Any investor who looks at a booming market feels that they should also be a part of it and looks forward to a good investing opportunity. In fact, the IPO trend is making any novice, a part of this trend and is applying to earn quick money.
India recorded an IPO boom in 2021, with more than 72 IPOs hitting the market between Jan and Sep. The market is overflowing with companies waiting to raise funds with public offerings. Indian companies have risen more than Rs 1 lakh crore via IPOs in the current calendar year. In fact, India is expected to emerge as one of the top IPO destinations in terms of proceeds.
There are stocks from the 2020 IPO series, that have gained as much as 400% since listing. However, more than half of the IPOs in 2021 did well only on a listing day, while their returns post listing day are negative or flat. In some cases, investors were shocked by deep negative listing performances of known brands like Paytm, Kalyan Jewellers, and IRFCI.
With so many tech start-ups lined up for initial public offerings (IPOs), it is confusing to a layman to decide what may be a better investment for an individual investor to put their bets on? Investors need to understand that just because a brand is famous, doesn’t imply it is worthwhile to invest in it.
Don\’t Be A Sheep, Do Your Own Research
Hence, investors should know that it’s not always gold on the other side of the tunnel and should do some due diligence to distinguish green and red flags. Some of the key points to keep in mind include:
-Always read the Red Herring Prospectus
-Check how the proceeds from IPO will be utilized
-Understand the Business
-Promoter and Background team
-Company’s potential in the market
-Key strength and strategy of the company
-Financial health and valuations
-Comparative valuation of the peers in the industry
-Major risk factors like litigations and liabilities, including contingent liabilities
-Investor’s Investment Horizon
Be A Smart Investor
In IPOs with oversubscription, there are high chances of listing gain. Also, if an IPO is undersubscribed, it is better to wait and watch the performance of the stock till the listing happens and then make a conscious decision. The IPO maniac has created FOMO and has made novice investors apply for IPO irrationally. In all cases, it is imperative that investors read and understand the stock rather than go with herd mentality.
IPO isn’t the only way to invest in the company. If you truly believe in its fundamentals, you can invest once it\’s listed.