The global IPO market witnessed an all-time high figure in 2021 with 2,3881 new listings as the market roared back – an increase of 64% year-on-year. Year 2021 was a stellar for Initial Public Offerings (IPOs) as most sectors witnessed IPO launches. Several companies raised funds for their business requirements through IPO.
Companies involved in innovation and technology are gaining more traction in the IPO market and are the centres of attraction in the story.
Why have IPOs been so popular of late?
IPO is an opportunity for investors to invest in the primary market. IPO investors can get considerable returns on investment through listing gains or share price appreciation as the IPO company grows. Now, new investors are looking at upcoming IPOs in 2022 as some of the earlier IPO investments have delighted the investors. For this reason, most recent IPOs got oversubscribed due to the rush of investors.
How do IPO investors generate returns?
- Investors can sell their IPO shares once they get listed in the secondary market if the share lists at a premium price.
- If the company records growth, its stock value increases and your portfolio value will also increase with time.
You can hold your IPO shares and keep receiving dividends (if the company offers dividend) for long-term gains.
Investing in IPOs have several advantages that new-age investors are attracted to. The long-term returns of some IPOs have been quite eye-catching. If you are interested in IPO investments, you can open Demat account through Bajaj Financial Securities Limited (BFSL), which offers easy application in IPO through UPI.
The Art of Choosing the Right IPO
Let us find out how you can opt for the right IPOs.
1. DRHP – The Bible for Investors
Every company launching IPO files a Draft Red Herring Prospectus (DRHP) with the SEBI. DRHP is the best source of information for investors about the company. You can learn about the management team and their qualifications, get detailed insights into the company financials and performance over the years, alongwith detailed information on the future plans and where they want to spend the money raised through the IPO.
2. Market Trends can define IPO performance.
Ongoing market trends can influence the performance of an IPO. For example, the pharma industry performed well during the pandemic.
IPO of a robust and financially strong company will perform well in a rising stock market or a recovering economy. You can look at the market trends and then pick the IPO to invest.
3. Look for IPOs with Strong Promoters
Look at the promoters backing the IPO. Recognised names as promoters of the IPO add credibility to the issue.
Investors need to look at the IPO grading done by registered analysts. Higher the grading, the higher the chances of IPO success. While high grading is a good indicator, look at other factors as well, as it is not the sole criterion defining IPO success.
5. Objective of the issue
You should know the objective of the company behind issuing the IPO. If the capital raised through IPO is only to repay the debts, then it might not be the right IPO. However, if a company plans to pay the debt partially and augment the business activities, there will be a boost to the business, which is good for company’s growth and thus for the investors.
6. Figure out the Risks involved
Knowing the risk factors is crucial. DRHP also elaborates on the possible risks for investors.
Remember, hype is not everything.
Several investors fall into the trap of big names and hype about those IPOs. To know the worth of an IPO to invest in, you must know the company’s facts about its growth possibilities. For example, Paytm and Life Insurance Corporation of India (LIC) were listed at a discount despite getting all the pre-IPO attention in the market.
Your Ideal Partner for IPO Investing
You can consider BFSL (Bajaj Financial Securities Ltd) to ease IPO stock selection and build a balanced portfolio. Also, BFSL is known for its low brokerage rates. You can open your Demat account online and download BFSLTRADE App to invest in upcoming IPOs.