that retail investors who follow IPO investing strategy, saved money little-by-little, kept it in their bank accounts, waiting for a specific company’s IPO. Unfortunately, the gains made on that investment plummeted severely, or they got shares of lesser value.

But, what could the average retail investor have done?

Well, the answer lies in the marvel that a smallcase is.

A smallcase is a bouquet of handpicked stocks by an experienced entity with a high potential to generate returns. In fact, many smallcases have not only helped investors make significant gains, but they have also beat the market indices and other benchmarks. TejiMandi’s two smallcases have been curated by the some of the most experienced brains in the investment space who have helped investors get the most out of their buck!

When one is compelled to pit investing in IPOs as a strategy against investing in a smallcase, numbers do the talking. A smallcase has given a return in the range of 8% to 60% over a period of one year, based on the type of smallcase one is investing in. Thus, investors who waited to invest their money in an IPO not only suffered the backlash of those stocks performing poorly even on the listing day, such investors also lost the opportunity to invest in a smallcase, where their money could have grown multi-fold.

For example, TejiMandi’s Multiplier is a smallcase whose 1-year CAGR stands at 75.86% (as of March 2022). This is a basket of small-cap and mid-cap stocks that experienced professionals have created through careful asset allocation and risk mitigation strategies. What you are also getting here is professional fund management services, akin to PMS, at a fraction of the cost. You no more have to worry about timing the market or assessing probable companies for stock investments. Leave the grunt work to the experts, sit back, relax and watch your investments compound!

Is a smallcase the same as portfolio management service (PMS)? Know the differences in our article Smallcase vs PMS on the TejiMandi Blog.

Another downside to the IPO investment strategy is the low allocation of the IPO size for retail investors. This further reduces the chances of a retail investor getting an IPO allocation, especially for high issue size IPOs, where the number of people applying is also large. As a result, they lose out on the one thing that could have helped compound their results– time (apart from retail participant discount, if any).

For example, the upcoming LIC IPO will be India’s biggest IPO. The sheer size of LIC’s IPO has made countless retail investors save money and keep it reserved to apply in the IPO. What the investor might not realise is what they are letting go of to chase an IPO where the probability of them getting an allotment is abysmally low. Retail quota is 35%, which means 65% of retail participants are bound to be disappointed!

However, it would be unfair to demonize the IPO investment strategy in the same tone. After all, the 2021 IPO frenzy helped bring more first-time and retail investors into the market and push them to invest in stocks as a means to generate wealth actively. But, relying solely on IPOs might be a skewed idea about investing.

The takeaway

While investing in an IPO may sound exciting and powerful, smallcases have passed the test to generate high returns with flying colours. TejiMandi is a Sebi-Registered Research Analyst and has two smallcases that have outperformed the market indices they track and generated higher returns than investing in an IPO.

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Concentrated portfolio of fundamentally strong small & midcap stocks that are likely to show potential growth.


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A Multi-Cap portfolio of 15-20 stocks that consists of tactical bets and long-term winners that generate index-beating returns.


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