The financial year of 2021-2022 was arguably the best time for any upcoming IPO investment. However, stellar numbers can disguise the risk in going full steam ahead without any forethought. If you want to navigate the seemingly profitable minefield that is composed of IPOs, you have to take patient steps. If not anything else, any upcoming IPO should bring the promise of good returns in the long run.
Ensuring a Bumper Upcoming IPO
In the financial year of 2021-2022, the capital markets were at their peak. There were some fifty-one IPOs on offer, raising Rs. 1,20,670 crore. However, the year also faced some bleak news, with some companies’ facing an erosion of their stocks, and consequently losses for investors. With the 18,300 crore issue of the Paytm IPO, the largest in Indian history, the same company witnessed a 75% crash in its issue price. Investors lost out by almost Rs. 14,000 crore. Experts say that a 5%-10% fall in the price of newly issued stocks is close to the norm, but huge drops like 75% are disruptive. Investors should be aware that only a few IPOs (one or two) out of ten can really make money, so while choosing any upcoming IPO, they must do so with the utmost caution.
Ensure Some Profit
If you handle your choices of an IPO subscription by doing your homework instead of just following the herd, you may just see profits. There are some things you should have knowledge about before you go in for an IPO. First of all, you do not have to open a demat account, at least, not initially. After you know this, you should pay heed to the following, making sure you know different aspects of the IPO subscription in question:
- Go through Company Basics - The Paytm IPO turned into a fiasco and was clearly overpriced. Nonetheless, some blame has to be borne by investors who ignored red flags. The company did not have any visible advantage over its competitors. This was pointed out by experts. However much hype there is around an upcoming IPO, investors should steer clear in such cases. The company whose stocks you invest in must have a focused path of growth, and growth must result in profit. Other companies like Zomato and Swiggy also faced losses, but they are on paths that will eventually lead to good returns.
- Avoid Being Bullish - Financial companies tend to paint rosy pictures of IPOs when they are about to come out. Their main focus is the business they get from subscriptions. Small investors who often go in for IPOs may get swayed by such attitudes and be influenced by a bullish sentiment to subscribe to an IPO. They are also prone to believe they will miss out on a chance to make money. However, even before the question of making money off an IPO arises, investors should do their own research about companies and find out as much as they can about any company’s future outlook.
- Where is your capital going? - When a company raises capital through an IPO subscription, it is vital to know where the capital you invest is headed. It is a positive sign if your capital is going towards further growth and expansion. This means that the company sees the need to expand as its services and products are in demand. Contrastingly, if the company whose upcoming IPO contains a very high sale offer, it may be a red flag that private and anchor investors wish to get out.
- Don’t just Bet on the Price of Listing - Investors may blindly pour their funds into an IPO as they seek gains in the short term. This is not the reason to invest in an IPO. The long-term fundamentals of a company usually hold a company high and these must be paid attention to. Stocks may open at exchanges at high listed prices, but they soon fall and stocks even face delisting. Alternatively, some stocks with strong fundamentals open at listed prices that are lower than issue prices and grow well in the long haul.
Get Your IPO Investment Right
You may save yourself the trouble of not having to open a demat account to sign up for any upcoming IPO, but don’t make the mistake of doing some work before you decide on any IPO. If you want to make money, there is no easy way out. You must find out about a company thoroughly in advance.
Related articles: 5 Tips for Investing In IPOs | What's the big deal about IPOs | Clearing the confusion from IPOs | IPO in India- The future looks bright