Are you disappointed you could not subscribe to the much talked about Zomato IPO, a first by a FoodTech Indian startup? Or were you anxiously waiting to know if you get the shares, you had applied for during the IPO? Whether you are disappointed or anxious, the question remains –
Should I invest in an IPO or Buy after its listing on the Exchanges?
Do we have your attention? Want to know what we recommend? Well, read on to know which option makes for a better choice.
Liquidity in the economy and a rush of investors to invest has seen Indianbusinesses raise over Rs.27,417 crores through a public offering between January to June 2021. Yet, most used the funds to allow VCs, PE, promoters, and shareholders to exit the business.
Several Indian businesses are lining up for an IPO in the next few months buoyed by the IPO stocks successfully listed in 2020 that are now trading above their issue prices this year. Gaining as much as 400 per cent since listing in some cases and the positive trend on the stock market make investing in an IPO an exciting opportunity for investors looking to enter the market. With Zomato’s successful listing, there are some big names you may consider -Bajaj Energy, Paytm, LIC, Nykaa going public before the end of the fiscal year.
We have a few reasons why you may want to consider investing in the IPO.
#1: Enjoy the first-mover advantage. Yes, you read it right being first in line is not always scary.
When you invest in an IPO, you get the opportunity to buy shares of a business with a high potential to grow at a lower price. The IPO is a chance to make a short-term profit and increase your wealth in the long term. What’s more, the share prices may rise sharply after listing on the stock exchange. Some businesses that doubled investor money on listing in 2021
- Tatva Chintan- delivered 95% growth and listed on NSE at 2111.80 and BSE at 2111.85. The initial IPO price band was Rs. 1073 -1083.
- GR Infra- delivered 100% growth and listed on NSE at Rs. 1715.85 and 1700 on BSE. The IPO price band was Rs. 828-837.
- Clean Science- delivered 98% growth and listed on NSE at Rs. 1755 and 1784.40 on BSE. The initial price band was Rs. 880 – 900.
#2: Fulfill your long-term objectives.
Of course, it doesn’t mean you buy your dream house only after 60.
Equity investments are likely to offer high returns in the long term. When you invest in an IPO, you must wait for substantial gains. The amount you earn in a few years will let you fulfil your financial goals. And, if you’ve managed to pick a winner, then you may not have to wait for retirement to buy your dream home.
#3: Transparent share pricing
Any business planning to go public must issue a Red Herring prospectus and submit it to the SEBI before its IPO. This prospectus includes information about the company, its valuation, the number of shares offered to the public and the price per share. As an investor, you have access to this information even if you have just begun investing. However, once listed, share prices vary based on dynamic market changes and the best price stockbrokers can offer.
#4: Buy at a bargain price and earn big later
The IPO price band is usually the lowest a business you are interested in offers to the public. In some cases, companies offer their shares at discounted prices, which is why many investors invest in an IPO. If you miss out on the investment, the stock prices may rise sharply, and you may find it hard to buy. E.g., the Clean Science IPO price band was Rs. 880-900, which doubled to 1784.40 after listing in July on BSE.
Does this mean that IPO is always the right choice?
No, it is not always hunky-dory, and listing gains you can expect from an IPO. There is an IPO that failed and did not offer the returns investors expected for each successful IPO. Like the ICICI Securities IPO listed in April 2018 at Rs. 519 to 520 per share. However, after the issue, the share price dropped and closed at 15% below the issue price on its market debut. What’s more, the investors are still waiting to see substantial returns after two years of debut on the market.
Does waiting for the stock to list; make sense?
If you are not afraid of the wait and watch the game, then waiting for the stock to list on the exchange would be just your cup of tea. Among the several IPOs, some like Zomato, GR Infra, listed at premium prices. However, others listed at prices lower than the initial offering or dropped due to market changes. In such cases, buying when the shares are cheap makes perfect sense, but investing when prices skyrocket means paying more for less.
Like all investments, equity investments are also subject to market risks and changes in investor behaviour. Do we recommend not considering investing in IPO? Of course, not! We believe you must consider all aspects of the IPO before you decide.
Learn all this concept with tradeshala, Number one share market training academy in Pune.