Around 170 Indian companies raised USD 10 billion through IPOs in 2017. However, the funding raised by 125 companies through IPOs in 2021 was USD 18 billion. IPO numbers are getting better every year in India. It is time for investors to indulge in IPO investments and build strong portfolios. Let us discuss some tips for successful IPO investments in India.
Do You Understand the Meaning of IPO in India?
Before discussing the investment tips, it is essential to understand how IPOs work. New investors must understand the process before browsing current IPOs in India. An IPO is a multi-day event that marks the transition of a private company into a public organisation. You might know that private companies do not offer their shares to the common public. However, a private company might decide to raise funds by going public. It will launch an IPO and issue shares to the public to raise funds. Once a company has become public through an IPO, its shares will be available on stock exchanges for trading.
A company cannot launch an IPO in India on its own. It must seek permission from the Securities and Exchange Board of India (SEBI) for the same. You can identify a current IPO and submit your application. Investors with approved applications are allotted shares after the IPO closes. Indian IPOs can be of two types, which are as follows:
- Fixed Price Offering: When the price of shares in an IPO is pre-decided, it is called a fixed-price offering.
- Book Building Offering: A book-building offering has a price band for investors. Investors can place their bids within the price range. When the IPO closes, the price with maximum bids becomes the final price.
Tactics for IPO Investments in India
Do you want to build a strong portfolio by investing in IPOs? Here are some tips for successful IPO investments in India.
Do thorough Research and Analysis
IPO investment decisions cannot be made without proper analysis. You cannot choose a current IPO without understanding the company’s historical performance, goals, market cap, and other details. To make informed decisions, you must rely on fundamental, technical, and other research techniques. Experienced investors usually have investment platforms, analysis tools, and other facilities to predict the effectiveness of an IPO.
Gather Information About Investor Sentiment
Try to analyse the investor sentiment before an IPO is being launched. An IPO can be oversubscribed or undersubscribed in India. When the demand for IPO shares is high, it is oversubscribed. An undersubscribed IPO does not receive ample applications from investors. If investors are interested in the IPO before its launch, it can be a better investment option.
Find the Grey Market Premium (GMP)
You must know everything related to an investment before making a decision. For instance, you must learn what is scalping, day trading, and other strategies related to stock investments. Similarly, you must know the factors used to measure the potential of an IPO. GMP (Grey Market Premium) is a metric used by investors to measure the potential of an IPO. It is the difference between the unofficial share price before the IPO and the official price set by the issuer. When GMP is positive and high, the IPO has great potential.
Choosing the right IPOs can help build a strong portfolio. You can use a trading platform to find current IPOs and perform research. Investors must consider GMP, investor sentiment, historical performance of the issuer, and other factors before investing in an IPO. Choose an IPO and invest now!