Is investing in Initial Public Offering (IPO) profitable in India?
In recent times, the craze towards investment in Initial Public Offerings (IPO) has increased tremendously with more and more investors investing the same? In fact, the overall search for the tern “upcoming IPO in India” has reached a new high in recent months. But, is it a good choice to investing in IPO in India, both in the long term and short-term? You will get to know everything right here in this post.
Whether you are a new investor or an experienced one, it is necessary to check the profitability aspect of an IPO before investing in it. Since there is an IPO releasing every week in India, this becomes more than necessary to do this study. As the single most objective of investing in an upcoming IPO in India is to make a profit from either short term or long-term perspective, your decision should be fully backed by thorough research. So, before we delve deeper in the topic, let’s gain some basic understanding of an Initial Public Offering (IPO).
What is an IPO?
An IPO refers to a scenario when a company decides to go public by offering its stocks for sales to the general public. This entire system is called Initial Public Offering (IPO). This usually happens when a company offers its shares to the public for the first time through a stock exchange.
There could be numerous reasons behind doing this. Some of them may include product portfolio enhancement, market expansion, fuelling new research, acquiring new business, and a lot of others. In simple words, the company asks the public to provide money for a purpose that intends to accrue great returns for the investors.
The main benefit for a company to get funds via an IPO as compared to other conventional financing stations like loans etc. is the transparency in the general public and the chance to upgrade its market capitalization.
Is it profitable for an investor to invest in an IPO?
In the case of an IPO release, investors have the chance to purchase the shares of the IPO issuing for, by investing money and become shareholders of the business.
Gives the number of shares an investor purchased, shareholders are eligible to get the benefits like the applicable dividends, extra shares, etc. Another thing to keep in mind is that the quantity and value of these benefits largely depend on the annual profit of the company and the decision of the top management in regard to dividends or bonus issues. Factually, equity has accrued better returns as compared to other asset categories.
Therefore, it seems good for stock investors to retain a specific volume of equity in their portfolios. However, equity also carries its own risk as the stock prices are susceptible to recurrent variation based on economic and non-economic cases and sometimes, without any specific cause.
In long term time horizon, investing in an IPO seems to be a great move it tends to provide investors an opportunity to become the shareholders of notable industry players and be a part of their growth journey. For example, recently Zomato IPO was launched and the demand for the same was quite high due to the huge popularity of Zomato as one of the fastest growing business entities.
Another plus point with an IPO is that issuing companies offer their shares at highly competitive prices which means the normal public has a great opportunity to buy them. Doing this another way is found to be extremely lengthy and costly.
Some stats for better clarity
A majority of IPOs that accumulated funds between 2020 and 2021 have exhibited superb performance so far. For example, Rossari Biotech has increased 13.34% to Rs 841 from its listing value of Rs 425 on July 23. Similarly, Gland Pharma with an issue value of Rs 1500 has increased by 26.5% to Rs 2,302 in just a month. Another example is Route Mobile, which increased 83.25% at Rs 1,193 from Rs 651 in September 2021. Several businesses decide to go public this year in 2021 and almost all of them have been performing well except Paytm IPO which faced a backlash.
One good idea is to check other listed companies in the category and compare their growth, and their PE ratio (which refers to the market price to earnings per share). According to the best trading app provider in India, if the company is on the verge of an upper valuation, it is better for the investors to skip the issue.
When it comes to investing in an upcoming IPO in India, it is necessary to gain thorough knowledge about the company you are planning to invest in. The most important things to look at include the financial results of the company for the past few years, stability, and sustainability.
One good idea is to check other listed companies in the category and compare their growth, and their PE ratio (which refers to the market price to earnings per share). According to the best stock broker in India, if the company is on the verge of an upper valuation, it is better for the investors to skip the issue.