14 March 2024 | By INDIE
In recent years, there has been a surge in the Initial Public Offering (IPO) activity in the Indian equity market, including FD investments. Post the pandemic in 2020, the IPO wave was initiated by Rosary Biotech. Ever since the number of IPOs has only increased every single year. Furthermore, according to a study conducted by EY, India's IPO activity in 2023 increased by 48% YOY to 220 deals that raised US$6.9b. The study indicates that India’s global IPO volume has increased from 6% in 2021 to 11% in 2022, and to 17% in 2023.
IPOs are a great opportunity for investors to participate in the growth of a company. However, if you want to invest in IPOs, you must be well-informed of the risks and rewards and consider key factors.
If you want to begin your investment journey and are wondering how to invest in IPOs, you must first open a Demat account with a renowned financial platform. With the plethora of options available these days, you must compare various platforms based on their services, fees, convenience, and other charges, and opt for the best stock broking platform.
One such platform available is INDIE in partnership with Paytm Money , which lets you invest in stocks, ETFs and IPOs and trade in F&O. It not only provides real-time market data but also lets you book profits at your target price with its “Bracket Order” feature.
If you decide to participate and invest in IPOs, in addition to the potential significant returns it could offer, there are a few risks associated with it as well.
Newly listed stocks and volatility go together. The stock price of the company will be subject to price fluctuations in the early trading days. These fluctuations could be due to various factors such as demand for the stock, company performance, as well as market sentiment.
Another risk to be considered is the possibility of the stock being overvalued. The prices of the IPO generally get influenced by speculation and hype around the IPO rather than the fundamentals of the company.
Every investment, including IPO investments, comes with risks and rewards. Despite the potential risks, if you choose your IPO after a thorough study of the sector and company, your investment could be a rewarding one.
A successful investment in the IPO of a company with strong fundamentals and potential to grow can give you high returns. At times, the stock gets listed on the exchange at a premium, giving you immediate returns. The additional demand and hype around it hike up the prices further, thereby allowing you to earn good returns on your investment.
If you invest in IPOs of promising companies, the IPO benefits you in the long run. It can offer sizeable returns on the investment when the company grows and expands its presence in the markets (domestic and international).
Before you invest in the IPOs of various companies, you must conduct detailed research into the sector and fundamentals of the company. Some of the important factors you must consider before you dive into the investment are:
Start by researching the industry, the business model of the company, how it fairs alongside its competitors, and its future growth prospects. Evaluate the management of the company, its financial statements, operations, and market opportunities. It is also crucial to evaluate and compare the valuation of the IPO with its peers as well as industry benchmarks. This will help in determining if the offer price is attractive.
When you invest in IPOs, you must consider the market conditions, timing, and investor sentiments, as these have a significant impact on the IPO’s success. Additionally pay heed to market trends and geopolitical and economic events, as they tend to affect the investor sentiments. It is advised to study the trends and consider investing in IPOs when the markets are favourable.
Quick Read: Navigating the Stock Market: 5 Crucial Tips to Successful Investing
If you are keen to invest in IPOs, you must consider lock-up periods. This is the period where insiders and early investors are not permitted to sell their shares and can last for a few months to even a year/s. Once this period expires, there could be price volatility due to increased selling pressure. It is crucial to assess and consider the potential impact that insider selling can have on the company’s stock price.
Whether you are a seasoned investor or have just started your journey into investments, you must follow a simple rule in investing - diversify your portfolio. Avoid placing all your funds in a single asset class; make sure you invest across different sectors, industries, and asset classes, and consider different investment strategies. Spread your risks by investing in different types of assets.
Finally, whenever you invest in an IPO or any other asset, you must invest with a long-term perspective in mind. Short-term price fluctuations are normal in the equity markets; hence the focus must be on the company’s fundamentals and not on short-term volatility.
Investing in IPOs requires discipline, and patience, in addition to conducting research on the company, the market trends, and its prospective growth. IPOs are accompanied by risks and returns which must be evaluated before taking the plunge. Additionally, it is important to register yourself with the best stock broking platforms to ensure the safety of transactions, and data, and to invest conveniently.
Explore INDIE, it offers an all-in-one trading platform in partnership with Paytm Money and embark on your investment journey today.
