2021 was a landmark year for Initial Public Offerings (IPOs) in India. A record number of businesses were listed, and 2022 is expected to continue the IPO fever. However, are IPOs worth investing in, or is it all hype?
How have IPOs fared? Many IPOs listed in 2021 fared very well.
This is, undoubtedly, the main advantage of investing in IPOs. An IPO is perhaps your best bet at making a profit within a short timeframe.
Once the company’s shares are listed, you can sell your shares on the market, allowing you to realise your gains quickly.
IPOs have stringent norms to follow. They must issue a prospectus listing detailed information about the business to help you make informed decisions before investing.
Since you have been a part of the company from its early days, there is potential for you to profit well from the start and over time. This helps create wealth in the long run for you.
Investors should read the Draft Red Herring Prospectus (DRHP) thoroughly to understand its past performance and plans.
You should know why the IPO is being raised; is it only to pay off its debt or for expansion, or both? IPOs are meant to raise money for expansion, a dual purpose of expansion, or debt-payment, and potentially good investments.
Consider factors such as the company’s market share, geographical spread, expansion plans, and so on. These factors play a role in the growth and potential profit of the company.
Sound financials are crucial to an organisation’s long-term success. Review the company’s financials before investing in its IPO. If the IPO is considered overvalued, the share price may decline once it is listed. Look at similar companies that have been listed to infer if it has been fairly priced.
Pay attention to the risk factors mentioned in the DRHP as they can dampen its future growth, making the IPO a potentially unprofitable investment. IPOs can be highly beneficial to investors as their investment can grow by leaps and bounds, both overnight and in the long run. However, before you invest in an IPO, do your research well to make an intelligent and informed financial choice.
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