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Business News/ Markets / Ipo/  IPOs: Mistakes to avoid when investing in public offerings. A checklist!
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IPOs: Mistakes to avoid when investing in public offerings. A checklist!

As per Prime Database report, in 2022, a total of 40 Indian companies raised around ₹59,412 crore via mainboard of IPOs -- which is nearly half of funds raised to the tune of ₹1,18,723 crore with 63 IPOs in 2021.

Being part of the primary market, IPOs are issued in two types such as 'fresh issue' and 'offer for sale'.Premium
Being part of the primary market, IPOs are issued in two types such as 'fresh issue' and 'offer for sale'.

For a company that plans to get listed and raise fresh capital, an IPO is the main route. But in the case of investors, IPOs are attractive as it gives early access to a company that is seen to have potential for fruitful gains and strong growth ahead. Another reason would be that IPOs are mostly seen to have low pricing then compared to when they get listed, however, this depends upon markets condition and a lot of other factors. However, not everyone can avail the best IPOs for future wealth creation.

In 2022, IPOs were on a whole different roller coaster ride due to volatile markets condition on the back of macroeconomic uncertainties, rate hikes, and geopolitical tensions. The IPO market witnessed a lacklustre demand in the first few months of 2022, and also, major startups that launched their IPOs corrected heavily post-listing. However, the second half of 2022 witnessed some traction and stability but investors' demand was volatile. Funds raised in IPOs during 2022 halved compared to the previous year.

Being part of the primary market, IPOs are issued in two types such as 'fresh issue' and 'offer for sale'. Under the offer for sale, selling shareholders participate where they offload a portion of their stake in the company that is going to become public. While in case of fresh issues, the company utilises the funds for future growth plans. That being said, IPOs pave way for the listing and trading of the company's securities on Indian markets.

With 2023 in, it is important as an investor to search for a valuable IPO that has the potential to give good returns ahead. Certain mistakes can be avoided when investing in the IPOs market.

Here is a list of mistakes that an investor can avoid when investing in IPOs as per Manoj Sharma, Co-founder &; Group Deputy CFO Policybazaar.com and Paisabazaar.com.

1. One shouldn’t think of investment in each and every IPO. An investor should plan to invest only in selected IPO which you think that the company has better prospects and valuation is not on the higher side.

2. Don’t invest just on the basis of information spreading on the internet. Sometimes these are managed by the companies and their consultants.

3. If during the first 1-2 days an IPO is oversubscribed then people generally believe that they should also apply. They assume that there is too much demand for the stock and it will open at a huge premium. This might be definitely good work by the company’s banker to the IPO but expecting a huge listing gain/premium might not be true.

4. Invest only those funds which are available for the next 1-2 years at least. Taking loans/funding for investment in IPO should be avoided.

5. There are few online websites that provide information for upcoming IPOs. They also spread some news/rumours on the prevailing premium before the listing. Investors should avoid taking investment decisions on the basis of such misleading and baseless news.

6. If the previous few IPO have given bumper returns then it doesn’t mean that the upcoming IPO will also give similar returns. Sometimes people hear news from their friends and colleagues that they invested in an IPO and made good returns. They start feeling like missing out on such opportunities and applying for the next upcoming IPO without going through the details and applying their brain.

7. Brand name: A familiar or popular brand name doesn’t mean that you will have a sure shot of listing gain/premium. You should check the valuation at which shares are being offered.

8. Multiple Demat accounts: sometimes people apply for an IPO through their multiple Demat accounts linked to the same PAN assuming that their chances of getting allotment will increase. This is not true. You should apply from one Demat account only as other duplicate applications will not be considered.

As per Prime Database report, in 2022, a total of 40 Indian companies raised around 59,412 crore via mainboard of IPOs -- which is nearly half of funds raised to the tune of 1,18,723 crore with 63 IPOs in 2021. The IPO market was at an all-time high in 2021.

Also, the data revealed that overall public equity fundraising also dropped by 55% to 90,995 crore from 2,02,048 crore in 2021.

On the main board IPOs in 2022, the largest public offer last year, which is also the largest Indian IPO ever in history would be of government-owned Life Insurance Corporate of India (LIC). This was followed by Delhivery and Adani Group's FMCG player Adani Wilmar whose IPO was at 5,235 crore) and 3,600 crore respectively.

In a note, Pranav Haldea, Managing Director, of PRIME Database Group said, "as many as 17 out of the 40 IPOs, or nearly half, came in the last 2 months of the year alone, which shows the volatile conditions prevalent through most of the year which are not conducive for IPO activity."

For 2023, Prime Database revealed that the pipeline continues to remain strong. 54 companies proposing to raise a huge 84,000 crore are presently holding SEBI approval. Another 33 companies looking to raise about 57,000 crore are awaiting SEBI approval. Out of these 87 companies, 8 are NATCs which are looking to raise roughly 29,000 crore.

According to Haldea, the momentum seen in the last 2 months of 2022 is likely to continue, at least for the smaller-sized IPOs. However, it may be a while before we see larger-sized deals, especially in light of the lack of sustained interest from FPIs.

 

Disclaimer: The views and recommendations made above are those of individual analysts or broking companies, and not of Mint. We advise investors to check with certified experts before taking any investment decisions.

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Published: 08 Jan 2023, 09:50 PM IST
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