What is an IPO?
IPO means Initial Public Offering. In simple terms, if you want to buy a company share like Reliance or Infosys, you can just buy them with a click if you have demat account. Because those companies are already listed in the share market.
Did you ever get a doubt how these companies list on stock exchange, it’s through the process of IPO. Let me give one more example to make things clear.
If you wanna buy Zomato share, you can buy because it is already listed in the market.
But in the same way if you search for Swiggy, it won’t be visible because it is not a listed player.
Swiggy needs to go through the process of IPO to get listed on the stock exchange, which might happen in the future.
How to assess whether the IPO is good or bad before applying?
- Need to verify whether company is generating good revenues and profits consistently in the past quarters
- Valuation is the important factor to keep on radar before applying. So, check P/E of listed players in the same space and compare whether it is over valued or under valued.
- Check grey market premium which indicates the possible listing gains.
- QIB subscription status is the important metric to check if demand is there in grey market or not.
- Market conditions will play a vital role, there will be 2-3 days before listing and when IPO closes for subscription. If any negative news triggers in the market, market falls and grey market premium will also fall. (Same thing happened in the past for SBI cards IPO, initially grey market premium is in good shape and people are expecting 50-60% listing gains but due to sudden covid attack, panic selling happened in the market and grey market premium also fallen heavily. On the debut day, SBI cards listed in discount)
Considering all these factors, one need to view thier risk abillity and apply for an IPO. Blindly going with the grey market premium won’t work always.
Should we exit on the listing day or hold for long term?
It depends on the company fundamentals and whether your view is short term or long term.
- Even a good company after listing at good price. In the initial years, it will go through a price discovery phase. So, don’t expect your company to go up in a straight line just because fundamentals are good.
- Anchor investors will have lockin period, they will exit once the lock in ends. So, we will see profit booking in the initial days or anchor lock-in ending time. Big players exit and share price falls and forms a base at certain point. Then slowly moves with market. In these phases, it will work.
- So, even if you are long term player, take out your capital and hold the free shares. Second approach would be exit on the listing day and again enter at lower levels when the share price falls.
- If you are short term player, simply book your gains and completely exit from the counter.
So, what are you waiting for ? IPO season is started & recent IPO’s became blockbusters. Open demat account if you still haven’t and start applying & learning.
Open Groww, no need to pay any maintainance charges as well. Start right away. IPO calendar is in line !!
