Why IPOs are becoming a high-growth entry point for investors?

The Indian IPO market has witnessed a surge in activity over the past few years. The statistics tell a compelling story: India saw an unprecedented number of companies go public in 2024, with 260 successful IPOs across the mainboard and SME raising ₹1.67 lakh crore, which were also reportedly the highest number of IPOs in Asia. This marks a significant jump from the previous years.

The momentum continues, with a strong pipeline of upcoming IPOs in sectors like Fin-Tech, e-commerce and specialised manufacturing, among several others. Every few weeks, IPO news dominates headlines, with stock markets abuzz over fresh listings and their potential to deliver fast returns. This boom is driven by a significant increase in investor participation. With the rise of user-friendly trading apps and increased financial literacy, a new generation of retail investors is actively engaging with the market. The enthusiasm is visible in the oversubscription of many IPOs, with applications pouring in from across the country, highlighting a deep and growing interest in India’s equity markets.

What is an IPO, and why do investors care

An IPO is the process by which a private company transitions to a public one by offering its shares to the public for the first time. This enables the company to raise substantial capital from a diverse group of public investors, which can be utilised for business expansion, debt reduction, or to enhance brand visibility. For individual investors, participating in an IPO is an opportunity to purchase a stake in a company before it begins trading on a major stock exchange.

Retail investors, in particular, are drawn to IPOs for a mix of strategic and tactical reasons. The most compelling is the potential for listing gains, with a chance for the stock price to appreciate sharply on its debut, offering a quick profit. Beyond short-term gains, IPOs also provide a means to place long-term bets on companies operating in high-growth sectors. The strong brand familiarity of many companies that are going public also makes the decision to invest feel more accessible and personal.

The allure of the IPO lies in its unique proposition – it is a direct, early-stage entry into a company’s growth trajectory, offering a powerful avenue for wealth creation. As India’s economy diversifies and matures, the IPO market is opening up growth opportunities to a broader group of people.

How to track and apply for IPOs

Participating in an IPO has become a seamless, often digital process. The process of application is simple. You can submit your interest through your brokerage or banking app via a UPI mandate. This method blocks the application amount in your bank account and the funds are only debited if shares are successfully allotted. This removes the hassle of physical checks, making the process faster and more secure.

Once you have submitted your application, the next important step is checking your IPO allotment status, which confirms whether shares have been allocated to you and in what quantity. This is typically announced a few days after the IPO’s closing date and can be checked on the registrar’s website or through your brokerage platform. Understanding and following these steps is crucial for any investor looking to participate in the primary market.

Risks and rewards of investing in IPOs

Just like any other investment, it is important to know and weigh the risks and rewards of investing in IPOs. On the reward side, the potential for listing gains is a significant attraction. Many IPOs in recent years have debuted with a substantial premium, delivering impressive returns on the first day of trading.

However, the risks are equally important to consider. Oversubscription is a common issue, meaning demand far outstrips supply, leading to a low chance of allotment for many applicants. Also, the initial hype surrounding an IPO can sometimes lead to an inflated valuation. If the company’s performance doesn’t live up to the market’s expectations, the decline in stock value can lead to potential losses for investors who bought in at a high price. One must balance the risk and rewards.

How investors can stay ahead

Investors can leverage a wide range of tools and resources to track IPOs. Market apps, financial news portals and research reports from brokerage firms provide valuable insights into a company’s fundamentals, financials and valuation. Reading these analyses and understanding the business model before applying for an IPO can help mitigate risk. Staying abreast of market developments, understanding the sector a company operates in, and being aware of the broader economic trends are all critical for making a balanced investment choice.

Conclusion

IPOs are no longer limited to institutional investors. They are playing a significant role in shaping India’s capital markets, offering a source of funding for company growth and democratising wealth creation for a broad base of shareholders.

Today’s investor has all the information they need on their fingertips, right from tracking upcoming IPO opportunities, checking IPO allotment status, or staying tuned to the latest IPO news. The key is to stay informed and disciplined to unlock significant opportunities for their portfolios.

Note to the Reader: This article has been produced on behalf of the brand by HT Brand Studio and does not have journalistic/editorial involvement of Mint.