Why IPOs Are So Popular in Nepal: Understanding Why Most IPOs Open in Profit

Introduction

In Nepal, the craze for IPOs (Initial Public Offerings) has grown dramatically over the last decade. Every new IPO—whether from hydropower, microfinance, insurance, or manufacturing—attracts millions of applications from investors across the country. Even people who have never bought a stock in the secondary market line up to participate in IPOs. But why? What makes IPOs so special? Why do they attract such massive participation in Nepal?

The simple reality is this: IPOs are popular because they usually open in profit after listing.

Whether it is a hydropower company opening at Rs. 200 after being issued at Rs. 100, or a microfinance stock jumping to Rs. 1,000 from an issue price of Rs. 100, IPOs have a long track record of providing early gains. Even investors holding just 10 units often receive double or triple returns within days. This expectation of quick profit—combined with low entry cost, low risk, and easy access—has made IPO investing one of the most loved investment opportunities in Nepal.

But there is much more behind this trend. In this article, we dive deep into why IPOs generally open in profit, what factors influence listing prices, the psychology behind the IPO craze, and how investors can use this opportunity wisely.

1. What Makes IPOs So Attractive in Nepal?

IPOs have several features that make them appealing to the general public:

1. Very Low Risk Compared to Secondary Market

Most IPOs are issued at par value (Rs. 100).
This means the downside is limited, but the upside can be huge.

2. Investors Expect Guaranteed Profit

Because many IPOs list at high premiums, the public assumes there is guaranteed listing gain.
Even though nothing is guaranteed, historical performance creates confidence.

3. Easy to Apply

With MeroShare and C-ASBA:

Anyone can apply
No need for broker
No need to understand market
Just apply and wait

This simplicity attracts new investors.

4. Minimal Capital Required

Even with just Rs. 1,000, anyone can participate.
For many Nepali families, this is the most affordable investment opportunity.

5. Psychological Excitement

Investors feel:

“I might get lucky.”
“It’s risk-free profit.”
“Everyone is applying, so I should too.”

This creates a “crowd effect.”

2. The Main Reason IPOs Open in Profit: Issue Price Is Very Low

In Nepal, almost all companies issue shares at Rs. 100 (par value).
But this price is usually much lower than the real market value.

Here’s why:

1. Valuation is Conservative

Regulators require:

Audited financials
Asset valuation
Profit consistency
Industry benchmarks

But due to strict rules, companies often undervalue shares.

2. Public Issue Price Does Not Include Growth Potential

Companies issue at par value, even when their:

EPS (Earnings Per Share) is high
Net worth per share is strong
Asset value is rising
Future projects are in pipeline

Thus, the real market value becomes much higher.

3. Limited Supply, Massive Demand

Every IPO sees millions of applicants.
Demand is extremely high while supply is very low.

Example:
Company issues 1,000,000 shares
Applications cross 3,000,000 people

Listing price naturally increases due to demand pressure.

4. First-Day Trading Psychology

On listing day:

People in secondary market buy aggressively
Public holding IPO units do not sell immediately
Market creates a premium
This pushes the price upward.

3. Reasons Why Most Nepal IPOs List at High Premiums

A. Oversubscription Increases Market Value

When an IPO gets 20–50 times oversubscribed, investors believe the company is strong.

This increases demand in secondary trading as well.

B. Sector-Based Hype

Some sectors always list higher due to hype:

Microfinance
Hydropower
Insurance

Investors assume these sectors will deliver high returns.

C. Low Allotment Creates Scarcity

Most investors get only 10 units.
When millions of people get small allotments, scarcity creates a premium in the market.

D. Retail Investor Behaviour

Retail investors in Nepal:

Rarely sell IPO shares at low profit
Hold hoping for more
Buy more on listing day

This behavior increases price momentum.

4. How IPO Listing Price is Decided in NEPSE?

NEPSE follows a rule-based mechanism:

Trading starts with a 20% circuit limit in both directions.
Opening range is based on company fundamentals:
- Net worth
- EPS
- Profitability
- Growth
Market then decides the real price.

For example:

If opening range is Rs. 100–300
Market demand may push price to Rs. 280 or Rs. 300

This is why many IPOs open in profit.

5. Historical Trend: IPOs Have Outperformed the Secondary Market

Analysis shows that majority of IPOs in NEPSE:

Open at 50%–200% premium
Some open at 300%–500%
A few microfinance IPOs opened at 1000%+

Examples (general trend):

Hydropower: Rs. 100 → Rs. 200–350
MFI: Rs. 100 → Rs. 500–1500
Insurance: Rs. 100 → Rs. 500–1000

This creates public confidence, increasing participation further.

6. Why the Nepali Public Prefers IPOs Over Secondary Market

1. No Need for Chart Reading

Investors don’t need:

Technical analysis
Indicators
Patterns
Market timing

Just apply once.

2. No Risk of Buying at Peak

Secondary market often traps investors at high prices.
IPOs protect you because:

Entry price is fixed
Value is reasonable

3. Sense of Security

People feel safer buying government-regulated IPOs.

4. Easy to Understand for Beginners

Even someone completely new to investing can understand IPOs.
This accessibility makes them widely popular.

7. But Not All IPOs Will Always Open in Profit

While most IPOs do open in profit, exceptions exist.

Some IPOs may:

List at low premium
Remain stagnant
Fall after listing

Reasons may include:

Weak fundamentals
Poor financial health
Low investor interest
Overvaluation
Negative sentiment

Thus, IPOs offer high probability—but not a guarantee—of profit.

8. Risks Investors Need to Understand (Even in IPOs)

Even though risk is low, IPOs still have:

1. Allotment Risk

Millions apply, only a few get shares.

2. Liquidity Risk

Some stocks lack buyers after listing.

3. Hype Risk

Hyped stocks can fall after initial jump.

4. Overpricing Risk

If a company prices too high compared to fundamentals, listing gain reduces.

5. Sector Bubble Risk

If too many IPOs enter same sector (e.g., hydropower), prices may fall after listing.

9. How to Choose the Best IPOs (Smart Investor Strategy)

To reduce risk and increase listing gain chances, analyze:

✔ Net Worth Per Share (High = Good)

✔ EPS (Growing = Good)

✔ Profit Trend (Increasing = Good)

✔ Industry Strength

✔ Company Reputation

✔ Future Projects

✔ Capital Size (Very large issues may list lower)

✔ Public Demand

Strong fundamentals → high listing probability.

10. IPOs Are a Great Opportunity—But Use Them Wisely

IPOs are one of the safest and simplest ways to begin investing in Nepal, but investors should avoid:

Applying only for hype
Assuming guaranteed profit
Selling immediately without strategy
Buying at very high prices after listing

A balanced strategy works best:

✔ Apply for all good IPOs

✔ Hold long-term if fundamentals are strong

✔ Book profits if company is average

✔ Never chase hype in secondary

Conclusion

IPOs in Nepal have become extremely popular because they usually open in profit, creating quick gains for investors. Low issue price, high demand, limited supply, sector hype, and strong market psychology all contribute to premium listings. But while IPOs offer lower risk and better chances of returns, they still require knowledge and careful selection. No IPO guarantees profit—but with the right understanding, investors can enjoy consistent and safe returns from the primary market.