2021 was kind of a blockbuster year for IPOs in India with companies raising a whopping Rs. 1,18,704 crore through 63 listings. This year also saw a huge retail demand for the latest IPOs with most of the IPOs getting oversubscribed and trading above the IPO prices.
But amidst all this, some confusion still exists between retail investors on how to go about Initial Public Offerings. One such confusion is regarding when to apply or invest in an IPO. Let’s explore IPO, pre IPO, and post IPO options and see what works for you so you can be ready for upcoming IPOs.
Table of Contents
What is an IPO?
An Initial Public Offering is the process of offering the shares of a private company to the public, making it a listed and public company. Companies resort to an IPO to raise money primarily. An IPO also gives private investors a chance to redeem their early investments and is considered as an exit strategy for founders and early investors to completely realise their profit from their private investment.
When to Invest in an IPO?
The most common way to invest here is during the IPO process. This can be done during a window after the company has announced a price range, after close examination of the company. The stocks will be sold as lots and you, as a retail investor, can bid for these lots.
If the number of bids and the number of lots are the same, every investor will be allotted stocks but when there are a greater number of bids than lots, it is considered an oversubscription and a lottery system is adopted for allotment.
Investing during this time period requires a great deal of research to understand the potential of the company and the sector in which the company is. Usually, a red herring prospectus, a mandatory regulatory filing that has all the details of the company, will help you with this.
Pre IPO Investment
Investors like you can also invest before this official window for an IPO. This can happen well before the proceedings before the IPO has begun but after the company has decided to go ahead with the IPO. During these times, the shares are sold at a price the company has decided. The one caveat here is that the shares, at this time, usually sold are in bigger lots and retail investors might not be always able to participate in this.
Investing before an IPO comes with its own risks but there is a higher potential for growth as well.
Post IPO Investment
Investing after an IPO comes with its perks. By this time, you have a clearer picture of the working of the company and could have a deeper understanding of the numbers and the potential the company has. But at the same time, you would be missing out on the growth the company could have when the IPO opened.
Conclusion
Investing in IPOs demands a lot of research and understanding about the company and the stock markets; and it doesn’t matter when you choose to invest. Thoroughly studying the company’s finances can help you a lot and a red herring prospectus can go a long way in aiding this process, especially when it comes to investment during and after the IPO period. Consult a financial expert and figure out what works best for you!