IPOs are generally underpriced. Underpricing exists for a variety of reasons and will take pages to explain the empirical evidence. In "hot markets", underpricing is based on the sentimental price, which is higher than the fundamental price, established by a class of irrationaly exuberant investors. In the long run, such shares underperform, even though they are seemingly underpriced at the time of IPO. Issuers time the market to tap the opportunity offered by hot market. They sell to regular institutional investors who resell to naive investors. However IPOs die out soon after the "hot market" ends and only blue chips manage to raise money in IPOs after the hot market. Therefore the opportunity for profiting from the StanChart fund is as long as the "hot market" in India lasts. Thereafter there will be fewer IPOs and the fund will be flush with cash, if it manages to raise any now. Investors should be wary of this fact. However, the fund offers a short term profitable opportunity , since all applicants to an IPO do not stand the same chance as that of institutional investors, in getting allotment. Lijo, MSc - Finance (2005-06), University of Strathclyde (GSB), Glasgow,UK
