Should You Invest In IPO? Are IPOs Good For Initial Investment?

  Hello my dear friends, I hope you all are doing well. Today I'm gonna discuss IPOs, if you don't know what is IPO and how to inves...

 Hello my dear friends, I hope you all are doing well. Today I'm gonna discuss IPOs, if you don't know what is IPO and how to invest in it, then don't worry I will try to cover detailed analysis over it. So you must read the full blog because there is a tip for you all, and also comment down your thoughts on IPO. 

What is an IPO?

The full form of IPO is Initial Public Offering. A company has many investment sources like initial investors of the company(maybe Promoter), institutional investors, foreign investors, they invest in that company's equity directly not via any exchanges, but with IPO and listing in a Stock market where anyone can invest in the company's equity directly via Stock exchanges.

In layman's words when a company needs more money to expand its business and needs money for future prospects then they offer retail investors and common people to invest in their business and against the investment company promoters sell shares of the company.

Advantages of Investing in IPO's

1) IPO's allow us to invest in the early stages of a company's listing in the stock market before anyone.

 

2) If the company has good business growth it will help your money to grow exponentially. In IPO's we get the opportunity to buy the shares at a very cheap price.

3) If we invest in small-cap companies and if it's business model, business growth and future goals are really great then after few years when the company grows you can be the permanent or become long term investor in that company, and then your wealth will also enlarge with it.

4) Mainly many investors were attracted by  IPO's because they saw an opportunity to invest and get a heavy amount of returns in a short period of time. So how's it work you must know:

Listing Gain Returns:

For traders or from short-term investors' point of view it is a great opportunity to get good returns in a short time frame with listing gain. As we all know, good companies shares we got at very cheap price, and the market knows the real value of that company. So when the investors got the IPO shares, then on the listing day when the share price rise, they sold it and take their profit from it.

Now if there is a question rising in your mind that how the market really values the company and set a price for them, then you must know all the trader and investors checked the companies sales growth, business model, management, if the company any debt(LOAN) or not. All these are called FUNDAMENTAL ANALYSIS. In upcoming blogs, I will write how to do Fundamental Analysis and value a company in the right way. So you must follow our blog.

Disadvantages of Investing in IPO's

1) First of all to get shares from IPO's we need to apply the subscription form for IPO allotment to the company, in this meantime, we have to pay the full IPO allotment price to subscribe now the company randomly select investors who will get the IPO shares.

Now if too many investors subscribe to the IPO then some investors get it some not because the company has a limited allotment of shares. And when investors don't get that IPO they have to wait for the refund of their money, so we can see where investors didn't get the IPO still they have to wait for a refund and it is a complete waste of their time.

2) Many people or investors invest in IPO because the listing gains profit, but if somehow the company is listed in "Discounted Price" then investors have to face loss.

If a company is listed in higher value from IPO lot's price then we call it "Premium Price".

3) Many people make bad decisions to invest in a company which's shares just listed in Stock exchanges. Because if the company's share is listed in premium pricing then the IPO subscriber may sell some amount of shares to book profit and in this situation, the price may fall sharply from listing price, and if you buy it at a higher price then you have to wait for regaining its buying price.

Caution before Investing in IPOs

As we saw above advantages and disadvantages regarding investing in IPO's, but we also have to be cautious about which company we are investing in. We have to understand the company's business and fundamentals, if the company has any debt or not, why the company is bringing out this IPO. 

I will tell you some points that to be noted before investing in IPO. So read the points carefully and also share your thoughts and experiences regarding them.

1) Why are you investing in that particular IPO? If you find out why it will ease your decision to take. 

Some investors and mostly new investors are influenced by the advertisement of that IPO, influenced by TV, Social Media, and other sources, and invest in it without any proper information of that company. So be careful about this.

For information regarding IPOs in India, you may visit this exchanges website and search the companies details,

BSE India: BSE India NSE India: NSE India

2) Most of the companies plan the IPO listing very early then they got a target to make a profit in their business, they show their future planning and work very hard to create a very good image for the company. Because when they apply for listing their IPO then the investors check the Balance Sheet, Profit and Loss statement, Future Prospects of business, etc. 

Then the company shows the last few years' performances and with that investors may get trapped and they invest in that company, then after some time company lag to meet their goals, their promised target, and this cause investors a huge loss. In past, we saw many incidents like this. So be careful and real all scheme-related documents before investing.

3) Now there are other types of companies that issue IPOs because they had a huge amount of debt on their company and they want to pay off their debt by selling their equity shares in the form of IPO.

So you must stay away from these kinds of companies.

Here I thoroughly discuss IPO's Pros and Cons, also I give you some necessary cautions that must be taken during investing in IPOs. In the upcoming blog, I will write about the effects of IPO and all that.

Some major and popular IPOs which are just around the corner, let's have a look:

1) Zomato

The food delivery giant's IPO is here, it is one of the most popular food ordering app in INDIA. Zomato IPO issue size is 9375Cr, Bidding dates: 14 July to 16 July, the lot size of the IPO is 195 shares.

2) Paytm 

IPO is gonna be one of the biggest IPO issues in the country, its worth can be 12,000Cr to 19,000Cr. Still, it is not decided so we have to wait for more information. Paytm starts with an online payments facility, now Paytm expanded its business in various sectors, it also gives financial services to online shopping facilities. So the issuance date and the size of the IPO have still not been announced.

3) LIC 

As per Indian Govts. 2021 budget, we saw big disinvestment in various government-backed companies like LIC. It is the biggest insurance provider in India. Now there is some confusion about when will LIC IPO will announce and the IPO size. We have to wait to know more about this IPO.

There are more IPOs that you can invest in and be an initial investor of that company before any other retail investors. And also be careful and remember the above suggestions.

TIP:

As I promised earlier that a special tip for you here is it. If you subscribe to any IPO and you got that IPO shares then at the listing date I suggest you to book profit about 50% of your investment and if the company has a great growth opportunity then, after everyone's profit booking when the price fall you can re-enter at a lower price and after some time you can sell them and have a great profit.

I wish this blog will help you make your decision and I wish this blog helped you to know about the risk factor in IPOs.

See you in the next blog. Till then keep investing and keep growing your money. Thank you😀.

Editor:  Sk Elaf Ahmed, Rupak Chowdhury.