When any new company or an existing company, decides to list its shares on a stock exchange and allows the public to buy its shares is called an Initial Public Offering (IPO). The capital acquired from the sale of those shares is then put to buy new hardware, land, or to repay debts/loans by the organization. People who invest in the organization by buying its shares get rewarded (as profits) by the organization, or sell the shares as and when the share price is favorable for trading.
A company usually goes public with an IPO offering due to a variety of reasons such as raising capital, compensating its employees with public company stock options, acquiring or merging equity in another company, or building a brand for reaching a wider customer base.
How can you benefit from an IPO?
In an IPO a company first issues shares to the public, so investing in an IPO allows investors to become a part of the growing company. Also, you can buy shares at much lower prices as when the shares reach the secondary market, the price may go up sharply.
Since the shares are first time introduced in the market, their price is not affected by the market demand. So if researched properly, investors can earn short-term as well as long-term gains.
How to Identify the Best Upcoming IPOs for Investment
Every person who is looking for investment wants to invest in new upcoming IPOs and grab a share of a company at competitive prices that promise of becoming a future business leader in the industry. Despite the benefits, a new upcoming IPO is fraught with risks. There are ample situations when an investor’s IPO evaluation strategy has gone wrong, leading to a loss of hard-earned money. Hence, it is important to carefully identify the best upcoming IPOs for investment, and here are a few ways of doing so:
#1 Evaluate the Business Strength
Before investing in any IPOs, thoroughly study the company’s financial strength, performance track record over the past few years. When a company offers a new upcoming IPO it issues a prospectus that contains information that is needed to evaluate the company’s business strength. Besides, additional information about the company may be accessed through its website, annual reports, media reports, and business magazines. Invest in a company’s IPO only if you are doubly convinced of its financial credentials and strong position in the industry.
#2 Focus on the Growth Prospects
Before investing in any IPOs, search about the future growth potential of the industry in which the company operates. Then, assess the possible market share of the company in the coming years. Check for Parameters such as the company’s investment in technology and innovation, market expansion strategies, etc. If these parameters are encouraging and inspire confidence, you could go ahead with the IPO.
#3 Determining a Stock’s fair price
Making an upcoming IPO investment in a company with a brand name may not always be the best way as famous companies usually price their stock higher than their actual worth and tend to turn into oversubscribed IPOs. However, to be doubly sure, taking a look at the company’s history and prospects is also advisable.
#4 Money in the Bank
After investing all the above-mentioned factors in a company, you can now assess the statistics and numbers. Since clever accounting and bookkeeping can easily be manipulated, you must know the true financial strength of a company you are investing in. A company offering upcoming IPO stocks in India should have enough capital investment; while also having enough current assets to support steady growth. Also judge a company on figures of their annual turnover, gross production value, and the profits they are making over time.
#5 Stakeholders and Their Portfolios
It is very important for any investor to find out about the other stakeholders who have invested in the same company. As a part of investigating any upcoming IPO in India; make sure that you also learn about the portfolios of the investors who have already put their money and trust in a company. Companies that have the trust and recognition of bigger investors and equity firms have more resources and funds at their disposal when their shares go public.
Top-performed IPOs of 2020
The year 2020 witnessed more than 10 companies going public. A couple of those IPOs saw record-breaking subscriptions from investors. At least three of them were subscribed more than 100 times, making the cut to some of the highest subscribed IPOs of the decade.
|Company Name||Listing Day Gain/Loss||Current Gain/Loss|
|Mrs. Vectors Food Specialities Limited||106.79%||49.98%|
|Burger King India Limited||130.67%||174.92%|
|Gland Pharma Limited||21.36%||108.03%|
|Equitas Small Finance Bank Ltd||-0.76%||82.73%|
|Likhitha Infrastructure Ltd||13.83%||227.38%|
|UTI Asset Management Company Ltd||-13.97%||37.64%|
|Mazagon Dock Shipbuilders Limited||19.31%||89.03%|
|Angel Broking Ltd||-9.85%||202.96%|
|Computer Age Management Services Ltd||13.95%||123.64%|
|Chemcon Speciality Chemicals Limited||72%||47.81%|
|Route Mobile Ltd||86.03%||401.71%|
|Happiest Minds Technologies Ltd||123.49%||438.49%|
|Mindspace Business Parks||10.5%||2.81%|
|Yes Bank Ltd||2.5%||25.58%|
|Rossari Biotech Ltd||74.67%||195.01%|
|SBI Cards and Payment Services Ltd||-9.51%||38.26%|
Upcoming IPOs in 2021
While we do not have a definitive list of IPOs for the year 2021, some reports suggest that around 30 companies are planning to raise more than Rs 30,000 crores from the markets.
Here are few companies that are expected to go public, or in other words, are expected to launch their IPOs in 2021. Most of these IPOs were to be launched in December 2020, but for reasons unknown have been postponed.
|IPO||Tentative Issue Size (in Rs Crores)*||Tentative Date*|
|Fincare Small Finance Bank||1,330||2021|
|Aditya Birla Sun Life AMC||–||2021|
*Both, the issue size and date, are tentative and might vary once the issue goes live in the markets.
IPOs are big events in the stock market for a reason. By investing in the right company, you stand a chance to earn good returns in the long run. But the trick is to identify the good performers from the rest. Investing in a good IPO involves deep research about the company and carefully reading through its prospectus. Equally important to invest in a new upcoming IPO is selecting a reliable, established stockbroker with strong credentials.
Opening an IPO account with trusted online brokers is hassle-free and allows you to manage your portfolio with zero brokerage, and account maintenance fees. You can open a Demat account on ICICI Direct, SAMCO, Upstox pro, and Fyers and start investing.