Feroze Azeez on what really moves IPO prices in early days

The sharp price swings seen in many newly listed stocks have reignited the debate around whether IPO volatility is purely a demand–supply phenomenon or whether deeper technical factors are at play. Market participants have increasingly pointed to recent commentary by Zerodha founder Nithin Kamath, suggesting that structural and technical elements often dominate price action in the early days of listing.

When ET Now raised this question with Feroze Azeez, from Anand Rathi Wealth his response was clear and unambiguous. “That is a very interesting question. IPOs it is easier to identify which ones are the ones where you will hold for the short term and which one will you hold on the long term. Second, do I agree with Mr Kamath? I could not agree more at all.”

Azeez explained that the initial trading phase of an IPO is fundamentally different from how the stock behaves once it matures in the market. Volumes in the early days tend to be extraordinarily high, sometimes many multiples of what the stock will see once it settles into long-term portfolios. “These are very easy technical variables. Why is it so? Because the volumes in the initial part of a journey of a stock getting listed are maybe astronomical, even 100 times more than where you will see that stock being in terms of delivery volume a year from now.” With such heavy activity, prices become extremely sensitive to short-term demand and supply dynamics. “So, when the volumes are very large, demand and supply is in play. If the volume is very low, people are fundamentally buying and holding that stock, that is why the volume is low.”

According to Azeez, this is why sharp moves in IPOs should not come as a surprise to investors. “So, IPOs is there demand and supply and technical factors driving up and driving down prices? The answer is a big yes.” He pointed to a striking trend seen across recent listings, where first-day delivery volumes often exceed the total free float available in the market. “If you have studied the last 100 IPOs and on one column you put the total amount of free float stock put in the market and on the other hand you put the first days delivery volume, you will see most of the IPOs have a larger delivery volume on first day than the total free float itself.” This, he said, reveals the trading-oriented mindset of many IPO participants. “That implies, anybody like for example if Feroze is buying a stock in India in the form of an IPO, he is not holding it, he is flipping it more often than not.”

As a result, the first few sessions after listing are largely driven by short-term trading rather than long-term conviction. “So, point is, any IPO for the first five-seven days is just a money-making short-term game for an Indian retailer.” However, Azeez stressed that there are clear signals that can help investors distinguish between a short-term trade and a potential long-term opportunity. “On those days if you see large institutions picking it up, those are very good signs that the IPO you should not flip it over four-five-day period.” He highlighted the importance of anchor and pre-IPO participation by large institutions, noting that strong institutional commitment can change the character of a listing. “Now if you see some IPOs where some SBI took up a thousand crore stake in pre-IPO and anchor book, where you know that India’s biggest CIO wants to underwrite almost 2-3% of the stock for long periods of time and he is not selling, I will be on his side rather than Indian retail side.”

Because of the transparency around ownership, volumes and early trading behaviour, Azeez believes IPOs are often easier to analyse than many seasoned stocks. “So, IPOs are easier to identify because there is so much information, so much volume and so much understanding of who is buying in the first few days of it starting to trade.” The discussion then turned to ICICI Prudential Equity, where recent delivery data has raised fresh questions about price movements. ET Now pointed out that nearly 5% of the stock was delivered on Friday, compared with a total free float of around 7%, and asked whether this could lead to continued volatility. Azeez acknowledged that such numbers naturally magnify price swings. “Yes, so I have not analysed that specific IPO so far, but if there is a delivery volume almost equal to the free float, you will have to also try and see, that is why there is such large moves which are happening.”
He cautioned investors against drawing conclusions too quickly, stressing the importance of tracking institutional behaviour, which becomes clearer only after monthly disclosures. “I would want to see which are the AMCs actually held on from their anchor book, which were the AMCs actually sold, that is one piece of data which is very-very crucial for you to analyse.” Timing also plays a role, as IPOs listed toward the end of the month provide faster visibility once factsheets are released. Beyond public disclosures, Azeez pointed to professional tools that can offer deeper insights into institutional positioning.Tracking how ownership changes over time, he said, is key to understanding valuation trends. “All the top five stocks if you capture what happened like year back, who was owning it, who owns it today, you can see who actually bought during the one-year period and who sold during the one-year period, that becomes a very important decision criteria for you to see whether PE expansion will happen or PE contraction.” In essence, IPO volatility is less about randomness and more about understanding liquidity, investor behaviour and institutional intent during the crucial early days of listing.