IPO is the new gaze amongst the GenX. Everybody looks for the new IPOs for the investment and even for speculation purposes. Year 2024 is going to be  the IPO season for sure. As we know, that Indian economy is growing at the fastest pace ever. In fact, it is well on track to become 5 trillion$ economy in the coming years. In this way, new companies do not want to get isolated. They are getting them listed and becoming public.

Now let’s understand actually what the heck IPO is all about————

What is an IPO?

IPO (Initial Public Offering) is a public offering in which shares are sold to institutional investors and public (Non institutional)as well. Certain quantitiy is reserved for big funds. It’s a remarkable milestone for a company as it transitions from being privately owned to a publicly traded entity. IPOs  provide an opportunity for companies to raise capital for growth and expansion while also allowing early investors  to realize gains.

Flip Side– Some or the other time companies do come with the IPO to offload their share i.e when the prime investor in the company want an exit from the company for some reason, then they choose the IPO path.  It may increase visibility of the company but not profitability.

IPOs carries an inherent risk of market volatility, uncertainty about future performance, and the potential for loss of capital.

Benefits of Investing in IPOs

Investing in IPOs offers several potential benefits:

1. Early Access to Growth: IPO investors have the opportunity to invest in companies during their early stages of growth, potentially benefiting from future appreciation in stock price as the company expands and increases its market value.
2. Diversification: Including IPOs in a diversified investment portfolio can provide exposure to a wide range of industries and sectors, allowing investors to spread risk and capture growth opportunities across different market segments.
3. Liquidity: Publicly-traded companies offer liquidity, enabling investors to buy and sell shares on stock exchanges easily. This liquidity provides flexibility and allows investors to react to changing market conditions or investment objectives
   

   Risks of Investing in IPOs

   Despite the potential rewards, investing in IPOs carries inherent risks:

   1. Volatility: Newly-listed companies often experience heightened volatility in their stock prices as investors react to news, earnings reports, and market sentiment. This volatility can lead to significant price fluctuations in the short term.
   2. Limited Information: Unlike established public companies with a track record of financial performance, IPOs may have limited operating history and financial data available for analysis, making it challenging to assess their prospects accurately.
   3. Lock-up Periods: Insiders, including company founders, executives, and early investors, are typically subject to lock-up agreements, restricting them from selling their shares for a specified period after the IPO. Once these lock-up periods expire, additional selling pressure may emerge, potentially affecting the stock price.

      The IPO process involves several steps, including:

      1. Preparation: The company works with investment banks, underwriters, and legal advisors to prepare financial documents
      2. Registration: The company files a registration statement with the SEBI (Securities and Exchange Board of India), disclosing information about its business, financials, management team, and risks associated with investing in its shares.
      3. Campaign: The company  embark on a roadshow to pitch the IPO to institutional investors, such as mutual funds, hedge funds, and pension funds.
      4. Pricing: Based on investor feedback and market conditions, the underwriters determine the final offering price.
      5. Trading: On the day of the IPO, the company’s shares begin trading on a stock exchange, such as NSE, under a ticker symbol chosen by the company.

Information about the Initial Public Offerings (IPOs):