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IPO in India

IPO in India has been for many centuries. They have been coming in large numbers of late. Moreover, they are seeing over-subscriptions. This thus indicates that the appetite for IPOs is increasing as well as the markets. Investing in IPO’s looks attractive but it has many risks. We discuss the details of the IPO’s in this analysis. Read on!

What is IPO?

IPO stands for Initial Public Offering. Whenever a new company or an unlisted company wishes to raise capital, it invites the general public to buy its shares.

The proceeds of such a sale of shares are then used to buy equipment, expansion of the company, or repaying the loans by the company. The investors are repaid in the form dividends.

Is IPO investing suitable?

IPO is an attractive option. However, small investors should be careful before proceeding with such spending.

IPO's are designed by the promoter and their investment bankers and are generally overpriced. It can affect a small investor's budget massively and is not cost-effective.

What is an IPO in India?

A new company or an old one, unlisted on the stock exchange decides to invite the general public to buy its shares. Known as Initial Public Offering. Moreover, new machinery and other necessary costs are borne by the company using the proceeds of the IPO. Investors get dividends in return or can resell them when the share price is favorable.

Investors can thus buy the shares of a listed company through brokers. Known as buying from the secondary market. The primary market is where you buy the shares directly from the company when it launches its IPO. in India. Consequently, it is better than buying from the secondary market as when the company issues their shares at a cheap price, they will be listed at a premium. Thus, selling them will help you raise capital.


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Background of IPO in India

Dutch East India Company first offered its shares to the public in 1602. The IPO space has gained momentum since 2015. Moreover, private equity in 2015 helped raise over Rs 60 crore. This has been subsequently rising ever since. Also, the year-on-year spike has been huge- 844% over 2014 levels. 17 IPO's launched in the Q1 of 2021 so far, as per the EY India report. The analysts have predicted the IPO market to remain bullish for Q2 as well.

The same report also states that 20 companies have applied for the Draft Red Herring Prospectus, while 30 PE-supported companies have applied for an exit.

IPO in India

Why IPO in India Are Overpriced?

It is an important choice for any company going public. The company and its IPO team will do everything possible to ensure that they get the highest possible rate for every share they want to sell using IPO. It might appear greedy, but it is normal. Moreover, this is what every promoter will do.

Let's understand this with an example. If you want to sell your house or any property, you will thus be looking to sell it at a maximum price, right? You will not worry about the buyer's situation. Take it easy! It is normal to do so. Nobody wants to make a loss on their sale.

The same situation applies to a promoter of a company. They are selling the shares to the new investors(i.e. You). His primary target is to collect the maximum amount of money for his shares. So what he does? He sits down with his investment bankers and decides an issue price. With his primary target in mind, he will have a specific price range for his IPO.

So what happens now to you, the investor? You will probably be paying the amount of money the promoter likes to charge. This will be more than what is financially tolerable.

This is the nature of an IPO in India.

IPO in India

Why IPO in India come in Rising Markets?

It is a common belief that bull markets bring easy money. Consequently, the IPO merchants sell it as a dream to the investors. It is also a profitable option. However, oversubscription of IPO in India is a norm in rising markets.

Investors also face the fear of missing out on FOMO and this compels them to invest in IPO's. They thus invest in such IPO's in hope of making quick profits. But simply hoping is not going to make it a reality. For most, it is a distant dream.

We remember that a few days back, a story was doing the rounds on social media. HDFC Bank has completed 25 years. Its investors who had invested Rs 1 lakh, now had a return of Rs 8 to 9 crores over the 25 years. Amazon too had a share price of $18 per share in 1997, and now priced at over $3100. But such stories are few and far and the reality is different.

Not every swallow makes a summer, similarly, every IPO in India is not a guarantee of success. Most IPO's offer nothing substantial to the small investors.

IPO's cash in on such stories and hypes, to attract investors.


IPO's cater to the interests of the promoters and investment bankers. It is for a reason they ask you to read the offer documents carefully before investing. If you are an investor with a long-term view, you will be looking for established companies with good stocks in the already listed section.

There will be some individuals willing to invest in IPOs in India. They can go ahead with this only if they are willing to invest a small amount, on whose loss they will not be affected drastically. Indeed, there have been some good issues in the past that have given decent results. But the research on good companies is tough. Most IPOs are not suitable for simple investors and there is no reason for ordinary investors to second guess the promoters.

If you can find good stocks from the secondary market at reasonable valuations, it is worth it. For those investors who don't wish to invest in direct stocks, it is ideal to have a financial plan in place and invest according to your risk appetite and goals.

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