Why IPOs are an interesting class for investors?

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If you hear about people investing in IPOs and wonder what is an IPO then read on.

What is an IPO?

IPO stands for Initial Public Offering. A company comes up with an IPO to raise funds from the public. Essentially the company asks money from the people by offering shares of the company to them. In a layman language, any company which is not in the stock market comes in the stock market through an IPO.

IPO Jargons

 

  • Issue size – The amount of money which the company is looking to raise from the market through the IPO.
  • Lot size – One lot means the minimum number of shares you need to apply for.
  • Price Band – Since the company is not trading in the stock market so the share price of the company is not fixed. Hence they give a price range which they deem is the approx. price of the company basis their valuation. You need to bid for the IPO in this price range.
  • Issue Open & Close Date – The IPO of the company is open for bidding during these dates (generally it is a three-day window)

 

What is the advantage of investing in an IPO?

There are many benefits. Here are few of them:

  • IPOs are priced attractively. That means you can make gains on listing
  • Many companies give a discount to IPO investors
  • Due to new regulations, IPO allotment chances for retailers have increased
  • Many IPOs have performed very well in the last 2 years
  • It is a very simple gateway to enter into the stock market investment

How much return can I expect?

IPOs are equity investments. Hence there is a risk. You cannot predict returns. But if you choose IPOs carefully then you can make profitable investments. Here are some stocks that came out with IPOs in the last few years and gave very good returns.

Company IPO Issue price Listing
Price & Date
Current Market Price # Post listing gains
DMART Rs.299 Rs.604
listed (21-3-2017)
Rs.1487 397%
Shankara Building Rs.460 Rs.573
listed (05-4-2017)
Rs.1550 237%
PSP Projects Rs.210 Rs.195
listed (29-5-2017)
Rs.494 135%
Apex Frozen Foods Rs.175 Rs.199
listed (04-9-2017)
Rs.405 131%

# Closing price on NSE as on 29th Jun 2018

Take a look at the above table. Some IPOs have had a good listing. Others have had a good listing but have done very well after that.

 

Upcoming IPOs

If you want to be part of the Indian IPO story, you can start off by looking at our list of forthcoming IPOs.

The major IPO which is coming in this month is of HDFC Asset Management Company (HDFC AMC) which can be a good start to start your investment journey.

A word of caution is warranted here. Don’t blindly invest in IPOs without understanding the business and the financials from the IPO prospectus. IPO investing is equity investing after all, so it involves market risk. However, tighter regulation and better pricing has made IPOs a safer and more attractive market to participate in.

How to Apply for an IPO?

To apply in an IPO you need 3 things

 

  • Savings account with at least Rs. 15,000: Why 15k you ask? That is the bare minimum application amount. When you apply in the IPO the application amount gets put on hold and is withdrawn only when IPO is allotted to you. You keep on earning interest on the amount which you put on hold.
  • DEMAT account: DEMAT account is an account in which the shares allotted to you reside after the allotment in dematerialised form. (too jargonised? You can ignore it – all you need to care about is getting the DEMAT account opened)
  • Trading account (to sell shares once the allotment is made): Once the shares are allotted to you & the IPO gets listed in the stock market – you need the capability to sell those shares in the stock market. A trading account enables you to do that.

 

To know more & start investing click here:

Once your account is in place – you need to download the HDFC securities mobile app & apply in the IPO in just 3 clicks. Here is the demo for the same:

Disclaimer: The content provided in the blog is from HDFC Securities.