An Initial Public Offering or IPO is one of the trending investment options for those looking to invest in a company with high growth potential. IPO is a way through which companies go public.
In the article below, we shall learn about listed IPOs, the factors impacting their prices, the risks involved, and other aspects.
What are Listed IPOs?
As we know, an IPO is a method for private companies to raise capital for various needs like expansion, financing new projects, or paying off debts. Through the IPO route, the private company agrees to sell its part ownership to the public, thereby making the investors the shareholders in the company.
The IPO listing occurs once the allocated IPO shares have been credited to the investor’s demat account. It is the last step in the IPO process. After the IPO, the private company becomes a public company, and the IPO becomes a listed IPO, which can be traded in the secondary market (stock market).
The Attraction of Listed IPOs
Investing in IPOs can be a great way to add high-quality growth stocks to your portfolio. Let us look at a few benefits of investing in listed IPOs in India.
- Although the IPOs are listed, they are still at a very nascent stage. Hence, you can invest in a company’s early stage of its growth cycle.
- Companies listed on the stock market must showcase complete transparency and provide investors with updated financial reports, shareholding patterns, and other details. Listed IPOs are no exception.
- If there is a high demand for a certain IPO, it is most likely to be listed on the stock exchange at a premium. Thus, you may enjoy substantial gains if you have already invested in the IPO.
Factors Impacting Listed IPO Prices
The price of a stock is the key aspect that enables you to decide whether to buy a stock. Certain factors impact these prices. Factors that affect an IPO’s valuation may differ from those that affect a listed share price. Let’s look at both the scenarios.
Factors affecting IPO valuation:
- Financial performance of the company
- Potential growth rate of the company
- Business model
- Demand for the stock
- Number of stocks issued
- The current market price of similar stock listed in the market
- Market trends
Factor Affecting the Price of an IPO after Listing:
- Demand and supply of the stock
- Financials of the company
- Economic and political factors and government regulations
- Dividend declaration
Risks and Considerations
Investing in a recently listed IPO can be exciting as it offers immense growth opportunities. However, there are risks involved.
- Listed stocks, including IPOs, are subject to market volatility, which may cause the share prices to fluctuate.
- There have been multiple instances where the IPOs failed to sustain the initial excitement, leading the stock to underperform.
- Due to the limited historical data, assessing performance can take time and effort.
- Economic conditions, market trends, and sentiments may also impact returns.
Regulatory Framework
Securities and Exchange Board of India (SEBI) is the prime body that oversees the regulatory framework and monitors the entire IPO Process. The procedure is outlined by The Companies Act, 2013, and the SEBI (Issue of Capital and Disclosure Requirements) Regulations.
Companies must file a Draft Red Herring Prospectus, which SEBi first reviews and, after approval, is available to the public.
SEBI sets rules and guidelines and ensures adherence to these regulations.
Conclusion
IPOs in India offer excellent investment opportunities for long-term investors and traders. However, it’s crucial to research thoroughly, consider potential losses, and be aware of uncertainties before investing in IPO shares.
Reference Links:
- https://www.icicidirect.com/ilearn/stocks/articles/what-is-ipo-listing
- https://www.chittorgarh.com/book-chapter/ipo-listing/27/#:~:text=IPO%20listing%20is%20a%20process,they%20can%20be%20publicly%20traded.
- https://groww.in/p/what-is-ipo
- https://www.indiainfoline.com/knowledge-center/ipo/ipo-process-in-india
- https://www.investopedia.com/articles/financial-theory/11/how-an-ipo-is-valued.asp#:~:text=Strong%20demand%20for%20the%20company,the%20story%20of%20a%20company.
- https://www.paytmmoney.com/blog/ipo-valuation/#factors
- https://www.nirmalbang.com/knowledge-center/ipo-valuation.html
- https://blog.shoonya.com/ipo-listing-price-impact-factors/
- https://www.angelone.in/knowledge-center/share-market/factors-affecting-share-prices
Also Read: How to Invest in IPO Like a Pro?
