The Indian IPO (Initial Public Offerings) market in 2024 is bustling with activity. With prominent names like Hyundai and Swiggy gearing up for their stock market debuts, there’s plenty of excitement and opportunity. Imagine being part of the growth journey of some of these companies that were once start-ups and could now be on their way to becoming large entities. That’s the kind of opportunity IPOs can offer you. 

As an investor, navigating the IPO market can be tricky unless you have a strategy in place. Let’s take a look at some of the strategies that you can adopt while investing in IPOs.

What are IPOs

IPO is the process that a company goes through to offer its shares to the public for the first time by listing itself on a stock exchange. It allows you to buy a share of the company and become a shareholder. This way, the company can raise capital and also let you be part of its growth journey.

Top Strategies to Invest in IPOs

Some of the best strategies that you can use while investing in an IPO are:

Placeholder for infographic - create an image with below mentioned bullet points

1. Research Companies Thoroughly

Before investing in any IPO, thoroughly research the companies that are planning to go public. Some of the factors that you can look at are the company’s financial health, its business model, industry, etc.

You can look at details like the business segment, the company’s financials, risks, and objectives. All of these are available in a document called RHP (Red Herring Prospectus), which every IPO-led company has to file with the market regulator SEBI (Securities and Exchange Board of India).

2. Observe Market Movements

The performance of an IPO can be heavily influenced by market sentiment. In 2023, IPOs like Mankind Pharma and Bikaji Foods attracted significant interest despite market volatility. Staying updated with current market trends and news helps you gauge whether it’s a good time to invest in a new offering.

3. Diversify Your Investments

Diversification is a cornerstone of successful investing. Avoid putting all your money into a single IPO. Instead, spread your investments across various sectors and companies. You can also wait for the company to be listed and invest in its stocks after observing price movements. This approach mitigates risk and ensures your portfolio isn’t overly reliant on any one IPO.

4. Set Your Investment Horizon

Determine whether you’re looking for long-term growth or prefer short-term gains. Long-term growth investments typically span 3-5 years or more, while short-term gains are sought within a few months to a year, including potential listing gains.

5. Evaluate Company Valuation

Understanding the valuation of the company going public is crucial. This means knowing its worth based on assets, earnings, and market potential. Some IPOs could be overvalued, leading to poor returns, while undervalued ones might offer significant upside potential.

6. Manage Investment Risks

Every investment carries risks, and IPOs are no exception. Be aware of market fluctuations, company performance, and economic changes. For instance, Paytm’s IPO listed below its offer price, causing significant losses for many investors. Implementing stop-loss orders can help mitigate such risks. A stop-loss order automatically sells your shares if the price drops below a certain level, protecting your investment.

Also Read - Tips to Invest in IPO

The Serious Truth You Should Know About IPOs

Whenever a new IPO is about to come up, you may hear a lot of buzz around GMP (Grey Market Premium) and how much the IPO has been subscribed till that date. GMP is the premium at which shares are traded in the unofficial/black market before they are listed. It indicates the expected listing price of the IPO, reflecting market sentiment and demand. Additionally, the subscription percentage reveals how many times the IPO has been subscribed, indicating investor interest and potential for strong listing performance. You can keep a track of both the GMP and subscription levels to gauge market sentiment before investing in an IPO.

Conclusion

Investing in IPOs can be rewarding if you carry out a thorough research and plan your investment. Your best allies in this dynamic market are knowledge and strategy. To start your IPO investment journey with confidence, you can explore various stock market resources available on Sharekhan Knowledge Center.