IPOs, or Initial Public Offerings, are a way for companies to go public and raise funds by inviting retail investors to buy stocks. Companies must submit detailed documents like the prospectus to get approval from SEBI, the Security Exchange Board of India. Once approved, the IPO date is set, shares are allotted, and then they are added to investors’ portfolios.
Application for IPOs can take place in a regular manner or through a HNI manner. Regular retail investors cannot subscribe over a certain limit; however, HNIs get a chance to subscribe to more shares and lots. Each application comes at a price which is a range set by SEBI. There is an upper limit and a lower limit to it. The maximum amount under a retail quota for a single lot of shares in IPOs is ₹15,000.
The success of making returns in IPOs is partially dependent on the subscription rate and the grey market price. The more a share is oversubscribed, the more chances it has to provide gains on listing. This happens when the company is good, has strong fundamentals, and people believe in its future potential to perform.
Let’s talk about how to build a portfolio that includes IPOs:
- Be aware of the news: Many startups that are going at tremendous rates look to provide exits to their investors. In this way, the final option is IPOs. Some of these startups have real potential, and retail investors are looking to add them. You can read the news to keep an eye on the potential companies that may file for IPO.
- Funds allocated for IPOs: Sometimes, you may not have the full bandwidth to check out for companies that may file for IPOs. However, you may have some companies from the list that have filed for an IPO. In that case, having a certain sum set aside for multiple lots can help you grasp the opportunity.
- Apply early: This is not a sure-shot way and has little chance of success overall. However, if you know the company well and believe in its potential, then try to apply early on.
- Post-listing purchase: Purchasing some stocks after the IPOs are live can be a decent strategy to still earn returns from this investment. Many times, the listed gains are low or even negative. In such a case, you can add them to your portfolio.
Other things you can do to verify the companies you are rooting for:
- Research
- Check financials
- Assess leadership credibility
- Understand key metrics
If you do the above, you can pick companies that are strong and have a better future.
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